The need to understand and organize finances is, oftenly, underestimated. It’s something you don’t learn in school and it’s actually not as easy as it seems, specially when you are about to start your independent financial life. You will (if you haven’t yet) find yourself in a lot of situations that will require you to have a good understanding of your own finances, and this guide will definitely help you with that!
- Set Priorities
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Define your priorities when spending money and a reduction plan if necessary. Then, classify your expenses as fixed and mandatory, periodic, and non essential, and prioritize your income according to that. By doing so, you will have a better outlook of your financial life.
- Make A Plan
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In a spreadsheet, organize your income and expenses, listed according to the priority previously defined. After that, set up a budget with estimated monthly expenses. Your budget must always be proportional to the money you have. Don’t ever plan to spend more than you earn.
- Keep Track
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Daily track each expense, classify and update it in the spreadsheet. Verify in which occasions you saved money and in which you spent more than you should.
Remember: always have a plan of action to reduce the impact of your expenses. You can’t spend more money than you planned, unless you receive an additional income. Be careful with your credit limit, always avoid exceeding it, since the interest rates are very high, and don’t ever keep a negative checking account balance.
- Invest Wisely
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It’s important to distinguish what you invest in 3 categories:
a) emergency funds, in which there will be low risks with the goal of saving an amount to protect your budget against short term unexpected money losses, in case of, for example, being fired or getting sick.
b) mid-term funds, which, in general, are investments from 1 to 3 years, with a higher risk and return compared to the emergency funds, in order to pursue a particular objective, such as buying a car, an apartment, or paying for your studies.
c) long-term funds for financial independence, with expected returns beyond 3 years. With higher risk-return, these funds have the goal to assure a proper amount of money that will allow you to stop worrying about your income.
- Celebrate
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Enjoy the results, make a special dinner with your savings for a specific month, organize a different trip with your additional income from your investments, donate an amount to help someone, and don’t forget: you save your money to live, not live to save money!
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The article above was edited by Laura Enchioglo.
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