The following is a guest post from my friend Ethan. Given the retirement crisis, learning how to handle setbacks in personal budgets is relevant to many. I hope you find it useful.
Effective budgeting typically lies at the core of a successful, long-term financial strategy. Whether it is a relatively informal register of income and expenses, or a detailed, categorical log of household cash flow, keeping track of your money increases financial security.
Although well-executed budgets lay the groundwork for financial success, tracking income and expenses doesn’t necessarily guarantee trouble-free finances – even the best budgets can fall apart. Fortunately, temporary financial setbacks need not send you into long-term financial distress. On the contrary, financial challenges can be used as learning opportunities, helping to fortify your personal financial understanding.
If you are facing financial difficulties, look to your personal budget to help you get back on track. Though a fleeting financial issue may slow you down, the following strategies can reinforce your finances, before lasting problems take hold.
To at least some extent, spending is at the heart of most financial problems. And since successful budgets are concerned with balanced income and spending, evaluating outgoing expenses is a prudent starting point for personal money managers.
Individual spending patterns are most easily analyzed when expenses are grouped by area. Housing budgets, for example, account not only for rent or mortgage payments, but also insurance costs and other household living expenses. By isolating and monitoring spending in narrow categories, it becomes easier to single-out purchases you may be able to do without. Limiting these discretionary buys may be all that’s needed to reset spending to manageable levels. Once your finances are on track, impose a waiting period before you follow-through with non-essential purchases. Even a 12-24 hour cushion gives you time to think about each purchase, with an eye toward value and necessity.
Expand Earning Opportunities
When spending restraint is not enough to correct negative financial circumstances, look to your personal income for relief. Expanding your take-home pay can carry you beyond a short-term problem. And when your cost of living consistently challenges your ability to make ends meet, bringing in more money may be the only way to keep-up, without making sacrifices. When money is tight, try these short and long-term remedies for cash flow problems:
Freelance Income – Depending upon your skill set, freelance work may be available to help expand your earnings. Writers, graphic designers, photographers and other specialists are in-demand, serving the World Wide Web, as well as print publications and other content outlets. A brochure web-page is a helpful promotional tool, which can be crafted with minimal investment. Starting with this basic online presence, your contact information, samples, and perhaps a related blog are easily made available to prospective clients.
Promotion/Raise – If your weekly paycheck falls short of meeting your personal financial goals, use a promotion to expand your salary. Elevating earnings, without changing employers, may call for retraining or continuing education, but the extra effort pays-off in the form of higher pay. Your supervisor or employer’s human resources department are well-equipped to guide you toward a promotion – as long as you are an employee in good standing with the recommendation of superiors.
Change Jobs/Employer – If your current salary isn’t paying the bills, consider changing to another vocation or employer. The short term consequences may include a difficult financial transition, but for consistent employment and higher take home pay, the long-term benefits outweigh the cash flow interruption associated with a job change.
Harness the Power of Positive Thinking
Financial distress strikes wallets and bank accounts, but the most devastating effects of financial failure are felt by the individuals behind the numbers. Regardless of the extent of your financial worries, a positive outlook can help you find stability. Positive, proactive thinking may include the following steps:
Planning – Setting goals and working toward them is a trait shared by successful people. When financial fortunes falter, redouble your efforts to look on the bright side, using setbacks to motivate you, rather than defeat your spirit.
Status Check – In many cases, financial problems arise due to lack of awareness, rather than egregious behavior. To avoid problems, don’t sidestep your financial condition. Instead, embrace periodic financial check-ups – even when the news is less than stellar. By staying in-tune with personal financial matters, you’ll adjust for looming cash concerns, before irreversible damage occurs.
Focus – Positive thinking guides you toward desirable outcomes, so optimism gets financial results. In order to put financial problems behind you, turn your attention to the future, rather than the past. Focusing on the results you want cancels the negative financial experience behind you and keeps your eye on better days, ahead.
Personal financial outcomes are influenced by a number of factors, including spending discipline (or lack thereof), earning power and even frame of mind. When your budget suffers and financial uncertainty sets-in, address income and spending inconsistencies first, relying on constructive, affirming thoughts to carry you over financial hurdles.
Raman Venkatesh is the founder of Ten Factorial Rocks. Raman is a ‘Gen X’ corporate executive in his mid 40’s. In addition to having a Ph.D. in engineering, he has worked in almost all continents of the world. Ten Factorial Rocks (TFR) was created to chronicle his journey towards retirement while sharing his views on the absurdities and pitfalls along the way. The name was taken from the mathematical function 10! (ten factorial) which is equal to 10 x 9 x 8 x 7 x 6 x 5 x 4 x 3 x 2 x 1 = 3,628,800.