ProBankingTips

How much time do you spend on monitoring your budget?

One way to monitor your income and expenses is to write disciplined down each of your financial transactions every day.

Another way is to define pools of your cash streams because your get an overview in few minutes and updates are necessary only one-time or two times per month.

Income and expenses are fixed or variable. Usually your monthly income should be fix but your yearly bonus is variable. On the other hand costs of your apartment, home, phone, insurance, or car are fix but your living expenses for foot, drinks, cinema, or restaurant visits are variable. This is not quite correct because you have to buy foot and drinks daily. Such costs are relative fix too. So you can define:

• Fixed income is your monthly salary.
• Variable income is your yearly bonus.
• Fixed expenses are your periodically payments for your home or apartment including energy, water, heating, TV, phone, loans and others.
• Quasi fixed expenses are your payments for your living.
• Really variable expenses are all unexpected costs, like purchasing a new ice box, restaurant visits with friends or car repairs.

You see there are few loopholes for your money. Only unexpected costs may be beyond the scope. This problem should be solved by a buffer. If you schedule your income and expenses including a defined pool of daily living expenses over 12 months then you get a good overview about your budget and its development.

The Family Budget Planner from Vertex42 is a nice example including a How To and it’s free for personal use.

Try it and your family will never run out of money in the future. Your benefits: You’re able to monitor your liquidity plus you get a simple tool to plan your affords for purchases, loans, investments, and your retirement arrangement.

Photo: © Markus Hein / PIXELIO

What’s the most sensible part to avert your financial collapse before you begin to act?

Just imagine how surprised you’d be if your bank cancels your credit card apparently out of a blue sky. Can this be true? Sure, banks are monitoring all account activities and analyze them for identification of risky developments because listen to early warnings enlarges the scope to take appropriate measures. This could mean for you that your credit officer has to decide about “Go!” or “No Go!” for your credit lines including credit cards when your name appears on a internal watch list. Why you don’t use this simple strategy for your private finances too? On this way you reduce costs and avoid trouble with your creditors.

Let’s take a look at the early warnings of consumer bankruptcy:

1. Slumping Revenue – Exploding Expenses
Decreasing income with increasing expenses is one of the important but hidden warnings. Whether or not you’re running into illiquidity already, pay attention of this progress. Check your stream of cash (cash flow) periodically. May be it’s time to reduce your expenses or you’re going to reach your credit limits combined with higher credit costs.

2. Filled up Credit Lines
If you use your credit lines permanently then ask yourself: Why? May be you underestimate the risk of exceeding limits through unexpected purchases. Further you waste money because you have to pay a lot for higher interests. No need to say that your credit history is a part of your credit score.

3. Ignoring Mails and Phone Calls
Do you ignore statements of account, bills, and duns already? That could be an evidence that you shut off your money problem. Avoiding phone calls from your bank could be a result of your remorse. It’s time to act. Be sure your creditors are not passive.

4. Friends as Creditors
Are your friends a part of your creditors? This could be a further warning. Friends are most often the last help before people run out of money because in this time banks have stopped their lending activities already.

5. Repayment of Overdraft by Credit Card
Do you repay your overdraft by credit card? May be you have a liquidity gap temporarily. Nevertheless it’s time to check your income and expenses because you have to get information about your liquidity in the future.

6. Return of direct debits
Return of direct debits by your bank should leave at you all the warning lights illuminate.

7. Reduction of Living Expenses for Repayments
Do you believe that you are able to pay off your debts by reduction of your living expenses? My opinion about this: Don’t try this at home! Because it’s difficult and few people are able to handle it. If you want to check it out although, test your financial power via an investment plan. So you can save money, build up your equity and completely without risk.

If you find yourself in one or more of this points then it’s time to act before your creditors wake up.

Photo: © N.Schmitz / PIXELIO