Controlling expenses with a budget is important to address both home and office expenses in the best possible way, to manage money and keep financial resources under control. You always need to know where the money is going and it's good to be able to save enough to pay your monthly bills. It is therefore important to check every small amount of income, so you understand where you are spending too much and where you can save to cover the most important expenses at the end of the month.
Steps
Method 1 of 2: Create the Budget
Step 1. Record the net income you receive monthly
This consists of the actual amount you take home, after all deductions (taxes, contributions, etc.). Also include other sources of income, if you have any, such as tips, monthly premiums, cost of living adjustment, dividends, interest income, and so on.
Even if your income is constantly changing, still follow the same techniques described in the article. Determine all essential, priority and lifestyle expenses first. Then, with your income from work, start paying for basic needs, followed by priorities and then expenses for the lifestyle you have built for yourself. If you have any money left over, you can set it aside and put it in an emergency fund or savings account
Step 2. Remove the net savings goal you set for yourself from your monthly income
Ideally, you should set up an automatic withdrawal to be deposited into another account, so that you won't even be tempted to touch it. If you never see it, you won't miss it. Managing to set aside a saved amount will help you deal with any emergency situations, as well as prepare you for retirement.
- The amount of money you should save mostly depends on your salary, but a good baseline is around 15% - 20%. However, if you can afford to save only 10% of your annual income, that's okay, the important thing is that you still save a little bit.
- If you are a member of pension funds, the employer pays a share of contributions to your fund (up to a certain percentage). In this case you can take advantage of it and make the most of this availability. Of course, you don't see them immediately, but you know that you can rely on them at the right time. This is the closest thing to "free money" you've ever gotten in your life.
Step 3. List your monthly expenses in three distinct categories
Typically you pay "fixed", "flexible" and "discretionary" expenses.
- Fixed expenses remain the same every month, such as a mortgage, rent, the payment of a loan, insurance or a subscription to a service. Add up all the fixed expenses and calculate the total monthly amount.
- Flexible expenses consist of elements that are necessary, but of which you can control the amount, such as household items and food, clothing, services and so on. Calculate the total of these expenses.
- On the other hand, discretionary expenses are elements that are not necessary for survival. These include leisure expenses such as cinema, travel and impulse shopping. If the ratio of expenditure to income is out of balance and you are spending more than you earn, the purchases that fall into this category are the first to be eliminated or at least reduced. Determine the amount of these expenses.
Step 4. Subtract the total amount of expenses from your total monthly income
If the total cost is less than the total income, then you are managing your finances well and should continue like this. But if the total cost is greater than the total income, you are definitely financially out of balance and need to prioritize your spending.
Step 5. If your budget is at the limit with expenses, check the flexible and discretionary ones more carefully
Check your bank and your bank statement to analyze how much you spend and for what, or download a personal online financial application. This can help you keep track of the money you spend on things that aren't essential.
- Keep track of your credit card expenses. Did you know that people who use credit cards are more likely to spend more than those who use cash? This is because cash "looks" more real and spending it is more "difficult". Try to keep only cash with you and see if you are spending less.
- Check how much you spend on eating out, drinking your morning coffee at the bar, going to the movies and any other "extra" activities you can reduce. Many people feel the need to absolutely drink coffee at the bar, even if there is a coffee machine at work. A cup of coffee costs a minimum of 1 euro every day, which in a working year is equivalent to about 250 euro. But then you certainly don't limit yourself to a coffee! And don't you want to eat the croissant sometime? Think about what you could do with this saved money if you gave up your daily bar date.
- Start seriously addressing the question of what you can reduce, or completely exclude, from your spending. Whether you are discussing the matter with your spouse or simply with yourself, always try to be honest, sincere, and clear. Nobody likes to cut costs, even if sometimes it is necessary.
Step 6. Check how much money is left from your income once all essential expenses have been paid
This is the only amount you can spend if you don't want to go into debt. If your pay is weekly, make sure you set aside enough money to pay for monthly utilities. You should never borrow money to cover these expenses. This shelving method will keep you from feeling water in your throat all the time.
Step 7. Review your final schedule at the end of each month to make sure you stay on budget
Compare your actual expenses with what you had budgeted for. If there are obvious deviations, it may be necessary to make adjustments in discretionary expenses. Over time, you can only do this check on a quarterly basis.
Method 2 of 2: Stick to the Budget
Step 1. Get technology to help
If you're the old-school type who likes to square your checkbook, congratulations! But know that new technology is making it easier than ever to control expenses in real time and with the most sophisticated software. You can find many great tools online that will help you keep track of expenses and budget efficiently for the future.
Step 2. Don't give up at the first sign of failure
Budgeting is like dieting. A lot of people start with the best of intentions. Then, if she can't see results within two months, or when she starts getting bored, she gives up and quits, telling herself it's not worth it. Don't give up before the battle has yet begun. Be prepared for the idea that financial statements require a lot of time and a little effort.
At least try to check a budget for a full year to see if anything changes in your finances. If, after a year of constant and meticulous financial control, you haven't changed your savings by one euro or you haven't been able to put some extra cash in your pockets, then feel free to reevaluate it. You will not be disappointed
Step 3. Start creating an emergency fund
This is not the same as the savings fund. The emergency fund must guarantee you 6-12 months of coverage of primary expenses to be drawn on in the event of an emergency. What happens if you lose your job? What do you do if your daughter needs dental surgery? If various emergencies occur they can potentially burn all the funds you have accumulated. Being prepared is best and having one of these funds makes all the difference in your budget.
Step 4. Spend your tax refund wisely
The tax refund, if you are eligible with your 730, can be a great stroke of luck. You can receive a few hundred euros or maybe even a thousand, without perhaps even expecting them. Knowing how to spend this potential resource, however, can be quite difficult, especially if you're already struggling to make ends meet. Consider putting it into your emergency or savings fund instead of spending it on a new flat-screen TV.
Step 5. Pay your debts slowly but pay them all off
It seems that a high percentage of Italian families are in debt more than they can pay monthly. This is a lot of money that has to be given to someone else. If you can pay off your debts monthly with your salary, that's fine. But if, like many other people, you find yourself struggling to pay them every month, it means you have to put in place different strategies.
- Which debt do you want to pay first? One with a high interest or one that "costs" little? Paying off the one with low interest or even more debt together can have its benefits, although eliminating the pending ones with a higher interest rate first will save you money in the long run.
- If you are motivated to close your debt, start with the higher rate ones. High-interest debt can grow out of proportion due to the interest that builds up quickly, ultimately making this approach cheaper. However, if you want to feel motivated by closing more lines of debt at a lower rate, you can do so to gain a sense of satisfaction.
Advice
- Try to reduce your expenses. Eliminate all unnecessary costs like dining out or expensive entertainment. Consider using public transport and sell the car. Use supermarket coupons, buy non-branded products and avoid impulsive purchases. Most importantly, stop making new debts. Opt to get a debit (ATM) card and give up or cancel your credit card.
- Create a spending plan that allows you to reduce your debt. List necessary expenses, such as housekeeping and health, and optional expenses such as entertainment and vacations.
