Properly managing personal finances can make a very substantial difference. We all know cases in which two people earn the same money, but one of them has much more than the other. Would you like to be like the first?
For this, it is essential that you take the reins of your economy, and at Self Bank we want you to be able to make your own financial decisions. Therefore, below, we offer 10 guidelines to govern your economy properly. Are you ready? Let’s go there.
- Establish an expense budget
Many people do not calculate how much they spend each month, nor do they estimate or take into account other expenses with a higher periodicity (such as car insurance, or certain taxes, for example). In addition, they do not have that (almost) there can always be some unforeseen event, some unexpected expense that can unbalance the budget.
If you have never done it, making a budget may seem complicated, but it is not at all, the important thing is to start doing it . Start with the most common expenses (housing, supplies, food, car …) and add some section for savings and extraordinary expenses. Make a monthly and an annual budget (you can use a spreadsheet to prepare it comfortably). Keep in mind that some expenses vary depending on the time of year. You may forget something or it may not be perfect, but the important thing is to have it. Then, go checking to what extent it is met and refine it.
- Plan
We will not tire of repeating the importance of planning. It is closely related to the previous point, but the planning involves more questions: to establish objectives , both of expenses and of income; set savings goals, to cover mismatches that we may have, to invest, or thinking about retirement; think about the future, either to prepare the purchase of a house , to pay for our children’s careers, or other disbursements that may exist in years to come …
Once the master lines were planned, we would have to go into the detail of each one: how and how much are we going to save? What part of our savings are we going to invest? What profitability do we expect to obtain? (important to remember at this point the importance of compound interest) How to diversify?
- Have an emergency fund
It is also related to the previous sections. Once you start planning and saving, the first thing to do is have an emergency fund, a mattress of tranquility that will allow us to live without major shocks and without having to spend our money on high interest if any unforeseen event arises.
This mattress should be independent of other amounts that we can have saved (we can have them, for example, in a separate savings account ), and any investment – since we will need it to be totally liquid, to be able to dispose of it at the time you make us lack-. The emergency fund will be used for really unforeseen situations, not for whims or for, for example, buying a car. It is also true that if we follow the previous points (we make an expense budget and plan), the contingencies will be lower, but there can always be.
To create the emergency fund, it is advisable to allocate an amount of money per month (as a reference, 10% of the monthly income), until reaching an amount equivalent to between three and six months of income.
- Beware of small expenses
Many times, family economies are unbalanced by a series of small expenses, which we hardly realize. We could identify them with those small amounts that do not usually reach five euros (tobacco, baubles, drink something in a bar, etc.), but that little by little they add up, until reaching very relevant amounts each month, exceeding 100 or 200 euros, or even more.
You don’t have to be a Spartan, but controlling what you spend on this little drip is an initiative that will allow you to have more money available, without realizing it.
- Do not live above your means
This phrase, so much that has been repeated in our country, seems to have lost its meaning a bit. However, it does, and much.
Sometimes, we spend more than we can and borrow more than would be reasonable : a house a little (or much) more expensive than we should, a 30,000 vehicle instead of a 20,000, because they grant us the financing, a trip to those paradisiacal beaches, because we deserve it, that state-of-the-art television that replaces another that worked perfectly, the latest mobile model, which we “can’t” give up… All of that is very good, but whenever It really fits your economy, and as long as you can comply with the other rules we cite in this article.
- Save
It is also implicit in the previous points, but do it in a totally explicit and conscious way. Make a savings plan, and fulfill it. It will allow you to live more quietly, plan your retirement, and save you large amounts of money in interest (for example, when buying a car or a house). Many people say they can’t save, but then they buy a car by financing it, and they can pay a considerable bill. I really couldn’t have saved before?
In short, do not leave for tomorrow what you can save today. Saving is the basis of solid personal finances. To carry it out, remember that pre-saving is a way to save much more interesting than the traditional one.
- Avoid debts
It may seem that we exaggerate a bit! You’re right, but keep in mind that debts are the opposite of savings, we are spending something we don’t have. Therefore, this rule has all the logic of the world; If it is a good idea to save, debts, as a general rule, are not. It is also true that, under certain circumstances, it is difficult not to borrow (how many people would be able to buy a house in cash?). But, in many other cases, we could do it.
And what happens if you are already in that situation, and you have different credits (each one with its amounts, conditions …)? You should face the payment of your debts following a methodology, until you finish them, your finances will thank you.
- Think long term
When we save, we are thinking in the long term, giving up the more or less immediate pleasure that money could give us now, in exchange for other benefits in the future.
When we invest, in general, we should also think long term. Although there may be investments with a shorter period of time, they should be, in any case, included in a general plan to view years (what I intend to obtain with these investments: profitability, term, etc.). And, in addition, there is the issue of compound interest, which has a snowball effect: the more years, the greater profitability we will obtain.
If you get used to thinking in the long term, everything will make more sense, because what you do or stop doing will be related to this plan that you have for several years.
- Train yourself
We have left this point for the end because of its importance, although it may well be the first, since many things depend on it. It is essential that you train in finance , it is not about doing a master’s degree or being a professor of economics, but that you are able to make your own financial decisions in the best way (and that is, in fact, one of the objectives primordial of this blog).
For this, you can read on the Internet, but there are also essential books for those who want to know a little more about the world of investment, even some of them are very easy to read and recommended for this summer season.