The Benefits of Being Financially Aware

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There are many reasons why you might want to write a financial plan. You might want to get a better grip on your own personal finances, or you might be thinking of starting a new business.Being on top of your finances will reduce stress, make you feel more confident and make you far less likely to unwittingly fall into debt.  With that in mind, here are the benefits of being financially aware.

Understanding Your Finances

The first thing that you are going to want to do is fully understand your finances. How much money is going in and how much is going out. What are you buying and what are you being paid for. A good thing to do is to start by making a list of how much you make and what you spend money on side by side. You don’t need to worry about how much each of these are at this stage, but doing so can save you time in the future. The idea here is to understand both sides of your finances and make sure that nothing is forgotten about. If you are running a business, then you should probably look up what net working capital is defined as, as this will helpful in the future. Understanding what you are spending money on will help you to see which purchases are unnecessary and which aren’t. You will see what is important and what isn’t. Make sure to do this step before jumping ahead.

Forecasting

Forecasting is planning out what you expect to make and what you expect to spend money on. It is often best done on an Excel spreadsheet, but it doesn’t have to be. What you want to do is put all of the spending and income that we mentioned above and work out the difference between them. You will want to do this for each month of the year. There are templates that you can find online that will help you to structure your forecast. Doing this will show you exactly how much money you have left after buying all the things you would normally buy in a month. It is always worth putting money into savings and having a space for this in your forecasting. Doing this will give you peace of mind that you are financially stable and let you plan for larger purchases such as saving money for a holiday or saving for a house. This will let you plan and let you know how much money you will have throughout the year. 

Budget Monitoring

Budget monitoring is like an extension of your forecasting. Instead of planning what you are going to make and spend, you are putting your actual income and purchases down on paper when they happen. If you make a food shop, then you mark that in the cost collum. If you do some extra work and get paid some more this month, then log that income. This way, you will be able to spot in advance if you are likely to go over budget for a month before it actually happens. If you follow all of these tips, then you can avoid debt and live a happier life.