Instructions on how to start controlling your money and saving
According to the latest sociological surveys, every third person has problems making ends meet. In case of unexpected expenses, almost half of the families in Nigeria literally “collapse”. A broken refrigerator can become a complete financial disaster…
Growing debts, small loans, leasing and other monetary expenses increase the physical and psychological demands on the individual. In today’s world, it is necessary to know your money down to the last cent. We mean that literally.
If you don’t know where, when and where your finances are going, how do you want to have an overview of them and control their flow? In today’s article, we will clarify a few important points that should help you better maintain funds in your personal or family treasury.
Not everyone knows how to work with money. Let’s face it, most of us. 80% of the Nigerians population lives in captivity of the notorious phrase: ” I’m in the red.” I’m waiting for the payment.” Financial literacy and education in managing personal money, unfortunately, is not a topic in school textbooks even in primary schools, and what is even sadder, not even in universities. At the same time, we deal with personal finances on a daily basis for practically our entire lives.
Personal finance refers to the ways in which individuals or families:
- they earn money (income/family income),
- solve their own or family budget,
- they save
- they spend
over a period of time, taking into account the various financial situations, risks and life situations that may arise in the future and that will directly affect them.
You can easily compare the area of personal finance to managing finances and accounting in a company. Every business needs a financial plan and financial capital to manage. Each individual has a certain amount of money at his disposal, which he uses to pay for his vital and less necessary needs.
If you don’t have a proper financial plan, a detailed overview and control over your expenses and income, you feel that your money is slipping away and literally “disappearing” under your hands.
Unexpected events are just icing on the cake. They can also get you into a personal financial crisis. Therefore, every person and family should learn how to properly manage financial money. Managing your money is a sign of maximum responsibility and preparedness. As a bonus, you will get greater mental peace, less stress and a greater sense of security in life.
These factors are extremely important, especially in families. Did you know that 60 to 80% of marriages end in divorce precisely because of long-term financial problems? A financial budget and plan should be the cornerstone of every responsible family. In this way, you will avoid possible financial risks and unnecessary debt, which can also be unfairly inherited by your children.
The compilation of a family budget is very similar to the creation of a financial budget in companies when costs and expenses are summarized and subsequently compared with each other, while the primary goal is the creation of the greatest possible profit and financial savings.
A personal / family budget is actually a detailed financial management plan defined for a certain period of time. Its creation helps to gain control over the financial situation of the individual/family, to reduce the risk of unnecessary expenses and to prevent dangerous indebtedness. Through a well-prepared financial budget, it is possible to find resources for cash reserves and savings.
Creating a personal/family financial budget includes the above-mentioned summarization of all expenses and income. To make it easier to navigate the budget, it is recommended that income and expenses be divided into specific categories. The financial budget must constantly be adapted and changed according to the current realities of life. The budget check should therefore take place once a month.
All calculations of the personal/family budget must be made for a uniform period of time, for example for one month. All budget items are automatically related to the selected time interface. At the beginning of creating a budget, it is necessary to write down the initial state of personal/family money, so that you have something to compare your results with.
The method of recording it also depends on the budget update. You can use an ordinary pencil and paper to prepare the financial budget, but you have to count on constant rewriting or errors, which subsequently increases the lack of transparency of individual items.
Another option is writing in a spreadsheet, for example in Microsoft Excel or OpenOffice.org. Compared to paper and pencil, programs have the advantage that you can change, edit or even make certain calculations at will. Spreadsheet programs can perform basic and more complex mathematical operations by themselves, so they will save you a lot of time and simplify your work. The condition for using tabular processes for creating a financial budget is the ability to control them.
The third option is to choose special financial software for managing personal/family finances. Financial management programs have a pre-prepared comfortable user environment with categories, a number of useful functions, with which you can make statistics, and graphs and compare individual months according to various criteria. They save a lot of time and are intuitive to use.
An alternative way of managing money, quite old-fashioned, is to divide all income into envelopes, label them with the categories according to which they will be used (money for rent, food, car, etc.). However, this method requires a lot of discipline, as money in cash and “on sight” is much more attractive. It is better when the financial budget happens on a cashless level.
Another solution may be to establish the so-called the daily limit for designated items, which you must not exceed. This system is also very difficult, as it requires a lot of discipline in decision-making and constant price comparison, search for promotions, especially for consumer purchases. Being able to set the right daily financial limit is also an art. In addition, this method does not take into account unexpected expenses.
And how to properly create a financial budget?
- Compile an overview of all income
In the first point, you must write down all the sources of income of your household. Always calculate net income without taxation: wages, earnings from part-time jobs, from business, income from savings (interest), various forms of pension, benefits, financial help from friends or family, alimony, rental income, dividends and more.
- Write a list of all expenses
Expenses are the most sensitive item in the personal/family budget, so be very careful when recording them and try not to forget even the smallest detail. We usually divide expenses into essentials (rent, repayments, mortgages, consumer loans, leasing, credit cards, insurance, bank fees, savings and insurance payments, concessionaire fees, payments for electricity, gas, water, heating, telephones, car expenses, food, health, drugstore, cosmetics, clothes, pets, household maintenance, school and school supplies, rings, pocket money for children and household equipment) and impulsive spending(cigarettes, meals in restaurants, holiday celebrations, fashionable clothes, holidays, hobbies, sports, culture). Try to include everything in the list, otherwise, the resulting amount may not fit you when comparing.
- Compare income and expenses
In the third step comes the most important process: comparing the sum of individual incomes and expenses. Ideally, the amount of income will be higher. Then you can divide e.g. invest, or build up your “iron reserve”. If your expenses are higher than your income, you must either reduce your expenses or increase your income.
- Review and adjustment of expenses
After we have established the true state of our personal/family financial assets, we can begin to strategize how to manage our finances more effectively. This phase usually looks for items that could be deleted from the spending list to reduce the spending rate. You can also consider how you could increase the income portion of your budget.
- Regular review and updating of the budget
A financial budget has no meaning if it is not regularly updated and its items are not adapted to reality.
Creating a financial budget is one of the best investments in life. Not only will you save a lot of money and time, but above all, you will sleep more peacefully. Having control over the flow of your finances is one of the most important factors of a happy life.