This saying, usually attributed to management consultant Peter Drucker, sums up perfectly to me the absolute foundation of financial planning.
Many people think that they haven’t got enough disposable income to save and give up on a financial plan before they even start. In fact, we can all probably rein in our spending and start some positive habits which will get us on the right track for a sound financial future.
The first step is to spend less than you earn so the excess can be put first towards paying off debt and then towards saving. This is where measuring plays a key role. The simple act of paying attention to your finances and where your hard-earned cash is going will mean that you are more thoughtful and cautious about what you are spending it on.
There’s nothing quite like seeing it written down in black and white to ram home just how much a month you are spending on buying coffee on the way to work, on after-work drinks with your colleagues or on your shoe fetish. Each individual decision may seem minor but when you add up all those supposedly inconsequential purchases, you’ll start to see patterns of possible overspending and areas where you can cut back in order to start saving. Many people find that when they do this, they automatically make small shifts to curb expenditure almost without thinking about it.
That’s why the first step to getting your finances in order is to track everything that you spend. You can do this on a simple spreadsheet by listing your regular costs each month such as mortgage, utility bills, school fees and so on and then creating categories of expenditure for your variable expenses such as food, eating out, entertainment, clothes, gifts. If you’re more tech minded, an app might help. There are dozens of apps to choose from, many of them free – you can find a list of suggestions here.
Another aspect of measuring which is key to good financial management is the making and measuring of goals. You need to set specific and achievable financial goals which you can track to see how you are doing. If you are right at the start of getting your finances in order, your goals could be to pay off your unsecured debts within a year or to save a specific amount towards a deposit on a house within a realistic time frame.
The sense of achievement as you reach these goals should encourage you to carry on making new goals towards having a water-tight financial plan which has all bases covered including life insurance, health insurance, critical illness cover, education plans for your children and a healthy retirement fund. All that can seem rather overwhelming tackled all at once but if you approach it one step of a time there is no reason why you can’t secure yourself the financial future you want. It all starts with measuring…
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