Personal Financial Management

Having heard the saying from childhood, "love makes the world go round" is enough to make one ponder, is it really love or money these days? Saturated with advertisements from retailers, credit card companies, mortgage companies and fly by night get rich schemes; it makes one wonder what really "makes the world go round" in the 21st century? Love can certainly bring a sense of contentment, but it cannot buy a house, pay the bills or college tuition for that matter. Money, however, can do all those things. Unfortunately with accumulation of money, come additional problems and responsibilities alike. Creating a balance of spending and saving is the key to a successful financial life. According to Sharon K. Zoumbaris, author of Teen Guide to Personal Financial Management, "It really can be summed up in the most elementary equation: if your expenses are less than your income, the difference represents potential savings and investments. The more you can save, the better your financial foundation."(Zoumbaris 2000)

However, financial security means more than just cash savings in the bank account, it can also create a sense of mental confidence and self-assurance that will serve as an avenue for future needs, whether for unforeseen expenses or for planned expenditures. There are several ways to manage finances - from the traditional pen and paper, spread sheets and calculators that manually track income and expenditures to elaborate and sometimes expensive computer based software packages, such as Intuit's Quicken or Microsoft's Money programs.

Nevertheless, even with all the methods available for use to control finances, there are common themes among most approaches to successful personal finance management. The three most basic premises are managing personal cash flow, avoiding personal debt growth, and maintaining retirement savings rate. Creating a plan that accomplishes these three aspects of money management will, without doubt, help develop a path for future financial security.

Managing Cash Flow

Using the basic budgeting technique of tracking income and expenditures can reveal some telling facts and a number of ugly truths about an individuals spending habits. In order for this to show a true outcome, however, one must first be honest and truthful about what his/her spending habits are. According to Jean Lawrence, in the article, Debt Can Be Bad for Your Health, not only do many people have no awareness of how much money is spent in a month, but also most people have not been well educated on the basic paycheck stubs, salary and tax withholdings, and other miscellaneous withholdings. (http://www.webmd.com/content/article/111/110013.htm)

Managing cash flow is probably one of the more difficult tasks in creating a financial plan. But, it is one of the more important aspects of creating a realistic strategy and reaching the goal. As per Cindy Diccianni, in her article, You and Your Money, "many people feel they deserve to "treat" themselves to expensive items of spend money they don't have on lining a lifestyle they have yet to earn." (http://www/personalfinancebudgeting.com/planning_a_budget.php) This would be an acceptable reason if it were within the financial plan that is created. Psychologically, it feels good to spend money and acquire possessions, but the money that is spent today equates less money available for tomorrow. And the amount of money that is available for spending is limited for most people and unless it is contained one may find mounting debt responsibilities.

Avoiding Debt Growth

Creating a personal cash flow plan and developing an easy, realistic spending plan that will guide personal spending habits will hopefully assist with evading a growing debt responsibility. Getting into debt rarely happens overnight, it is usually months or years of compounded carefree spending habits that overextend credit responsibilities and create a black hole of debt.

How to avoid debt growth? Simple. Stop spending and make a plan to reduce current outstanding debts, including credit cards, personal loans, student loans and even mortgages. In his book, Smart Women Finish Rich, David Bach outlines what he terms the "12 Commandments" of greater wealth. Commandment six, provides a great insight into how people get drawn into debt. "Society is designed to get you to spend every penny you make and them some. The more you make, the more you are led to believe you should spend." (Bach 2002). Bach goes on to express that consumers do not recognize how these debts or expenditures add up to hundreds and sometimes thousands of dollars in additional costs when interest rates are calculated in over the long term.

Poor financial control can also result in other difficulties in life, emotional problems, relationship problems and some times destructive behaviors. With the average credit card interest rate at 20 percent and rising and overall increasing gas prices, increases in consumer goods, it is no wonder that American's suffer emotional distress and anxiety over debt. According to Lawrence, the typical household has about 10 credit cards and receives several offers of additional credit accounts in the mail monthly. In the article, Becoming Debt Free, David DeFord uses an interesting comparison when thinking of debt, "Think of your debt as a cancer. You must first eliminate it's spreading, and then you must eradicate it. Use invasive treatments to kill it." (http://www.personalfinancebudgeting.com/becoming-debt-free.php) By accomplishing the reduction/elimination of debt, taking the opportunity to increase savings and investments for the future will be the next allocation in successful financial management.

Maintaining Retirement Savings

According to Marge Fahey, author of the article, Values-based Retirement Planning, development of a plan for future financial needs is not a one-time course of action, it is an on-going evaluation and reconfiguration of defining (and redefining) goals and principles related to values and beliefs and determining financial aspects of retirement years. (Fahey 2000) Popular media has inundated the American public with evidence that the Social Security system is in trouble and all Americans should assume that benefits for seniors and retirees will be