4 Ways to Manage Your Finances

2024 Author: Samantha Chapman | [email protected]. Last modified: 2023-12-17 09:13

Personal finance management isn't taught in school, yet everyone should have at least a vague idea of it. Given the alarming economic situation, read these tips to have a better future.

Steps

Method 1 of 4: Determine a Budget

Step 1. For a month, take note of your expenses

Keep all your bills and receipts and divide your expenses by categories (Supermarket, Bills, etc.).

Step 2. After the first month, calculate your total expenses as accurately as possible and subtract them from your salary

Example:

• Monthly income: 3000 euros.

• Expenses:

  • Rent / Mortgage: 800 euros.
  • Bills (gas, electricity …): 125 euros.
  • Supermarket: 300 euros.
  • Dinners out: 125 euros.
  • Medical expenses: 200 euros.
  • Extra: 400 euros.
  • Savings: 900 euros.

  

  Step 3. Now, write down your real budget

  Determine how much to spend on each category and cut unnecessary purchases. You can use an online budgeting platform like Mint.com.

  • Create two columns: "Expected Budget", which is how much you intend to spend for each category (this calculation should be the same every month and made at the beginning of 30 days), and "Real Budget", which is how much you actually spend (it can fluctuate by month by month and must be calculated at the end of the 30 days).
  • Many people also anticipate savings when budgeting - try to set aside 10-15% of your total salary.

  

  Step 4. Be honest with yourself about your budget:

  the money is yours, so there's no use lying. Don't worry - it will take a few months for this system to become solid. In the meantime, don't let go and be realistic.

  For example, if you decide to set aside 500 euros a month, consider this number well. If this is not possible, opt for a more realistic sum and review your budget: you could save on a few other categories to get the total you had in mind at the beginning

  

  Step 5. Curate your budget month by month, so you can eventually do an annual calculation

  • Having a budget will make you open your eyes to your expenses. Many people, after starting to do this, have realized that they have spent a lot of money on totally useless things. In this way, they were able to regulate their consumer habits and use money wisely.
  • Predict the unexpected. Establishing a budget will teach you how to cope with emergencies. While we don't have a crystal ball, we can save money to prepare for unstable financial times.

  Method 2 of 4: Spend Money Successfully

  

  Step 1. Don't buy things you can borrow or rent

  How many times have you bought DVDs seen only once and left to get dusty? The same goes for books, magazines, one-time tools, party supplies and sports equipment. By doing this, you will also accumulate fewer things and treat what you have better.

  On the other hand, don't rent everything. If you know that you will be using an item for a long time, buy it. Do a cost analysis to understand what suits you best

  

  Step 2. If you have a home mortgage, your goal is to minimize interest and wisely balance payments with the rest of your budget

  

  Step 3. Avoid having a credit card if you can

  Do you sometimes need it? Put it in a drawer and use it when absolutely necessary. Otherwise, you can use a prepaid one and top it up as needed.

  Treat your credit card for what it is: cash. Some people believe this tool is an unlimited source of money, regardless of what they can actually afford to buy. Eventually, however, they find themselves in debt

  

  Step 4. The first, and most important rule, is the following:

  spend what you have, not what you hope to earn, unless it is an emergency. You will keep yourself out of debt and improve your financial future.

  Method 3 of 4: Invest Small Amounts

  

  Step 1. Learn about the different investment options

  Those who are not familiar with the economy grow up thinking that this world is very complicated. Of course you have to read and learn: if you do, many new doors will open for you, from futures to stocks. The more you know, the better investment opportunities you will have, becoming aware of backing out at the right time.

  

  Step 2. Choose the pension plan that's right for you

  

  Step 3. If you went to college, you can redeem your study years and turn them into retirement years

  

  Step 4. If you are planning to invest in the stock market, don't gamble:

  it would be too risky. Prefer long-term investments (at least 10 years) to short ones:

  • Learn about the company (balance sheet, history, employee treatment, strategic alliances) when choosing stocks. In practice, you bet that the current price is underestimated and that it will rise in the future.
  • If you are looking for a safer investment, opt for mutual funds, so you will minimize the risk. This is how it is: if you have invested all your money in a single stock and its price plummets, you lose everything; if you have invested your money fairly by spreading it out among 100 different stocks, many of them can collapse without harming you in any way.

  

  Step 5. Choose the insurance that's right for you

  Cunning people expect the unexpected and plan what to do. Sooner or later you may urgently need a large sum of money. Having good insurance coverage can help you during a crisis. Talk to your family about choosing the right one for you:

  • Life insurance (if you or your partner dies unexpectedly).
  • Health insurance (if you have to pay for unexpected medical visits).
  • Home insurance (if something damages or destroys your home).
  • Natural disaster insurance (earthquakes, floods, fires, etc.).

  Method 4 of 4: Save money

  

  Step 1. As we have already stated, try to save around 10-15% of your salary

  If you can't, make sure you set aside a small percentage of your earnings anyway.

  • If you can save 10,000 euros a year, which is less than 1,000 euros a month, in 15 years you will have 150,000 euros, which you can invest as you wish.
  • Start saving now, even if you still go to school. Those who start doing this early realize that this is more of an ethical issue than a necessity. By saving from an early age and investing wisely, you get a substantial sum over the years. It literally pays to think ahead.

  

  Step 2. Try to have emergency funds:

  you will use them when you have unexpected events and you will not get into debt.

  Example: your car breaks down and you need 2,000 euros. You didn't anticipate this, so ask for a loan, probably a high interest rate. As a result, you won't have the ability to save for quite a few months

  

  Step 3. Your emergency fund will need to have, at least, an amount of money to be able to live safely without a job, should you get fired, for three, six or nine months

  

  Step 4. If you are in debt, try to pay it off as soon as you reach stability, otherwise it will be difficult to save

  Start with the ones with the highest interest rate and follow the list in descending order until you get rid of them entirely.

  

  Step 5. Save your retirement money

  If you are 45-50 years old and haven't started saving yet, you need to do it now so you won't have any nasty surprises.

  • If you don't know how much money to save, use an online calculator like Kiplinger's: here.
  • Talk to a financial advisor if you want to maximize retirement savings but don't know where to start. Sure, you will have to pay for his service, but you do it for more money.

  Advice

  • Keep learning and taking courses to improve your knowledge and skills, so the competition won't overtake you.
  • Prepaid cards will allow you to stick to a maximum spending limit (you can request one at the bank or opt for Postepay).

  • Avoid selling your home when there is an increase in foreclosures: the law of supply and demand will lower prices.

    • After the banks have sold the foreclosed homes, the law of supply and demand will force prices to rise.
    • Keep your property during foreclosures, as prices will rise.