Although money is a part of almost all aspects of modern life, many people have difficulty interpreting even the most basic financial concepts. A global survey on financial literacy, a 2015 survey by credit agency Standard & Poor’s, indicates that every third person in the world is financially illiterate. That is why it is important to adopt basic financial knowledge and put the emphasis primarily on personal financial management. If you don’t take care of your finances, they will surely take care of you, and in a way that you will not like.
During a pandemic, it is more difficult to manage personal finances, especially when the working model and working hours change. For example, hybrid remote work is becoming increasingly popular. If you put personal finances under control, you will be able to make choices according to your wants and needs, rather than having them imposed on you as a result of reckless decisions and bad habits.
Managing personal finance
You don’t have to go into the smallest details when managing your finance – the most important thing is to keep track of your income and expenses, and you can group them as you see fit. In addition to this initial step, there are a few more tips that can help you make managing your personal finance easily:
- Don’t rely on memory, writeYou can only remember your expenses in detail if you have very few. As this is usually not the case, especially on a monthly basis, it is much more reliable to list the costs regularly. They do not have to be presented in the form of a complicated Excel spreadsheet with countless formulas – it is enough to draw a few columns and rows in the notebook in which you will record all important data. If this is easier for you, you can keep track of expenses on your smartphone, with the help of numerous applications designed for that purpose.
- Be persistent and honest in budgetingIt is important to be honest when recording income and expenses and not omit small expenses that you assume will not be repeated, especially at the beginning of this process when you still do not know enough about your spending habits. Therefore, enter all income and expenses in the table. Another important aspect of successful budget management is to be persistent. Experience has shown that a period of three months is optimal to see some regularities, and on the other hand, avoid the excuse that you started keeping records exactly that month when you had a lot of expenses.
- Monitor the flow of personal finances and adjust spending
After a few weeks, you will have an overview of the flow of personal finances. In other words, it will be clear to you whether your income is equal to your expenses or you have room to save. You will also notice if you spend more than you earn and borrow. In such situations, budgeting proves to be very useful because it helps you easily spot costs that can be characterized as a “waste of money”.
- Distinguish between desires and needs
It is very useful, and also interesting, to analyze your costs from the aspect of desires and needs. Needs mean everything you need for everyday life, while desires are those life pleasures that would be nice to afford, but not necessary. The 50/30/20 rule can be helpful when allocating costs to these categories. In other words, you spend 50 percent of the money on your needs, 30 percent on your desires, and 20 percent you can put aside and save for the future, though, for example, savings.
- Budgeting helps you achieve your financial goals
There are a number of goals you can save for – vacations, debt repayment, life insurance payments, or something else. Whatever the reason, keeping a budget will help you define how much you can save per month. That is why this habit is of immense benefit when making a plan on how to reach the set financial goals and how long it will take you to do so.
Although at first glance it may seem that budget management will limit you in the free disposal of your own money, with long-term practice you will notice that it actually has the opposite effect. Budget planning actually allows you to be relaxed with money within the framework you set for yourself and in accordance with your needs and capabilities.
Myths about managing personal finance?
Although managing personal finances and managing the budget does not always seem to be the most fun and simple thing in the world, many of the preconceptions why we do not engage in such activities are not entirely true.
That is why, before the information on what budget management means and advice on how to better and more easily manage personal finances, we present five ingrained myths about budget management that we would like to break.
- The budget must be very detailed
Incorrect. It all depends on whether you have detailed yourself or not – if you like to deal with tables, just keep it up, but if you have not yet started recording income and expenses, it is enough to draw a few columns in the notebook and start collecting or subtracting. You can group expenses as you see fit, without breaking them down into small categories – it’s important to keep track of expenses, not describe them in detail.
- Keeping budget records takes too much time
Incorrect. Entering expenses will take you only a few minutes a day, you just need to enter the amounts in the table regularly. It will become a useful, healthy, and default habit for you, for example, like brushing your teeth in the morning and in the evening.
- I don’t have to write, I know exactly where I spend my money
Are you sure that’s right? You can only know this if you spend very little. On the other hand, no matter how much you keep different items under control in your head, there is no reason for the budget to be one of them. It will be much easier for you if you have everything in writing – you have a clear list of expenses, which is immediately available, you don’t have to remember and invent.
- If I start planning a budget, I will no longer be able to be relaxed with money
Incorrect. Budget planning just allows you to be relaxed with money within the limits you set for yourself in accordance with your needs and possibilities – for example, to plan an outing (with controlled spending), going to the cinema or restaurant.
- Unplanned expenses are hard to avoid
This is true. People are generally optimistic and do not think of the worst, which does not mean that unplanned expenses can always be avoided. No matter how much you plan, it is always possible that there will be a certain cost that is specific and that could not be predicted. However, when you follow your expenses for a few months, you will surely notice some regularities – that is, that some expenses are repeated. So plan your budget and always have some money as a reserve.