Most of us, when we hear the words “budget” and “financial management” get an uneasy feeling in the pit of our stomach. We relate the process of budgeting to going “without”. First of all let me be clear, managing your cash flow and having a good financial plan is anything but having to go “without.” Actually, proper financial management gives you the ability to not only provide for your financial needs with peace of mind and stability, but also lifts a great burden off your shoulders.
On the flip side, when you aren’t willing to budget, and don’t have a long term plan for the future, you are more likely to spend frivolously on unnecessary items that put you in an undesirable financial situation down the road. Another misconception about having a budget is that it’s complicated. This couldn’t be further from the truth. There are numerous websites and apps out there to assist in keeping track of income and expenses that make keeping a good budget very simple. Even an Excel spreadsheet can be used and modified as needed.
Understanding the importance of financial management often times comes from misuse of money that causes a painful experience. At that point, we find the need to change our outlook on how we interact with money, and the pleasure or pain we derive from it. Just like healthy eating or exercise, in order to have the desired results, typically you’re changing lifestyle patterns. The same goes for financial management. With any lifestyle change it’s usually uncomfortable at first, but with persistence and practice, it gets easier.
And then you start to see results. It even becomes enjoyable, and before long you can’t imagine life any other way.
Having a good financial plan in place allows you to pre-allocate finances so that you can leave room for revision as your cash flow comes in. For instance, events that come around once a year like birthdays, anniversary, Christmas, and property taxes, are now paid for as part of your monthly expense budget, instead of being paid for by borrowing methods-like credit cards.
Here are some statistics about the average American family that may be of interest:
• The average American credit card debt is $15,252.
• In 2010 (the most recent year for which this data is available), an average of 14.2% of family income went toward debt payments, though 13.8% of families had 40% or more of their income going toward debt payments. Someone with a $5,000 balance with a 16% APR who makes a $125 payment each month would need 4.8 years and $2,000 in interest to pay off the balance. With the same balance and payment and a high 25% APR, the debt would take over 7 years and $5,800 in interest to repay.
• A Dunn & Bradstreet study found that people spend 12-18% more when using credit cards than when using cash. And McDonald’s found that the average transaction rose from $4.50 to $7.00 when customers used plastic instead of cash.
So what does financial management have to do with Paradigm Life? After all, our business is life insurance. Actually, due to the way Paradigm Life approaches life insurance and the utilization of cash, individuals we work with are advised on how to use the money already passing through their hands more efficiently. Using cash value from a properly structured life insurance policy to pay off credit card debt or make purchases that may have otherwise been financed, can increase your cash value and your death benefit simultaneously.
Because you are acting as both banker and borrower, it can reduce the cost of interest by a very significant amount. This in itself is very exciting! But when you take into consideration the fact that by financing yourself you are also accumulating the seed money for an investment fund, it becomes exhilarating!
Again, there are numerous financial management websites and applications that can assist you in creating and keeping a personal/family budget. With these media tools, you can enter bank information which allows you to see how much you have in your account, and credit card information which allows you expense tracking in real time.
You can input your utility expenses so that, at a glance, you can look at a history from months to years back. Also, you can enter your day to day expenses so you can see where your hard-earned money is going. These valuable budgeting tools can help you make wise financial corrections to avoid becoming part of the dreaded statistics mentioned above.
Noah Kelsch
Here are some simple yet effective websites and apps to choose from:
Websites:
www.Mint.com
www.budgettracker.com
www.vertex42.com/ExcelTemplates/budgets.html
Phone Apps:
Mint – Intuit
Mvelopes – Finicity
Expense Manager – Bishinews
