Monday, August 20th, 2012
One of the most useful techniques for planning ahead with your money is what I call the ‘As If’ Principle. It is a really simple technique that clearly identifies in advance whether a specific goal is achievable, while at the same time, helping you achieve it! The time to use this technique is when you have a future goal which has the effect of either reducing your income or increasing your expenses on an ongoing basis. Examples of such goals are:
Here is how it works, and it really is simple!
Step One: Prepare a new budget for yourself, ‘as if’ you are already taking your planned action; that is, a budget based on less income or increased expenses.
Step Two: Start living according to your new budget ‘as if’ you are already in your goal situation.
Step Three: Save the difference between your current and planned income or current and planned expenses into a savings account.
This allows you to test your ability to achieve your goal, while adding to your savings. The more time you have to plan ahead, the easier it will be to test your budget, increase your savings and achieve your goal. If you find you are unable to live on your new budget without dipping into your savings, review the cost or timing of your goal and whether it is achievable.
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