Sunday, October 28, 2012

How To Successfully Achieve Any Goal

Goal setting involves establishing specific, measurable, achievable, realistic and time-targeted (S.M.A.R.T) goals. On a personal level, setting goals helps us work towards our own objectives—in all aspects of life (spiritual, health, family, career, business, financial-based goals etc). Goal setting is therefore an effective tool for making progress by ensuring that you are clearly aware of what you want in life. "Goals provide a sense of direction and purpose" (Goldstein, 1994, p. 96).  

Without goals, many people live life adrift thinking that life happens to them, instead of taking control and directing their lives towards a certain direction. When I was in Second Year of High School, I made a decision I wanted to become a scientist, and therefore needed to join in the university. I wrote my goal down under the cover of my every note book in school. I studied hard despite being in a "not well performing secondary school". I went out of my way, learning ahead of the teachers to finish the syllabus especially for sciences and mathematics, as the system never used to cover the syllabus. Come the National 4th Year Examination, I passed, and was granted a government scholarship to study in one of the Kenyan public university. That time, there was no parallel-degree programs offered in the four public universities in the country. There was only few very-expensive private universities. So, if you came from a peasant background and didn't make it to the cut-off mark, you were basically locked out of the tertiary education system. 

As I write this post, I am scheduled to defend my PhD by the end of next month. I think that attaining a PhD is a peak in my career advancement, which has set me on a path of becoming a great scientist.

That is the power of goal setting. It starts with knowing what you want. Once you know what you want, realise that God has already given you the ability to become, attain, achieve, acquire that. A person with a goal is quickly able to identify opportunities when they come his way. "Goal setting capitalize on the human brain's amazing powers: Our brains are problem-solving, goal-achieving machines. "Napoleon Hill said "Whatever the mind can conceive, and believe, the mind can achieve". 

"Goals convert the strategic objectives into specific performance targets. Effective goals clearly state what, when, and who and are specifically measurable." 

On the side, my wife and I have been pursuing another goal: To promote Financial Education for Poverty Eradication in Africa (reason behind this blog and facebook page), alongside another personal goal: To create a total of X USD in passive income per month that can give me the lifestyle I want even without working by the age of forty five. This means, once I achieve this goal, I can retire the following day, if I want to. Do you get my meaning?

As you watch the video below, let me ask you, what are your life goals?

Download a FREE on How to Successfully Achieve Any Goal.pdf courtesy Personal Excellence.

In the next post, we shall look at "That Millionaire next door".

Sunday, October 14, 2012

How To Prepare A Personal Balance Sheet (Networth Statement)

A Personal balance sheet, also called a net worth statement or statement of financial position, reports what you or reports what you or your family owns and owes. This statement provides a summary of assets and liabilities that one has at a particular time. So, whenever you want to find the state of your finances, this statement will give you an answer. It will tell you whether you are doing good or bad.

This is how you go about preparing a personal balance sheet:

Step 1: List What You Own (Assets)
Do you have anything of value? List it here. Cash (at hand and in the bank) combined with other items of value are the foundation of your current financial position. Assets can be grouped into four:
  • Liquid assets
These are cash and items of value that can easily be converted to cash. Money in current and savings accounts is liquid and available for current spending. Surrender value of some insurance products such as endowment assurance policies can be borrowed if needed.
  • Real Estate
Includes a home, rental buildings, or a piece of land that a person or family owns. The current value (also referred to as market value) of these properties needs to be determined by qualified Property Valuers or Appraisers.
  • Investment assets
These include investments such as stocks, unit trusts, bonds, treasury bills, and any business you own. Since investment assets usually fluctuate in value, the amounts listed should reflect their value at the time the balance sheet is prepared.
  • Personal possessions
Motor vehicles and other personal belongings such as furniture, home appliances are in this category. While these items have value, they may be difficult to convert to cash. They can be listed in the balance sheet at their original cost. However, their values need to be revised over time, since a three year old car, for example, is worth less now than when it was new. Some other personal items might increase in value such as rare jewelry thus you may wish to list such items at their current value.
Step 2: Determine Amounts Owed (Liabilities)
Liabilities are amounts owed to others but do not include items not yet due, such as next month’s rent. Liability is a debt you owe now, not something you may owe in the future. Liabilities fall into two categories:

  • Current liabilities
These debts must be paid within a short time, usually less than a year and includes items such as utility bills, medical bills, insurance premiums, school fees arrears, cash loans and credit card payments.

  • Long-term liabilities
These debts are usually paid in full until a year later. Common long-term liabilities include auto-loans, educational loans, and mortgage.

