MANAGING PERSONAL FINANCES-1:Your personal financial plan, Steps in budget making

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Human Relations MGMT611

Lesson 34

MANAGING PERSONAL FINANCES-1

Quotations

Spend sensibly remember that tomorrow's need is more important than today's want.

Annual income twenty pounds, annual expenditure nineteen, nineteen and six, result happiness. Annual

income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

Charles Dickens (1812 - 1870) British novelist

Managing personal finances

The purpose of this lecture is to help the students and learners lead a better personal life by managing

finances effectively. Management of personal finances is an important component in managing human

relations.

Personal attitude towards the management of debt will also be covered with good personal financial

management; people with even modest incomes can amass a large amount of money.

Your personal financial plan

A highly recommended starting point in improving your present financial condition and enhancing your

future is to develop a personal financial plan. Two key elements of the plan are financial goals and a budget.

Why finance in relations course. It affects personal and work relations. Money is increasingly becoming

important. Social and psychological needs will be met with money. In other words, personal satisfaction and

happiness will have a strong bearing of money.

Reasons for over spending

Let us have a look at the reasons of over-spending of money.

1. Shop Keeper is friendly

Some times it so happens, that shopping mall or the environment or the salesperson is so friendly that

people spend unnecessarily on the things they do not need actually.

2. Enjoy shopping

Some people are spendthrift. They enjoy shopping. They spend money and get pleasure.

3. Shopping as a social and group activity

Some time people shop goods as a group activity. They waste money on buying goods unnecessarily.

4. Desire for possessions

Some people buy precious things for the sake of possession.

5. Credit is available easily (use of credit card)

In this age of credit card, people have developed the habit of spending money on unnecessary things.

Tips for managing personal finances

1. Having a long term debt

It is not advisable to borrow money for longer period of time. Suppose the leasing of a car would be

counter productive, if you take it for seven years or more. In this way you will end up in paying more

amount of money.

2. Giving Control of Your Money to Someone Else

If you give control of your money in the hands of others they might spend it lavishly.

3. Spending Leaks

Spend your money according to the budget.

4. Not Setting Goals

If you have not set any goals, you can not manage your finances.

5. Incurring Too Much Debt

It is not a good habit to incur debts more than your needs. Avoid incurring debts unnecessarily. It will be

difficult to repay the debts in future.

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6. Not Saving Enough for Retirement or Starting Too Late

Try to save some money from your earnings for future expenses.

7. Cashing Out Retirement Funds

Avoid cashing out retirement funds. You will leave with nothing if you spend it earlier.

Establishing financial goals

A common approach to financial goal setting is to specify amounts of money you would like to earn at

certain points in time. Another common goal is to obtain enough money to cover specific expenses.

Financial goals are sometimes expressed in terms of allocation of money, such as putting pay raises into

savings or reducing debt.

A more motivational approach is use financial goals to point to a lifestyle one hopes to achieve with specific

amounts of money. In this way money becomes the means to ends that bring satisfaction and happiness.

Developing a Budget (Spending Plan)

A budget is a plan for spending money to improve your chances of using your money wisely and not

spending more than net income.

Steps in budget making

Developing a budget can be divided into a series of logical steps.

Establishing goals

You should keep in mind your goals while establishing a budget so that you could make the best use of your

money.

1. Estimating income

First of all estimate your income and then plan the spending of money. You should be aware of the total

amount that you have in order to develop realistic budget.

2. Estimating expenses

Do this by keeping careful track of current spending.

3. Comparing expenses and income.

Remember that the true profit from your labor is the difference between your net income and total

expenses. If you spend all your money and you are left with nothing, it is not sensible. You must save

something for unseen expenses that may arise in future.

4. Carrying out the budget

Try to spend money according to your budget. If you spend more than the expected amount on various

things, then it is no use of making budget.

6. Evaluating the Plan

A budget usually needs reworking until it fits your needs. You can evaluate your budget time to time.

Self assessment Quiz

Here is a self assessment quiz to find out your attitude about your financial control. Assess your money

personality through this quiz.

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Human Relations Self Assessment Quiz

Your Money Personality

Below is a two-part quiz that addresses your willingness to take risks and your desire to

be involved with the investment decision making process. Take it and perhaps you will

find out something you didn't about yourself.

1. If I found a secure job which I thoroughly enjoyed, I would

a. Probably stay in it indefinitely

b. Stay unless a better opportunity came along

c. Be on the look out for a better opportunity or investigate ways to start

business of my own

2. I would become involved with a new business

a. Only as customer

b. As an employee if I have checked it out and it seems as if its a good

opportunity

c. As an investor if there is a chance of a big payoff

3. Buying care, I prefer

a. An economy model with good performance ratings and extended warranty

b. An exciting model, still unrated, with a standard warranty

c. A sleek and prestigious vintage care that would increase in value but may

be costly to maintain

4. Visiting a casino, I

a. Generally feel uncomfortable

b. Enjoy some games but budget how much I can afford to loose and stop

after that

c. Get caught up in the games and sometimes have big losses

1. I have discovered that I am most nervous around someone who

a. Spreads frivolously and/or takes big risks with money

b. Misses opportunities because of risk or fear

c. Never takes a chance in hopes of a big payoff

Interpretation of results

Risk vs Safety

If you scored three or more as, you tend to be safety oriented

Three or more bs, you tend to be more at ease with some risk

Three of more cs, you tend to be a risk taker

If you are taking inappropriate money decisions because you are miscalculating your

willingness for risk taking, Kathleen Gurney, Chief Executive Officer of financial

psychology corporation says, you might counter those reactions by taking the time to

carefully consider any decisions about money before you make them. For those who are

overly cautious, her suggestion is to take small calculated risks to buildup your

confidence and risk tolerance.

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High Involvement vs Lack of involvement

1. At any given time, I know

a. my total assets and liabilities, down to the last Rs2000

b. More or less, what my assets and liabilities are

c. Which bills I have to pay from latest paycheck

2. If the interest on my credit card were raised, I would

a. Shop until I found a lower rate

b. Look into a few other cards

c. Go on paying as before because its convenient

3. My personal cheque book is

a. Always balanced

b. Balanced every few cheques of every week

c. Only balanced when I receive statement and sometimes not even then

4. If suddenly I have a much larger income, I would

a. Manage all of it myself and enjoy doing it

b. Work with my partner as well as with financial experts

c. Hire financial expert as well as someone to manage my day-to-day

expense money

5. I prefer an investment that

a. Would make money for me if kept an eye on it constantly

b. I need to evaluate only every few months

c. I never have to worry about

Interpretation of results

High involvement vs Lack of involvement

· Three or more as-you tend to like being incharge of money

· Three or more bs- you tend to be responsible, but not share control

· Three of more cs- you tend to easily relinquish control over money

According to Gurney, those who score high in involvement, need control over their

money to have peace of mind.

Source: DuBrin, Andrew J. `Human Relations: Career and Personal Success', Pearson Prentice Hall, 2005.

References:

Dubrin, A.J. (2005). Human Relations: Career and Personal Success. Upper Saddle River, New Jersey,

07458.

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