My Personal Finance Blog

Once you know how to initially set up a family budget, figuring out what kind of budget you need is the next step. A common mistake is thinking there is only one kind, but in reality there are budgets that can help your monthly family spending, help create financial safety or help you and your family achieve your financial goals.

As I’m sure you’ve already read our article on how to set up a family budget, the next step is here- figuring out if you need a comprehensive, problem solving or planning budget.

1. Comprehensive Budget (used for general family budgeting)

i. This family budget can also be referred to as a Master Budget. This budget is for families on a limited income who is trying to limit spending. This budget would include making lists of your spending, with categories and exact numbers broken down by month. This comes in most handy when you need to cut down your family expenses because you have all your information in an organized list in front of you.

ii. This budget can also be used to review your spending over a long period of time, which is referred to as an overall budget.

2. Problem Solving Budget (used for creating financial safety for a family on a budget)

i. This type of family budgeting tool works off the comprehensive budget when you notice you are having problems keeping your spending down in a particular area. You create a more detailed list of the area so as to see exactly where your money is going and what areas you can afford to stop spending on.

ii. This budget is known for finding problem spending areas in a family budget and fixing them.

3. Planning Budget (used for achieving your family’s financial goals)

i. This budget works hand in hand with your family investments. If you are planning your budget specifically around an event or time in your life, this budget can help. It adds an extra category to your initial family budget for your goal.

ii. First, you pay for all other necessary expenses (rent, bills, groceries, etc.). With the leftover money, decide on an amount to set aside in this column for your investment. This is a category that does not show money spent, but money saved.

iii. This plan can be used for family savings as well as investments. This column does not need to be geared toward a specific goal; instead, it can be family savings or money for emergencies. Either way, it is an important category for both family budgeting and investing.

In order to obtain financial success, you must begin with a reliable personal financial planning program. This program will help you address important factors relating to how you handle your everyday finances so you can maximize what money you got. With proper budget planning, you can get more value out of your money and avoid experiencing financial crisis.

Your first step is recognizing the importance of having a personal financial planning program so you can determine how you can reach your goal and what else can motivate you towards achieving it.

Getting Started With Personal Financial Planning

Today, when most people hear the word “budget”, it readily implies a negative connotation. They think that budgeting is only for those experiencing financial shortage or crisis. However, even with enough financial resources as of the moment, an effective financial planning program will ensure that you will be able to maintain your financial status.

Therefore, personal financial budgeting involves the following:

1. Financial budget for your day-to-day finances while not depriving yourself of what provides you enjoyment and satisfaction.

2. Setting up larger financial goals to which your daily budget and planning is aim towards.

3. Making sure that you have enough savings in case of emergencies or unexpected financial struggles.

The Importance of Budget

Others think that by creating a budget for your finances, it is similar to lack of financial freedom. However, it is of the exact opposite. By creating a budget, you are able to create a financial safety net so you have enough money to spend on things that you want without hurting your financial condition.

Regardless of how little or large you earn on a monthly or yearly basis, budget enables you to take an effective step towards a healthier financial foundation. Hence, you can easily realize whatever financial goals you have.

When making a budget, it is important to keep track of every detail in your expenses – even up to the last cent. Hence, you can also evaluate your spending habits. It allows you to determine whether you are placing your money on important things or whether you can do without it.

How To Set Financial Goals?

Financial goals serve as the endpoint of all efforts toward controlling your finances. Therefore, you need to clearly state what your goals are when it comes to your finances and what steps you need to achieve it.

Step 1: Choose a specific goal. It could be saving for your house’s down payment, sending one of your kids to college, buying a new computer, or going on vacation.

Step 2: Your main financial goal is typically long-term. Hence, you need to break it down into smaller goals, which will serve as your stepping stone towards that bigger goal.

Step 3: Inform yourself about ideas or strategies that will enable you to effectively handle your finances. There are several books or materials over the internet that provides the information you need.

Step 4: Keep track of your goal. Evaluate your financial records alongside your spending habits. Then, you can determine whether you are following the necessary steps that will lead towards your goal.

Therefore, you must get started on devising ways to maximize your finances and enjoy it to the fullest. A personal financial planning program would help you establish the steps that will lead towards more financial success in the future.

Perhaps this is an unnecessary statement of the obvious, but the point of insurance is to give people a financial safety net. Should an emergency or disaster strike, money you would struggle to find is paid out by your insurance company. But the squeeze has been on for the last decade as medical costs and the prices of essential drugs have been rising fast. In fact, so fast that the insurers cannot pass on all the increases to their policyholders. It was hard to raise premium rates while the economy was doing well. It became impossible to raise premiums when the recession hit without there being investigations by each state’s Commissioners for Insurance and complaints from everyone else. There comes a point when the insurer cannot get any more blood from the stone and has to sacrifice profits. This has left the medical profession, the hospitals and clinics in a winning position, while the pharmaceutical industry’s profits have continued to rise despite the recession. At the other end of the spectrum, the patients are the losers. There are some who discover the small print in their policies denies cover for the very illnesses they have. There are others whose savings are not enough to pay the deductibles and co-payments. And then there are those whose policies are cancelled when they make a claim for a chronic disease or disorder.

There is a new piece of research from the Commonwealth Fund, an independent, non-profit body. In 2007, it carried out a detailed survey among 2,600 people aged between 19 and 64. When their coverage was analysed, 20% were found significantly underinsured. Why was this happening? Because they were already spending more than 10% of their income on health coverage, whether as premiums, deductibles or both. When the underinsured were added to the uninsured, this represented 42% of adult Americans. Like the uninsured, this forces the underinsured to think twice before they have treatment with more than half either refusing treatment or struggling with debt because of treatment.

In the push for healthcare reform, the focus has been on the uninsured. But this fails to recognize the injustice suffered by the underinsured. No one should be forced to choose between refusing needed treatment and potential bankruptcy. It is therefore going to be an interesting year in prospect as the reform slowly comes into force. Both the poor and the middle class need access to cheap health insurance with reasonably comprehensive coverage. This will further squeeze the insurance industry because it will be denied the right to refuse coverage to those with pre-existing conditions and will be forced to establish group health insurance for those who have struggled to find affordable plans. In all of this, the key to success will be the ability of government and the insurers to impose more control over costs. President Obama has negotiated with the pharmaceutical industry and there is some agreement to hold down prices for those in Medicare and Medicaid. The for-profit healthcare industry also sees some self-interest in moderating its price increases and has given undertakings to the Administration. If some of the pressure is removed from the insurance industry, premium rates will stabilize and the reforms should offer a more fair system to all with a health plan. We can only hope for the best while we wait and see what happens.