Step 3: Calculate Net Worth
A net worth is the difference between total assets and total liabilities and it provides a measurement of your current financial position. Net worth is the amount you would have if all assets were sold for the listed values and all debts were paid in full.
Two things you should know about Net worth:
1.     If the total value of assets is larger than the total value of liabilities, you will have a positive net worth. However, your net worth is not money available for use but an indication of your financial position on a given date.
You can increase your net worth by:
§  Increasing your savings.
§  Reducing your spending.
§  Increasing the value of investments and other possessions.
§  Reducing amounts you owe by paying off your debts.
Please do understand that you may have a positive net worth and still have financial difficulties. Having many assets with low liquidity means you do not having the cash available to pay current expenses.
2.     If the total value of liabilities is larger than the total value of assets, you will have negative net worth which means you are unable to pay your debts when they are due.
I believe you can now prepare your personal balance sheet. Most personal finance management software’s (e.g. has an integrated net worth function. Make it fun to discover how much you are worth. If you find you are positive, great, focus to increase your net worth. If you find out you are under water, do not despair. Set a goal to get out of debt and improve your financial health.

Our next post will look at setting goals.

Sunday, October 7, 2012

Budgeting - How To Manage Your Finances With A Spending Plan

Personal budgeting is about managing your finances through a spending plan. It is one of the effective ways of achieving your financial goals and dealing with most of your money problems. Do you sometimes wonder where your whole income has disappeared to even before mid-month? Or some days you leave for work in the morning with some cash and in the evening your wallet or purse is empty. You have no clue as to where your money has disappeared to. You just don't want to admit you squandered it. Or, someone just borrowed you for ‘not so urgent needs’ and you gave it, because for you, it is just money, and not so valuable.

Likewise, do you get frustrated by your inability to achieve your financial goals because you can't find money to get to it? No matter your good intentions to set aside some money every month towards savings, you always find yourself with nothing. Probably your expenses are higher than your income, meaning that you are living above your means, and simultaneously accumulating debt (the money has to come from somewhere to fill in the gap). You need to start using a monthly budget (spending plan) and you will be amazed on its power to help you live within your means. Likewise, you need to find ways to make more money, if what you earn is not enough to take you round the month. Note, there is no income that is so small that it cannot be budgeted for.

The main purpose of preparing a spending plan is to help you:
  • Live within your income.
  • Stay out or get out of debt.
  • Spend your money wisely.
  • Reach your set financial goals.
  • Prepare for financial emergencies.
  • Develop wise financial management habits.
Steps To Preparing A Personal Budget
A personal budget means matching the income one gets with the expenses, in order to reach the financial goals set in advance. Preparing a budget is not that difficult, but still it could become a hassle. Try to make it as simple and as easy as possible, and you will find the personal budget a great tool for keeping your finances under control.

Step 1: List And Total Your Monthly Net Income
Total up every net income you receive in a month. The income should include all of the resources, such as monthly salary, earnings from interest, earnings from rent, business income etc. Bonuses, gifts, or unexpected income should not be considered until the money is actually received. It's better to have money left over than be caught not being able to pay your bills because you factored in money that you weren't sure you'll receive. My wife and I personally use such out-of normal month income towards building our emergency fund.

Step 2: List And Total Your Current Monthly Personal Expenses
The expenses should include all spending - purchases, monthly bills, insurance, hospital bills, savings etc' List all your monthly expenses as they are now. Include also weekly, quarterly, semi-annually and annually expenses. Do not forget discretionary expenses such as Books, Magazines, Entertainment, Impulse purchases, Snacks, Dining, Vacation and Travel and Membership fees. You can know how much to allocate these if you track your expenses for several months, and then use the average as a guide.

Step 3: Subtract Your Current Expenses From Your Current Income
Take the total current expenses and subtract the sum from the total current net income. If, on paper, you have money left over but in reality you are living close to the edge or falling behind, then you have not accounted for everything or some of your figures are wrong. Examine your budget for inaccuracies and make corrections. Use of a budgeting software like dsbudget can help a lot. I personally prefer a software that is web-based like, so that I can upload data wherever I am (including on the go using mobile phone).

Step 4: Identify Where To Make Changes In Your Budget
Once you have an accurate idea of where all of your money is currently going it is time to make changes for the future especially if there is more going out than is coming in. Your options include increasing your incomedecreasing your expenses by simplifying your life, or a combination of the two.

As you prepare and make the changes in your budget, do not forget to include money for your financial freedom account (FFA), or purse fattening account (PFA), creating an emergency fund, paying for personal loans and credit card debts, insurance premiums and retirement. After you are through matching your income and expenses, monitor your progress every month.

Our next post will look at personal balance sheeting.