Financial Records Help You Get What You Want

Let’s assume, for a minute you have went through the steps and filled out two of the three columns in your net worth and cash forecasts – Last Year & Estimated This Year. Things overall look pretty good. From the numbers it looks like your net worth will grow through the year. It even looks positive that the bank balance will increase to a level higher than what is necessary to provide sufficient working capital. With all of this bright picture it definitely is not the time to plan a trip to Hawaii. First, take pad and pencil and make a list of some of the things that are going to be needed – or even just wanted – during the coming year. These may be things that weren’t bought last year, so these have not been calculated in the forecast. New car? New clothes? Kids going to summer camp or college? Fix the patio? Replace the refrigerator?

Write down a few items and the projected cash balance may begin to take on the appearance of a deficit. This is the time we call a family budget meeting. What comes first, the new refrigerator or new clothes? How are you going to pay for it? Use cash, borrow or sell something? Since you are looking at the money several months out, you have plenty of time to figure interest charges if you decide to buy on credit. Or maybe you might decide (which I would) to use our savings rather than borrow. If possible, treat this as a loan to yourself, to be repaid later.

Once you decide what you want and how to pay for it, begin to check on the dates of future sales and prepare to grab a bargain if you can.

Are you thinking of buying a house, trading in the car, taking out more life insurance or starting to fund your 401K plan? You can figure out exactly how it will work by getting some scratch paper and sketching out rough net worth and cash forecasts as they would appear with the proposed changes. There are pitfalls to be avoided in making hypothetical forecasts. For example, if you are planning to sell some stock for example or a piece of property, don’t forget that you will have to pay a commission and possibly a capital gains tax. Settlement charges in real-estate transactions can amount to thousands of dollars.

After you have been comparing actual expenses with your forecasts for a while, you should begin to see some patterns evolve. A sudden or unexplainable change is worth reviewing. If the “family shopper” is on his or her toes, your spending for food should stay fairly even. A steady expenditure indicates that shifts are constantly being made to buy goods that are in season or in plentiful supply. If the figures jump up and down from month to month and there is no ready explanation, it may be a sign of careless or impulsive buying.

There is much additional interesting news about your family that a financial forecast will tell you. But don’t ask it to do too much at first. Start out simply with not too detailed a breakdown of expenses. Keep the sheets handy with the checkbook and bills. Label them clearly Forecasts. Budget is a nasty word. Setting one up is an unpopular business. It would be too bad if anyone discovered that that is actually what you have done.