Financial Health Problems Can Be Cured

By Allan Rotich Posted 04 May 2006 @ 06:43 pm EET     Print     Reprint     E-Mail     Comments

Nairobi (IBTimes.com) - Next to physical fitness, most of us are primarily concerned with our

There have been times when the mere mention of the word budget or cutback has sent me into fits. However, last week, after reading two self-help books on finance, I sat down and did a 10-year goal plan for my money.

The first was to write down how much income I wanted in the next two, four, six, eight and eventually 10 years. I was then to identify my overall financial goal. That was easy: “Experience financial freedom in the next 10 years where I can do whatever I want with my money, whenever I want and still have some cash minus expenses.”

The next steps are to state ways of managing my current income after analysing my income and expenses and then set goals with deadlines of how to achieve the desired state of financial health.

The underlying message in both books was the importance of cultivating healthy spending habits because even with a high income, savings and financial freedom could be a mirage.

The first healthy habit is to start a spending log. This exercise is eye-opening if you do it diligently. I have done it for a week and I have been able to tell where each coin disappears to.

One book advised that if a log is tedious, using a debit card for every purchase is a good option. The log is simply a way to begin to spot patterns and decide where you can cut back.

Reviewing the log without judgment is the next step, as what you have
done, in terms of your spending, does not matter yet. What does matter is that you get a firm hold on your expenses.

The next habit is to write down all sources of income. These lists of both income and expenses help in determining your priorities. The budgeting process begins here with housing and other fixed costs being
prominent on the priority list. The next step is to take a look at the conveniences that represent variable expenses like grocery shopping, clothing, movies, dining out. The greatest piece of advice given is to write the budget in pencil.

The reason is that writing in pencil helps one to remember that the budget is not cast in stone. As you live with it, changes will probably be made. I ended up including a ‘treat budget’ for any extra treats like attending a concert or buying a new pair of shoes.

Setting a saving goal and making it something specific and important is
the next habit. Writing the goals down and even carrying them around in a little notebook or on your cell phone helps one to refer to them easily and remain focused.