Friday, July 16, 2010

Money Talks

Hi All,

Today's business post comes from a financial strategy guide.

Time and money

Give yourself a week to do a task, it will take a week—but give yourself two days, and it will take two days.

This phenomenon is known as Parkinson’s Law, which states: “Work expands so as to fill the time available for its completion.”

The same is true of spending and money.

When budgets expand

The minute you get a raise or even some birthday money, enter Parkinson’s Law: Your spending expands to consume the additional cash.

1.Shrink your numbers: If you give yourself $100 to spend on supplies each month, you will. Lower that limit and you'll surprise yourself by spending less.

2.Be skeptical about “needs”: If you get a $200 raise, don't justify spending it because you "neeeeed" a bigger car, new dishwasher, etc.

3.Keep percentages steady. I strive toward the 50/30/20 Budget (you may prefer the Save-to-Spend Budget plan). Because these budgets rely on percentages, as my earnings go up, my savings and spending also increase—but they remain in balance.

What's bloating your budget?

Don't guess: Read one month's bank statement and report back. Also, keep a log for a month re: everything you purchase. EVERYTHING, and the price.

Spend less. You're probably spending at least 80% of your cash on just 20% of your basic expenditures (i.e. rent, groceries, utilities). Simply paring down the items in that 20% category could alter 80% of your spending. (Hint: Parkinson’s Law can help.)

Save more. Now look at your spending on non-essentials. What if 20% of the "extras" you buy are yielding 80% of your satisfaction and fun? Identify the key 20%, then cut back other, less-rewarding expenditures (a.k.a., get more bang for your buck). Voila: Sudden savings.

It’s Business, Not Personal. If 20% of your clients are bringing in 80% of your income—a common scenario—focus 80% your energy on those winners, and consider dropping those that bring in mere pennies. (Amanda also talked about wasted effort here.)

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