Mar 04 2013

Personal finance planning process


     Many people say that they do not have enough money for these or other needs. However, most of these people can not say exactly how much money they receive per month and how much money they spend. People know that they do not have money, but why are they not enough – do not know. To avoid this situation, each person can recommend keeping track of expenses and incomes. People will know how much money it lacks and why through this accounting. We will talk about personal finance planning process in the present article.

First of all you must define the structure of your incomes. Average income structure can be followed:

  1. Wages
  2. State social assistance and pensions
  3. Interests
  4. Returned deposit items
  5. Gifts and grants
  6. Received loans and credits
  7. Repaid loans and credits

Consider each item of income more:

1. Wages

Wages are the main source of income for most people. We need to clearly define the wages and terms of its receipt for income planning.

2. Social assistance and state pensions

Social assistance from the state may receive poor and some other categories of citizens. Special social authorities determine the amount of social assistance, as well as the terms of payments. Social assistance may be permanent or temporary for a specified period.

Pension (retire) are obtained mainly by the people who have reached retirement age. Pensions can be paid from state or non-state pension funds. The pension often depends on the amount of pension contributions and length of work experience.

3. Interests

You get interest if you have any deposit in the bank or have someone money loan. The amount of interest depends on the conditions of deposit program or the conditions of the loan, including the interest rate and the amount of deposit (loan).

4. Returned (repaid) deposits

You get money from deposit if you have some deposit in the bank and its term expires or you want to repay deposit prematurely.

5. Planning proceeds from gifts and grants can only be if you are involved in a serious grant programs or just know that you will receive a gift.

6. Received loans and credits

This item of income, I would advise to plan at the very end. Credits and loans worth getting only if you really do not have enough money at the moment, but you will have them in the future. Separately, we need to consider cases where we plan to get a loan to buy a car, real estate or other capital purposes.

7. If you lent money to someone and you will have their back, this amount you need to plan at the item repaid loans and credits.

You can clearly plan your total income, if you will prognosis income for each of the above points.

Let’s consider the cost structure now. The basic family expenses include the following expenses:

  1. Food expenses
  2. Expenses for the purchase of clothing
  3. Utilities and accommodation expenses
  4. Communication costs
  5. Expenses for consumer and public services
  6. Transport Costs
  7. Health care costs
  8. Expenses for education
  9. Financial expenses
  10. Savings
  11. Leisure Expenses

Consider in detail cost items of the family:

1. Food expenses

These costs can be determined by analyzing the average cost of food in the last few months. Food expenses remained stable on average.

2. Expenses for the purchase of clothing can be predicted based on your needs in clothes. Climatic features and season must be considered when planning the cost of clothing.

3. Utilities and accommodation expenses

These costs consist of the cost of utilities (electricity, water, gas and heat, garbage, etc.) if you have your own house or flat. If you are renting some apartment amount of these expenses will include rent. If your occupational lease provides a separate payment of utility services, these costs will include both utilities and rent.

4. Telephone expenses, mobile communications expenses, Internet costs, cost of cable TV belong to the communications costs.

5. Expenses for hairdresser, manicurist, plumbing, electricity and other costs belong to the consumer and public services. These services are regular, but not as frequent as telecommunication services. Therefore, the amount of public services can be planned through the analysis of these costs per year on average.

6. Transport costs

Transport costs are divided into two groups – the cost of your own transport and the cost of public transport.
Costs for own transport include costs for fuel, maintenance and repairs costs.
Cost of tickets and frequency of use of transport determine the cost of public transport

7. Health care costs are often determined by the amount of health insurance you have to pay monthly. If you pay for health insurance once a year, amount of this costs you need to schedule in the month when payment time comes.

8. Expenses for education

You need to plan educational costs if you study or study your children. Educational costs are determined by the educational contract. The amount of these costs is mostly stable and it must be paid within clearly defined time.

9. Financial expenses

Expenses for paying interest on loans and borrowing costs, costs for the service of your bank accounts, as well as the cost of acquisition of shares or other securities are included into financial expenses.

10. Savings

Saving it is the amount of money that you leave without using so it can be used later on some important objective. Saving money is a very important topic, which will be devoted to a separate article on our site.

Savings helps to accumulate funds for large expenses, they also allow you to avoid a deficit, if your revenues decrease.

We can recommend making savings in the amount of not less than 5% of your monthly income.

11. Leisure Expenses

This group of expenses includes all expenses for visiting of different places of entertainment, costs of travelling and the cost of your hobby. These costs should be planned at the last turn for the rational planning a family budget.

This means that the cost of entertainment should be planned if you have enough money to carry out all other expenses.

The family budget you can make using next table:

Personal finance plan

Basic balance is a difference between total revenues and basic costs. Savings and costs of entertainment can be planned only when basic balance is greater than zero.

Total balance is a difference between basic balance and the amounts of savings and costs for leisure. Total balance at a rational finance planning process must be positive or zero.

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