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Emergency Financial Planning: Part 1

June 2nd 2008 20:38

finance, unemployment, planning, profit, success

Living in America is not as easy as it used to be. Inflation; the rise of the general level of the price of ‘goods and services’ over time, rose 2.9% last year and is expected to reach 3.9% this year. Unemployment has crept up from 4.5% to 5.0%, leaving 7.6 million people jobless, as opposed to last year’s 6.8 million. Oil prices are shamelessly skyrocketing and the housing market is stressed. All this leads to decreased consumer spending, which has an equally negative effect on the economy.

Economists across the board are pessimistic for 2008 and believe that there is large potential for a boom in job-loss. That means that now is the time to do some creative financial planning, so that when the bad times hit, we will be ready. Prevention is undeniably better than cure.

Having a Positive Outlook on Personal Finance
The first thing you need to do is stop, take a deep breath, look in the mirror and say, “I’m going to be ok.” A positive frame of mind and avoidance of self-blame are the most important factors in improving your situation, whether financial, emotional or even sexual. Life happens, bringing with it the good and the bad. Sometimes you get to enjoy the better times, sometimes you need to work hard to weather through the unfortunate times. That’s life and you’re a strong, intelligent and capable person.

Creating A Powerful Financial Plan That Will Prepare You For The Future: A Realistic Forecast
The secret of personal finance is being realistic. Many financial planners will unabashedly advise you to stop smoking after you’ve been buying a pack a day for the last 30 years. Others will explain how you’ll need to avoid higher priced food items like meat and fish, or simply stop going out to restaurants and bars with friends and family.

While living like a pauper hasn’t ever hurt anyone’s bank balance, it never did any good for their self-esteem or the way others viewed them. Becoming an obsessive savings-extremist or failing while trying to become one are just as destructive to your lifestyle and happiness as being up to your ears in debt. Friends and family should never be viewed as unfortunate expenses, just as they shouldn’t be viewed as potential sources of profit. The trick, as any mother will remind you, lies in finding the golden balance.

But just as ridiculous saving tactics should be avoided, beware of setting lofty and extraneous financial goals. The desire to lead a lavish lifestyle is a well-marketed death-trap. Believing that you’re fast on your way to becoming a millionaire is an excellent mental foundation for getting you to spend like you’re already a millionaire, which you should probably know is the universal nemesis of financial planning. There is nothing wrong with setting reasonable, positive and attainable goals, even thoroughly optimistic ones. Leave the grandiose hallucinations to the people who next year will be wondering why it all went wrong.

Step 1: Assessment
Now that you’ve had ample time for self-encouragement while looking into the mirror, all the while admiring your attractiveness, it’s time to look again and, using your newfound total lack of shame, be totally honest about your current financial position. Basically, how much do you have vs. how much do you owe. Oops… the mirror might not be looking so good anymore, but don’t turn away. This part of the process is critical, because like the golden rule states above, it gives you a realistic foundation on whose stability you’ll be able to make the right choice when choosing a direction in which to go.

For example:
“I owe $5000 in credit loans which I’ve been late for recently, and I still need to pay bills for this month. i.e. I need to do a measured savings lockdown, work really hard for a month or two and pay off the debt asap.”
Or…
“I’ve been ok about spending and have a few thousand saved in the bank. Maybe I should consider my investment options or even a timed savings account.”

So, it’s all nice and good to advise someone to do a self-assessment, but how is it really done? Please read Part 2 (to be released June 5th, 2008) for an easy to follow, in-depth step by step guide.

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Managing Finances During a Job Transition

June 1st 2008 00:21

There is no shame in being unemployed. It happens. As a matter of fact, all of your successful friends have experienced the situation at least once, if not many times. Think about it, during his election campaign, even the president is unemployed. So if he’s allowed to be, so are you.

You’re mental state is so important in passing through a transitional period because it dictates your actions. If you get depressed, you are less likely to invest in self-development and seeking out opportunities and more likely to waste your financial and psychological funds on comfort activities and foods.

This is an extreme no-no. Unless you have made the decision to take a well-deserved holiday, you should allow yourself as small an amount of down-time as possible. Down-time, by nature, leads to more down-time, especially when you don’t have something that requires your urgent attention waiting at the end of a specific timeline.

The question is thus begged, “If I am in a productive frame of mind, how do I manage my finances while searching for a new job?” Well, it all depends of how much liquid assets you’ve accrued and how long you expect to be unemployed.

