Good financial management involves more than just sound investing and padding a nest egg. It entails much preparation. Once a financial goal is determined, one not only has to implement an action plan to reach that goal, but plan to address any obstacles that may arise along the way. Additionally, one must manage expectations of their plan and be realistic about possible sacrifices that could be incurred in the process.

Charting a financial plan is called a budget. A budget provides the detailed road map to the desired financial destination…a financial means to a financial end. A well prepared budget addresses all fiduciary relationships especially revenue sources and expenditures. A good budget also incorporates safety nets in the event of unemployment, illness, etc. and considers both short and long term goals.

Budgeting
Creating a budget is one thing. Adhering to it is quite another, which is why it is critical to set realistic expectations when developing your strategy. Your financial means is defined by your ability to meet your financial obligations and goals. Setting financial goals outside of the means is a sure formula for financial destruction, potentially creating a snowball effect in the wrong direction. Use only guaranteed or regular income when determining your financial means and factor irregular or “potential” revenue as a bonus when it does occur. Consider real affordability of goods and services purchased. Try to remain cognizant of what purchases are necessary versus those that are merely wanted. This doesn’t mean that you have to constantly deprive yourself of desired effects. It only means that it is more prudent to train yourself to be patient versus giving into immediate gratification.

Typically, 30 – 50% of a household budget is dedicated to expenses. Generally, expenses consist of costs associated with living from day to day such as housing, food, transportation, utilities, clothing, entertainment and any other miscellaneous expenditure that occurs on a regular basis. Items that could derail a budget if not prepared for could range from unexpected car repairs, exorbitant medical bills or even loss of employment. Establish rules for yourself and adhere to them. Never take your eyes off the prize.

Reserves
The primary goal of a budget is to ensure immediate, financial security as well as make provisions for a comfortable and hopefully, prosperous retirement. Therefore, it is very important to maintain a reserve. Often times, people confuse their retirement fund or credit card availability as a life line for emergencies and a component of these reserves funds. However, establishing a separate fund with extra or unexpected income can counter unforeseen financial demands on a budget without tampering draining resources from the original plan. Ideally, it is recommended to establish a three to six month financial reserve fund to address the unexpected events in life.

Conclusion
A budget is not a financial plan etched in stone, but with occasional adjustment, should be treated as such. Although many people are averse to budgeting and/or lack the discipline to stick to their financial plans, many others have achieved significant success by sticking with the program. In order to effectively and efficiently leverage your financial means to get to a predetermined end you would need the same detailed planning necessary to complete a successful roadtrip…a good map with a circled destination, occasional maintenance, compliance with the rules and money in your console in case you unexpectedly run off the road.