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Location: Home > KeySolutions EAP > E-Zine Archive > Financial Stress Finding Ways Out of Financial StressFinancial concerns can impact many of our core values and our sense of worth. This can be seen in the way we view our level of independence, our guilt over spending, an ability to support a family, a measure of how successful our friends and family view us, a means of control, and much more. Mismanagement can cause individuals to be distracted, interferes with relationships, contributes to depression, and keeps people from getting what they really want and need in life. Positive money management is a process. There are many techniques that can impact the establishment of a solid budget, allow for savings, reduce monthly expenses and allow individuals to be prepared for emergencies. If you got lost on vacation, you would attempt to find out several things: 1)where you are, 2)how you got there, 3)where your destination is compared to your present location, and 4)calculate how to get from where you are to where you want to be. If you are lost financially, good financial planning would be to go through the same four steps: 1)where are you financially {what is your financial position - net worth}, 2)how did you get there {what happened to your income - cash flow}, 3)where do you want to be - goals}, and 4)how do I get form here to there {planning}. Where Are You?Do you know how much you would be worth if you sold all your possessions and paid off all your indebtedness? Financial people rely on a balance sheet to calculate financial location (net worth). Net worth is calculation of wealth - comparing your assets (what I own or is in my possession) to your liabilities (what I owe or must return). How wealthy are you? How Did You Get Here?Once you've determined where you are (net worth), you can calculate how you got there (cash flow). On a form known as a Cash Flow Statement, you can record your income and where it goes. There are three common ways to record your expenses:
To get an accurate accounting of your expenses, record every penny spent for a month. This may seem like a tedious and often depressing exercise, but it is vital to understanding your finances. Don't alter your habits or delay payments intentionally to reduce your expenses. Keep in mind, some months have their own peculiarities - January, car insurance; February, Valentine's gifts; April, Taxes, etc. When you record the amount of money spent, also jot down what it was used to buy. At month's end you can group the expenditures by type. Start by using the following categories: food, auto, clothing, housing, gifts, and miscellaneous. You can create categories to fit your lifestyle, but limit the number of categories to no more than nine so thy do not become too specific (or too numerous). Remember, normal in America means BROKE. Seven out of ten families live paycheck to paycheck. Eighty percent have less than $20,000 worth of financial assets. To be in control of your finances, you must be ABNORMAL. A second way of looking at cash flow involves an analysis of the necessities of life, looking for spending excesses, which might be trimmed. It's funny to think of cutting back on necessities, but are 15 outfits of clothing really necessary, or are 3 bedrooms for 3 people a necessity? The Department of Agriculture estimates that one-half of meals eaten are not prepared at home. Out of necessity?? What are your necessities? Are they really necessities, or are they wants? Questions like these get a person thinking about their philosophy of life in an unexpected, subtle way. Once net worth and expenses are calculated,, the next step in financial freedom is a budget. In setting up a budget, several methods can be used to help you stick to your plan. A variety of controls include:
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