5 steps to improve your personal finances
Updated: Nov 29, 2019
By: Matilde Baez
To improve our personal finances we can take small actions that will allow us to make efficient the use of the economic resources that we manage, here I want to share 5 key steps.
1. Make a budget and respect it:
The first step to organize your finances is to make a budget, in this, you must contemplate all your income and expenses during the month. Expenses should be placed in order of priority, I propose to use a color scale.
Example: we will use the color scale from red to green, in which we will have 4 categories. First, the red category in which we will place those expenses that are mandatory, such as the payment of public services and loan installments, although the latter are not expenses, represent expenditures of money. Then we will have the orange category that represents mandatory expenses but that the impact of not carrying them out is less, then we will have the yellow category where we place those expenses that are less essential and green those whose non-execution do not represent any negative impact.
This categorization is personal, but it must be done with awareness regarding the importance of each expense and the impact that it would have to stop doing, the important thing of this method is to be able to see what expenses we can postpone if our income does not reach.
Stick as much as possible to the budget made, although it is true, budgets are assumptions that are not necessarily going to be given in full, to be successful in your finances you must stick to it as much as possible, so respect what you have programmed.
2. Emergency fund:
To maintain financial health, it is essential to create an emergency fund, this would be an amount of money that we establish to face possible eventualities whether health, urgent home repairs and any contingency that cannot wait. The amount must be fixed, at least, it is equivalent to 25% of the monthly income, once the set value is reached you can decide whether to extend it or keep it to a minimum.
Keep in mind that credit cards do not serve as an emergency fund, although it is true we can make use of them to quickly resolve any inconvenience, we must take into account that then you have to look for the resources to pay it, which is possible that you don't have at the moment and have to start paying interest on the financing.
The emergency fund is money already available for which you will not pay interest if it is difficult for you to restore it, which must be committed to replenishing it in the shortest possible time.
Saving should be mandatory every month if we expect that over money for savings we may never make it. It is important to establish a purpose for saving, that is, from the beginning indicate your objective, they can be a trip, change an appliance in the house, acquire some goods that we need or anything else. The important thing about saving is that it allows us to program ourselves in the future and be able to obtain what is not possible today. The savings must be at least 5% of your monthly income and is totally independent of the emergency fund.
4. Schedule your meals:
Before going to the market or supermarket it is good to program the meals you cook in the following days and make your shopping list according to the ingredients you will need. Take into account the days and meals you will have outside the house so you don't buy for those days. Think about the last few weeks and the amount of food you have thrown out of the refrigerator or pantry because they can no longer be consumed.
It is advisable to schedule the purchase of fruits, groceries, vegetables, and meats once a week because this way we will buy with a more real base to what we need and it guarantees us a reasonable time to keep them in good condition.
For products that have a longer life span, it is recommended to schedule your purchase biweekly. When we buy monthly unconsciously, we buy more, thinking about all the days remaining for the next purchase.
5. Say NO to compulsive and unnecessary purchases:
Compulsive purchases involve an excessive and uncontrollable expense, these are cancer for our finances. It is important to buy as we need things and according to the money, we have available. Buying what is not necessary can lead us to spend money that we will later need to cover those expenses that we cannot postpone. Avoid going to the mall walking, turning these encourages buying unnecessary things. Beware of offers if you buy something that is on offer just because it is, and you do not need really are overspending and not saving, bids can be viewed as savings if it corresponds to things you had planned to buy and have already planned your budget.
I invite you to do an exercise, take pen and paper, write down those things you bought in the last two months without really need, then calculates the total value of them and see how much money you could have saved.