The basic law of economics dictates in shining simplicity: “Don’t spend it if you don’t got it.” So obviously your first priority is to do a quick situation analysis. Ask yourself these two questions.

1. Will my current balance cover my bills and repayments (mortgage, credit card, etc.) for the next while

2. How long will my current cash supply cover my basic living needs

Having now considered your existing finances, you need to ask yourself, “What do I want to do with what I’ve got?” If you’re blessed with a large capital base and low fixed costs, you might be able to afford a relatively affluent lifestyle. Regularly going out with friends, dining at extravagant restaurants, these might be viable options for you and your social situation might demand these activities, but they’re far from advisable.

Even if you have a good amount of cash reserves saved up, using them on anything other than a “once-a-week treat” is a common and sometimes fatal mistake. Firstly, going out on the town too much puts you in “holiday mood.” Like we said, your state of mind is the most important thing because it dictates your actions. So if you feel like you’re on holiday, it will come out in your efforts in looking for work, and especially in interviews, leading you to losing the jobs that you really want.

Instead of dining out, tell your friends that you finally want to learn how to cook and eat at home. Instead of going for weekends away, tell your buddies that you need to spend quality time with your partner and family, and then use this time to look for work.

Another common mistake is to simply put everything on credit, believing that you’ll pay off your costs with your next job. While credit is wonderful for paying bills, it hides your actual costs. Pay for everything in cash and you’ll be forced you to keep an eye on your actual bank balance.

The secret is to keep your chin up, but your head down, and in no time, you’ll be getting to exactly where you want.

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Personal Finance: Costs - Needs vs. Wants

June 1st 2008 00:18

These days it’s ridiculously difficult to clearly define what you need to buy vs. what you want to buy. From all sides, there is a deafening thunderstorm of friends, life-partners, children and family members explaining in varying degrees of talking, shouting and screaming exactly how you should be spending your money.

There is the latest piece of technology that all of your friends have, new phone plans that you should really invest in, a night out at a moderately priced bar that wasn’t so moderate, toys and toys that never get used for your kids and a new part that your car desperately needs…

Heaven help us, how is anyone supposed to make head or tail of what can otherwise be termed as “a chronic nauseating endless head-ache of costs and expenses?”

Well, to our great relief, it’s really not so bad. If you can succeed in drowning out the drone of advertising, demands and suggestions offered by everyone else, you can effectively prioritize where to invest your earnings.

Lets walk through 5 ways to identify if you really need something or if you just want it:

1. Does this keep me alive?
Shelter, heat, water, food and clothing are your basic five. That roughly translates in today’s language as rent, electricity, gas and water bills. Food and clothing are tricky ones, because there are restaurants and designer clothes vs. simpler alternatives.

2. Can I do anything else if I don’t have this?
Certain items enable you to be productive in other parts of life, and if they’re not working, everything else comes to a stop. For those people who live far away from where they work, this means their car. For people who work from home, this might mean their computer. Again, this can get tricky when you start believing that you need the most advanced tool in order to go forward, but like food and clothing, you usually only need something simple in order to succeed.

3. Will this help me achieve my goals and advance?
Don’t think for a second that advancement is not a need. In order to survive and compete in an ever changing world, you need to constantly re-evaluate yourself and acquire new skills. A volatile market might lead to you needing a new career, so you always need to have something up your sleeve.

4. Am I saving something?
The rainy day will eventually come, and when it does, you’ll need something saved up.

5. Can the people close to me survive without this?
Of all the questions, this is the hardest. When you’re single and without children, everything is quite simple. You cover your own way and worst comes to worst, you suffer a bad month of $2 rice and vegetables. But when you’re in a serious relationship, are married or have kids, things get complicated quickly. Diapers, presents, kitchen appliances and knick-knacks are only the tip of the ice-burg. Truthfully, most things here fall into the “want” category, but make others happy. Even though this is important, it’s usually not a need, so be careful about the first 4.

Balancing your expenses is tricky business. It’s sometimes confusing and always important. But if you can prioritize where your money needs to go today, you’ll find that you can spend it where you want to tomorrow.

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Credit Cards: Hidden Charges and Costs

June 1st 2008 00:15

Of all the necessary evils that threaten our financial well-being, credit-card issues easily take the top of the list. Not only do you have to worry about other people fraudulently using your credit details, you further have to be on guard against your own credit card company slicing off neat penalties that you weren’t clearly informed existed.

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