These tips can help you whether you reach the end of the month with water up to your neck or if you feel that your salary is leaking through a little hole and you could take better advantage of it. Knowing a little more about personal finances can only improve your situation. We give you the three fundamental keys to redirect your financial balance on the right path.
First of all You should be very clear about the concept of liquidity. That is, the hard and fast money that you can have at the moment. Imagine a line with a lack of liquidity at one extreme and excess liquidity at the other. Think carefully about where you stand and make it your goal to get to a middle ground. If you lack liquidity, the objective will be to save more; If you have excess liquidity, the objective will be to invest better.
1. Reviewing debts is the first step in personal finance
Debts cause you to pay more for the goods or services that you have and drastically decrease your liquidity. Namely, your purchasing power falls. They are simply charging you for paying it in installments, you do not receive anything else in return. It is said «comfortable deadlines» but comfort should not be a parameter to evaluate an expense.
Only in case of need should a deferred payment be used; never in case of an unnecessary expense. For example, necessary is a home. That deferred payment is justified. However, changing the television is not usually necessary, unless it breaks down. So, if you want to buy a television, save that comfortable fee that they propose and sooner than you think you will have the amount to buy the television in one fell swoop and at its true price.
make a list with everything you are paying deferred and place each element for order of need. This will make you see what kinds of things you should self-finance with the savings you do every month and which ones it is truly essential that you pay in installments. On the other hand, order that list from the smallest debt to the largest and try to take off the smallest ones according to the plan you design with what we tell you in the next section.
2. Budget from your monthly salary
Just like the hours can be translated to seconds if you want to calculate the acceleration speed, for example, all expenses should be translated to other measures. It is a fundamental principle in personal finance. On the one hand, what percentage of your salary occupies. This will be done by games. You do not calculate the percentage of your salary that half a kilo of minced meat represents, but how much the food expenditure as a whole. On the other hand, it translates the annual expenses to monthly expenses and calculates the corresponding percentage of salary they represent.
With all this calculation you can start budgeting now make a forecast of what should be spent each month. The balance between what you have budgeted to spend and what you actually spend will tell you where to pay more attention.
Add a couple more percentages: the one that represents all your debt in monthly figures and the one that represents the savings item. The objective will be to reduce the first month by month to increase the second.
3. Save or invest
Investing is more complex and you can surely take professional advice to guide it. Just mention that stagnant money loses value and it is convenient to have only an amount in this state in case it is needed. A good number can be the equivalent of six months your salary in case you run out of work or means of income and you have to face all the expenses foreseen in the previous point.
Let’s go to savings. You should always allocate a percentage of your salary, no matter how small, to this item. Go back to your list of debts, the moment you cancel the smallest one, do not replace it with another superfluous deferred payment. Save that amount and start building your reserve fund in case something unforeseen happens. You can do the same with each cancellation until the percentage of savings suppose between 10 and 15% of your salary.