Everyone has a different attitude to managing their personal budget. They live differently for the same level of income. Why is this the case and how to achieve financial discipline?
Here are the main rules for managing personal finances
Accounting for income and expenses by category. This is where you should start. To plan your finances, you need to know how much money is coming in and what it is being spent on. There are many accounting apps available nowadays, so you don’t have to count manually.
Prioritise. You can’t say you’re managing your personal finances if you’re only recording income and expenses: you’re not managing, you’re just observing. The basic principles of money management are goals and priorities. You should know what you want to achieve and only spend money on what is necessary, avoiding useless spending.
Plan a budget. Once your priorities are set, you can start planning and allocating the money available depending on your goals.
Analysis. It is very likely that there will not be enough money for all goals at once, and the goals themselves will change over time, so the plan must be constantly adjusted. Moreover, even if there is enough money, expenses and savings will have to be optimised periodically.
Create savings. At least 5-10% of your income should go into a piggy bank. This is the main rule for everyone who wants not only to earn with their labour, but also to receive passive income on savings in the future.
Invest money. Money should work and not be wasted, as it may depreciate over time. For a detailed strategy, it is best to turn to professionals.
Insurance. This is a very important point that ensures the financial security of your entire family in times of crisis – property, life, health, and disability insurance.
Techniques to help you take better control of your finances
‘Finance Day.’
Choose one day a week to assess your financial health. Review your bank transactions, analyse your expenses and plan for the week ahead. To avoid missing this ritual, create a pleasant association associated with it.
The 24 Hour Principle
Before making a major purchase, wait 24 hours. This helps to avoid impulsive decisions and encourages a more balanced approach to spending. It is better to set an amount in advance above which a purchase is considered a major purchase.
Investment Method
During planning, try to think about how to avoid financial mistakes instead of aiming for success. For example, replace ‘you should save a little bit a day’ with ‘don’t take a taxi on the way to work’. This approach helps you make more informed financial decisions.
Pocket money
Maybe you’re in a rush and spending money outside of your plan because you’re putting too much pressure on yourself? Remember that there should be a spread in your finances too: set aside an authorised amount for unnecessary expenses and treat yourself a little. Get a separate account or card, transfer ‘pocket money’ to it and spend it however you want. It is not necessary to detail these expenses in the report, it is enough to indicate the total amount and sign ‘pleasures’. So you can do it!
Challenges
Conduct one experiment per month in the ‘What if…’ category. Not only is this a great way to enthusiastically and stress-free try out healthy financial habits, but it’s also an opportunity to evaluate the need to practice them regularly.
For example, what happens if, for one month:
- don’t order takeaway food
- don’t buy coffee
- control your electricity consumption
- cancel all subscriptions;
- don’t take taxis.
- buy food in bulk.
A summary of what to do if your family does not have enough money to meet the necessities of life
When money is tight, planning becomes not only useful but vital. Basic needs such as food, shelter and health care should be prioritised. By the way, the second most important expense is not cable TV, but education.
Look for ways to save extra money: buy in bulk, forgo unnecessary services, buy used items.
Find a temporary source of extra income: freelance work, extra shifts. You can also consider renting out a flat room if you are able to do so.
Develop a plan to improve your situation, including learning new skills, finding better job opportunities, etc.