If creating a household budget and collecting your receipts sounds like an annoying job that only your accountant should do, please think again about how your relationship with money is. Having control over your finances means that you have an overview. And even if you have a tax advisor for the tax return, the most important thing for you is the overview of your financial figures. So you are prepared for your financially free future and keeps you away from unnecessary loans (https://looselending.com/). You don’t need a bachelor’s degree in mathematics.
How To Manage Your Money (50/30/20 Rule)
Your financial overview sharpens your awareness of your money situation and also increases your chances of making intelligent spending and investment decisions. Following these three basic rules will help you create a secure financial future for you and your loved ones.
Rule number 1: Spend less than you take.
How, is it that simple? Yes. While this tip may sound simple, it can sometimes be difficult for you to actually put it into practice. However, your realistic assessment of what you’re currently spending money on can significantly increase the amount of your income and help you live within your means. Can you lower the rent by subletting part of the apartment? Does the car have to be a new car or does a used car not? When it comes to food, why does it have to be branded products that put part of the advertising expenditure on the price for you? Why not no-name products?
The best way to start is to record all of your monthly expenses with an Excel list and see how they are related to your monthly income. This important first step will help you determine the current status of your personal finances.
Take a second look at this list and see if you have any expenses that can be eliminated or reduced. Be honest with yourself. Netflix? Amazon Prime? Spotify? Gym? Magazine subscription? What expenses show you that you’re wasting your money on things you don’t even care about? Focus on keeping the essentials and eliminating the rest. The question “Do I need this to live or is it just a want to have?” helps immensely to differentiate whether it is a necessity of life or a convenience.
In principle, there is nothing wrong with spending 4 euros a day on a coffee to go or a freshly baked bread roll at the bakery on the way to work. Only if your income does not support this type of expenditure can it only be an advantage to forego this little luxury, this convenience?
Invest in a good budgeting program, such as the Money Money app for Mac to keep track of your spending and simplify the task. Here you can find more tools for PC too.
Rule number 2: understand the principle of compound interest
Interest is the price of money made available for a limited period. If you park your money in your bank account, the bank can work with it and usually gives you interest. You will receive interest on your invested capital, which will be credited to the investment. If the interest is not spent and remains in the investment, it will be credited to the total amount and in the following period will earn interest again with the original capital. Solid investments can help increase your annual income by 5%. You don’t have to invest too riskily to get that kind of return.
Rule number 3: never lose money
Make sure you have an emergency fund and nest egg to protect your property in case something unexpected happens. There is nothing worse than working hard for your money and then losing it due to poor planning and short-sighted investments.
Be vigilant about immediate growth opportunities or investment clubs that promise generous returns overnight. Take the time to research investment opportunities and read good books about investments before you spend your money on these types of investments.
Consider taking out a tenant or home insurance to protect your assets in kind. Knowing how to manage your money is a fundamental aspect of any successful long-term personal investment strategy.
If you only take 15 minutes a week to analyze your spending habits, you will be surprised at how much money you can save! And these savings are also your first smart investment with which you can start on the stock exchange.