Page 549 - Introduction to Business

CHAPTER 15 Personal Financial Planning 523

thing to do is make plans that will improve your situation. On the other hand, you
may not be in bad shape, but with proper planning, you may be able to improve an
already good situation. This improvement is achieved by acquiring financial knowl-
edge and resolving to take control of your own financial future.
A lack of financial knowledge stops most people from ever changing their finan-
cial situation. Knowledge is obtained by reading and studying. Some helpful hints
for improving your financial situation include the following:
Accept your current situation as a starting point and realize that you can
change it for the better with the right kind of knowledge.
Realize that only you can improve your financial situation. No broker,
money manager, or relative can put more effort and dedication into
changing your financial situation than you can. Take control of your own
financial future.
Read enough financial literature to feel confident about the financial deci-
sions you have to make. Know what you’re doing. Some people may get
the hang of it after reading only one book. However, other people may
need to read several books and to talk with several consultants before they
are sure of what they are doing.
You are probably set in the way you spend money. If so, then you may need
to change your spending habits. This change is much easier said than
done. You can easily make purchases on a credit card that charges 15
percent annual interest, even when you don’t have money in the bank;
waiting to make purchases until after you have accumulated the necessary
funds requires discipline. You must develop budgetary discipline to suc-
ceed financially. Discipline is a good habit to have for managing any area
of your life, but it is indispensable in the financial area. 1

Acquiring financial knowledge and understanding is the first step to improving
your financial position. The next step is implementing the new information so that
you can achieve financial success.
To stay motivated and to keep your financial plans on track, you should estab-
lish clear goals. Exhibit 15.2 provides a short list of possible goals. Each goal you
select should be ranked as short-term or long-term. Those in the short-term column
should be achieved first, while those in the long-term column should be achieved
second. You will need to achieve certain short-term goals on your way to some par-
ticular long-term achievement. Furthermore, many goals will be interrelated, like
having children and financing their education. Without stated goals, you will
expend effort without a purpose. If you lack a purpose, you may wind up achieving
nothing.
The acquisition of wealth begins when your monthly income exceeds your
monthly expenses. At that point you can invest the excess in different financial
mechanisms that earn you money.

Evaluating Spending Patterns

Personal spending patterns vary dramatically, chiefly because people have many
different goals and objectives. These goals and objectives are somewhat related to
demographic characteristics, such as age and educational background, and per-
sonal characteristics. For example, some people are frugal, while others are spend-
thrifts bogged down in excessive mortgages, personal loans, and other debts.

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