KD Strategies The 5 Steps Step 1
| Step 1: Develop a Closed Circle |
|
Step 1 | Step 2 | Step 3 | Step 4 | Step 5 Many people today have what we call an open circle budget. They know their approximate monthly overhead, and the more money that comes in the more they consume. The idea of the Closed Circle Budget is to answer the question of “How much is enough?” Breaking down your obligations, necessities and wants will help you answer this question. As your financial increase comes up and above your budgeted amount, you now have what we call “Overflow or Abundance.” This can be used to pay down bad debt, invest and give. This is the foundation to your financial future. Obligations: The word “obligation” in the dictionary is defined as “indebtedness for a favor or a binding promise.” Any contractual agreement is considered an obligation. Necessities: The dictionary defines necessities as “needful things.” Wants: The dictionary defines “want” as “desire, wanting, a thing wanted.” Here’s a suggested list of obligations, necessities and wants:
Notes: When Evaluating your obligations, necessities and wants, you must have annual and monthly totals. You should be tracking both. Do you have a home based business to supplement your employment income? If so, you will just include the income from your business in your total income. Do you have a full time home based business? If so, this item requires a lot of attention as meeting fixed monthly bills without knowing your income may become complicated and somewhat stressful. To prepare budget figures if you are self-employed, average the last year’s income and project potential for the year. Do you have a corporation that you run full time? If so you will need to have a separate closed circle for your corporation. In the corporate closed circle, you will need to budget an amount that you will pay yourself to meet your personal closed circle budget. Closed Circle Evaluation: Once you have figured out your total income and expenditures, you must evaluate your financial position to see which of the following three situations you find yourself in. Income equals Expenses (I=E) If your income equals your expenses at this point, you are ready to walk forward with your current closed circle. Income is greater than Expenses (I>E) If your income is greater than your expenses than you are in a profit position. You are in a position of overflow and abundance. You can now look at where you will allocate your overflow. Income is less than Expenses (I<E) If your income is less than your expenses than you are in a loss position. You must re-evaluate your current closed circle, looking at your wants first. You might also need to do more than this; look for other sources of income. Record Keeping: Create a filing system. This is mandatory. You can create one file folder per each budget line item or one file folder for each month of the year. You should always sort receipts by how they are paid. Get into the habit of recording your purchases daily. It takes only a few minutes. If you cannot do it that day, make sure you do it the next day. Do not let it drag on. If the task is only done weekly or even monthly, it starts to become a chore and will eat at you and eventually you will not do it at all. Make sure you reconcile your credit card and bank statements to ensure you don’t miss any expenses. Be a good steward by diligently recording your expenditures. Accountability: It is important to have someone to be accountable to. If you are married, your spouse becomes your partner. If you are not married, you need to appoint a mentor or a friend. Support: By having a mentor or a friend, you can talk over any concerns on a regular basis. Once a week, you must get together to discuss and exchange ideas. Examine the budget to make sure you are operating according to your Closed Circle. Follow up: We here at Kustom Design are here to help you get your financial house in order. Partnering with Ciccone Group and Earl Pitts, you will continue to have an abundance of resources available to you.
|