Excel 4 Ur Business

If there’s any one kind of bank account that almost everyone has, it’s a checking account. As useful as they are, checking accounts still provide several ways for you to get into financial trouble. In this chapter I’ll show you how to get the most out of your checking account without the usual downsides.

How Checking Accounts Work

Wait—doesn’t everyone know how a checking account works? Make deposits, write checks, and hope that you don’t have an overdraft. Yes, that’s certainly true, but there are more details you should know about. (more…)

Believe me, it’s a rare event for someone to analyze her expenses and find she is spending less than she should be! Like 99% of people, you are likely to be faced with the prospect of balancing your budget by adjusting things so expenses are equal to, or preferably less than, income.

Some ways of reducing expenses, such as reducing or avoiding credit card and bank fees, are covered in later chapters. In this section I present a few additional tips and suggestions for successfully balancing your budget by reducing expenses.

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Once you have decided that a budget is something you want to do and you have learned how to use the Home Budget template, then what? I won’t kid you, living on a budget is not the easiest thing to do. The potential benefits are huge, however, so it’s really worth your best shot. Let’s take a look at how the budget can help you and some of the difficulties people experience.

Analyze Your Spending

People usually have a pretty good idea of where their money comes from. It’s the spending that’s the big mystery! This is perhaps the most important area where a budget can help—enabling you to figure out exactly where your money is going.

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A budget is one of the most important tools available to you for taking control of your finances. In this chapter you’ll learn what a budget is and why it can be so useful. You’ll also learn how to use the budget template to manage your own money.

What Is a Budget?

Some people say, “I’m on a budget,” and mean nothing more than that they are limiting their expenditures. “I can’t go to dinner at Chez Pierre’s tonight because I’m on a budget.” In that sense, pretty much everyone is on a budget—after all, how many of us can spend money without limitations?

In another sense, a budget is a way to keep precise track of your money, how much comes in and how much goes out, and to determine how much you can and cannot spend on various things. Money that comes in is divided among the various budget categories, such as mortgage or rent, groceries, and entertainment. Each expense is likewise charged against the corresponding category. There are two main advantages to a budget.

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Net worth is one of those phrases that you hear now and then, but what does it mean? Simply put, it is the sum of all your assets (things you own) minus the sum of all your liabilities (things you owe). Take what you own and subtract what you owe to get your net worth.

Net worth is a way to track your financial progress or to get a snapshot of your financial status at a given time. In a way, net worth can be thought of as a measure of your financial health. The greater your net worth, the greater your ability to achieve major financial goals and to withstand unexpected financial stresses, such as being laid off or having a serious illness.

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In the calculations that have been presented so far in this chapter, the interest rate was a variable that you either know or had to estimate. But what if you know the other parameters of a loan or other transaction but not the interest rate? Then you can calculate it using the RATE function.

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Present value is similar to future value in that it represents the value of an investment. However, it calculates the value of money you will receive in the future from the perspective of right now. A dollar today is always worth more than a dollar tomorrow because of the interest you can earn on today’s dollar. This might not make sense right off, so let’s look at a couple of examples.

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The concept of future value is quite simple and is based on the fact that a given amount of money received today will be worth more at some time in the future. It’s easy to understand why this is true-money you have now can be invested and earn interest, hence its value increases.

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When you make a payment on a loan, each payment is divided into two parts:

• Part of the payment is for that month’s interest charge.
• The remainder of the payment goes toward paying down the principal.

Each month you pay down the loan balance, or principal, by some amount. This means that the next month the interest charge will be less because the charge is calculated as the interest rate multiplied by the balance. The total payment amount is fixed, which means that each succeeding month less of your payment goes toward interest and more toward the principal. To calculate the amount that goes toward principal for a specific payment, use the function.

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If you ask people what they do not have enough of, the most common answer is likely to be “money.” No matter how hard you work, no matter how good your job is, it can be a struggle to make ends meet while maintaining the standard of living you want. Can you do anything about this situation? Yes, you can! One approach is to bring in more money, but that’s not something I can help you with. The other is to take control of your finances, and that’s something I definitely can help you with!

Facing the Problem

Before getting down to details, it is a good idea to look at the problems facing many people today when it comes to their finances. The majority of Americans are financially illiterate. If you fall into this category, don’t blame yourself-after all, personal finance classes are not offered in most high schools or colleges and, even when they are, they are usually a low priority for most students. People are expected to somehow absorb all the intricacies of personal finance on their own, and, in my opinion, that’s asking a lot.

Some people are hesitant to admit they do not know much about personal finance. In our society, competence is valued and you might feel embarrassed to admit you don’t know much about the topic. That’s exactly the wrong attitude! Competence comes from learning, and the first step in learning is admitting you need to learn. Getting this book was a good first step.

Another source of problems is that some people equate finances with investing. There is undoubtedly something very alluring about the stock market and the chance to see your investments grow over the months and years. Investing is, in fact, important, and several chapters of this book are devoted to it. But investing is only part of the personal finance picture.