Tuesday, 8 March 2011

How to... assess your own financial state of affairs


News abounds of potential interest rate rises, property slumps, price increases, business failures and job losses. Threats of redundancy are looming over many, unsuspecting heads. It seems to be doom and gloom wherever we look. (Unless we happen to be top bankers or trade wisely in the city.)

I read, with interest, that the resilient Brits are fighting back in the only way they know how - by acting like the proverbial Scots and tightening their grips on the purse strings. I mean no offence by this!

As a native Scot, born and bred, I like to think of myself as thrifty, even frugal to the point of no return. But this has, for many years, been perceived as meanness. It's almost as annoying as describing yourself as 'home-based' with regards to work, then a certain sector within society jumps to the conclusion that it means being sat at home sponging an 'income' from the Welfare State! It simply is not true! If it was true, I wouldn't fancy my chances for longterm financial happiness, me being a mere home-working 'Jock' and all!

Frugal living does NOT mean you're mean! It simply means that you are careful in your spending. I like to think that 'frugalers' have the intelligence to budget and have the will power to refrain from making rash money decisions that could affect their longterm financial goals.

Sadly, many don't find frugality until after they've hit the fast road downwards. Many have already been sucked into debt traps or plied with false hopes of earning fast fortunes in far from lucrative (non) investments.

There are money pits everywhere, glossed over with finery that can beguile even the most money-savvy minds. In some instances, there seems to be nothing more than a filament separating frugality from blind stupidity. So how do we tell the difference? We budget wisely. We aim for a debt free future. We plan. We experience the results and learn by those experiences.

Suggestion: calculate a well-informed estimate, don't articulate a 'guesstimate'.

Step 1:
FORGET about how much money you have coming in for a moment. Instead, sit calmly (and patiently) with your entire household and get everyone to write down every single item that they spend money on - use credit card bills, bank statements, receipts and houshold bills. Count it all up for everyone in one lump sum. If it's a weekly amount, divide it by 7 and then multiply it by 365 - use a calculator if you must. If it is monthly, just multiply it by 12.

Step 2:
THINK long and heard about how much you possibly spend on non-regular items, like car servicing, MOT, tax, holidays, gifts for family and friends, socialising, pet care, healthcare (prescriptions, dental treatments etc), entertainment, beauty products, haircuts, hobbies, cigarettes, alcohol etc, etc, etc... this list can be extensive.

Step 3:
ADD totals from steps 1 and 2 together - this can be a scary number!

Step 4:
ADD up the total household income.

Step 5:
DEDUCT the total spends from the total income - this can be an even scarier number!

If you are fortunate, you'll see how much you have left over to kickstart a sensible money plan in the event that any one of your sources of income stops. However, more often than not, this is NOT what seems to happen. More often than not, the household suddenly realises that there simply isn't enough coming in to absorb any major dip in the income.

That financial dip could be for any reason - a pregnancy, illness, redundancy, a wedding, a funeral, a house move... even a major repair bill can upset a fragile balance, leaving families unable to meet regular payments. But how can anyone foresee the future?

The simple answer is that nobody can!

Big events will occur, the cycle of birth, life, death will continue, Christmas, birthdays and anniversaries will come around every year, prices will fluctuate, jobs will come and go and life will carry on regardless. No matter who you are, how much cash or debt you may have or what you do, you ARE part of that cycle. It's the nature of life, itself, so go with the flow.

Inflation is high, interest rates are low - every penny in the bank could be losing us money. Inflation can fall, interest rates can rise, debt levels can reduce or increase accordingly. Unfortunately, we aren't living in a country where our national leaders are leading by example, not by a long chalk! As far as balancing the books is concerned, but without getting into a political debate, the current state of affairs has been with us for a long time. Truth be told, it will probably be with us for a great deal longer.

Someone knew it was coming.

Someone possibly knows that worse is still to come.

Someone might tell us that things will get better.

Someone might spin a great story, create a great diversion or distract our attention.

Whatever happens, the problem of dealing with insufficient money remains real!

Don't follow in the footsteps of the British Government, take control of your own financial destiny and act now, even if it is only one penny at a time. Protect your own assets, no matter how much or how little you might perceive them to be. Keep your friends close and, as they say, your enemies closer.

If a bank debt is costing you 10p in the pound, pay them at least 11p plus the necessary contribution to the overall balance. Get rid of it as quickly as possible.

If a credit card debt is costing you 20p in the pound, pay them at least 21p plus the necessary contribution to the overall balance. Get rid of it as soon as possible.

Learn to see clearly, so you can distinguish true needs from unrealistic wants. Don't be duped by marketing and advertising, they're merely trying to convince you that life is meaningless without the goods or services they are plying. Basically, they want your money and few care how they get it or if you can afford it.

For oodles of ideas about how to help cut costs, earn a few pounds extra or even just to make savings on your grocery budget, join us FREE in the Frugaldom Forums.

We're all here for the same reasons - to kill debt, make savings, share experiences with like-minded others and, most importantly, to ENJOY LIVING THE FRUGAL LIFE.

Yes, sacrifices need to be made, but being able to share the highs and lows of your moneysaving, debtbusting exploits is something we can all appreciate.

We're all in the same boat, but don't worry, IT'S AN ARK, and it's one that won't be going down anytime soon.

See you there, even if you're wallet's bare!


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