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Today I want to write about personal finances. I think the most important thing you can do for yourself, is to get control of your own finances. So go through all of your incomes and expenditures and make an account book. How you choose to manage this is up to you. You can write in a standard notebook, or make an excel spreadsheet on the computer. It does not matter how you organise your account book, only that it is in a way that suits you. However you choose to arrange it, it is the content of it that is important.
And also if you do not already have a system for managing your bills, receipts, and important papers today, you should organise those. So get some kind of system of these important papers that needs to be saved. Receipts and warranties on products purchased. As well as receipts and invoices on services made for you, like repairs or redecorating of your home.
Revenue:
The first step to take control of your finances is to know how much income you have.
List all of your income that you have in a month. You should know how much is your annual income before taxes and after taxes. Even if your budget will be based on what you have left when the tax is paid. Do you have other fixed types of income, you may try to estimate what these will be every month.
Income that you do not have monthly, or that are not predictable, you cannot include in your calculation. This ensures that you do not base your budget on the income that is unsure and you might or might not have. This revenue if you get it later, you will see as a bonus.
The easy part is probably to list your income. This is something that everyone should be able to estimate. The difficulty is instead to get an idea, of where the money then is spent.
The first step to take control of your finances is to know how much income you have.
List all of your income that you have in a month. You should know how much is your annual income before taxes and after taxes. Even if your budget will be based on what you have left when the tax is paid. Do you have other fixed types of income, you may try to estimate what these will be every month.
Income that you do not have monthly, or that are not predictable, you cannot include in your calculation. This ensures that you do not base your budget on the income that is unsure and you might or might not have. This revenue if you get it later, you will see as a bonus.
The easy part is probably to list your income. This is something that everyone should be able to estimate. The difficulty is instead to get an idea, of where the money then is spent.
Expenditure:
When it comes to your spending it can be difficult to know where the money is going. Therefore, try to make a list of different categories. What are your fixed costs and how are these paid. Monthly? Quarterly?
When it comes to your spending it can be difficult to know where the money is going. Therefore, try to make a list of different categories. What are your fixed costs and how are these paid. Monthly? Quarterly?
Living costs:
- Rent or expenses relating to your house or apartment
- Electricity cost
- Home insurance
- Telephone
- Membership in the union
- Other important insurances and so on.
- Rent or expenses relating to your house or apartment
- Electricity cost
- Home insurance
- Telephone
- Membership in the union
- Other important insurances and so on.
Transportation:
- Bus card or similar
- Car costs, tax and insurance, vehicle inspection, petrol costs / month, need of future repairs needs to be included to some extent. (If you cannot afford this you need to sell your car).
- Bus card or similar
- Car costs, tax and insurance, vehicle inspection, petrol costs / month, need of future repairs needs to be included to some extent. (If you cannot afford this you need to sell your car).
Foodcosts, and consumables to the household:
Here it may be difficult to estimate the true cost of all those little things, one way to do it, is to save receipts for a month to see how much actually fall into this category. This category may include, shampoo, detergent, soap, cleaning materials for the household, other small purchases, newspapers, etc..
Other major expenses you have during the year:
Do you anything else that cost you alot of money, a cottage, a boat, a horse, dog or other pets?
Here, try to estimate your costs and estimate how much it will cost you per month. The same thing here, do you currently pay for something that you can't really afford?
Loans:
Many have interestrates every month and repayments on loans, and loans to either different companies or mortages to pay. Try to list all of your loans or credit lines, and the interest rate in % that you pay on the loan's total cost, and how much you pay every month. This is because you will need to try to pay back the loans that cost you the most, and is the most expensive to have, first. Short-term-credits must be paid back as soon as possible and also try to avoid those in the future. The loans with the highest interest-rates are to be paid back in that order.
Savings:
Do you have any savings today? Otherwise, it's high time to start one. Savings are the money you should put away for yourself, before the month begins, and before you start spending your money. At least 10% of your income you should save for yourself and for the future. You will soon notice that when you put aside the money you want to save, first. Then you will still make the ends meet with the rest of your livingexpenses afterwards. You learn to adapt to the new level of money that you have accessible. After you first saved some of your money, to instead grow in your savingsaccount, or in your investments. Then you will have a security for your future, and money for you to make all of your dreams come true. You need to have a savingsaccount, also for unseen expenditurs.
You can also try to compile a list of what assets you actually own. Do you own anything? How much do you think that your assets are worth? Estimate.
Wealth:
How much do you own, when you take your assets minus debts and loans? This can also be interesting to know for the future, so you can keep track of this development.
Now you can try to add up your current expenses and see how it matches against your income. Do you have money left when the month is over, or is it always a zero left in your account by then? If you are always out of money and you do not have any savings, you have to do something about your financial situation fast. You are then balancing on a thin line of making ends meet. Many people do not have the money in the account to meet any unforeseen expenditure even for a 'small' unforseen expense of for example $650. This have to change.
Plan ahead:
Now that you have a complete picture of what your financial situation is like, you can make a plan for your future. Do you have any debts? Then you must now focus on trying to pay off these debts. Remove all expensive small loans and promise yourself to stop borrow for consumtion. It is the most common of errors that everyone makes, that insures them just that they have to pay additional costs because they want to buy something now, instead of saving money and buying it in the future. It doesn't give them more happiness.
Most of what people are buying are things that they do not really need.
Tips for Your Future plan:
- Build up a buffer savings account, at least one month worth of income, preferably three or more.
- Pay off any debts and expensive credits, and make repayments on your mortgage.
- Remove unnecessary spending, which I'm sure that you have in your personal finance.
- Reduce your consumtion.
- Remove any unnecessary creditcards.
- Compare prices when you buy and be price conscious.
- Sell off things you do not need.
- Review your electricity contract, telephone costs and other subscription, can you reduce the cost of your current expenses?
- Even small change in the way you live, can make a big change economically. Do you eat out during lunchtime? Then start bringing a lunchbox to work.
- Ride the bicycle instead of driving your car when you are not going long distances. Saves your health, and the cost of gasoline.
- Buy groceries once a week, and plan what you are going to buy. Don't let your impulses decide.
You can also set your own targets, what are your dreams, what do you want to save money to, that you want in the future. Dreaming of a trip? Is it something you always wanted? Then you should start saving for that dream. Each day you will be a little bit closer to what you want.
Already some of you may have your savings and your finances in order. Congratulations! Then you can start thinking about how to preserve your wealth, and the value of what you own, to invest wisely for the future. We will talk about that in another post!
Keep track of the progress:
To enable you to start taking the first step to reach your goals it is important for you to keep track of your progress in your account book, to write down the goals that you have, then follow up every month how much you have achieved. Have you reduced your costs? Started a savingsaccount, repaid debts? Then all of this must be recorded. This is because it is something that will encourage you. And you need to review this progress every month. Even if you cannot save any money in the beginning, maybe only repay debts, you will still see all of that debt reduce. That means that you still that much + in the end of that month, when your debt is reduced.
Every month, I think that you should also, before that month begins, conduct a preliminary forecast of how the month is meant to proceed economically, and then see how much you can spend on various expenses. It will help you to follow your budget and always see where you stand against your account and budgetplan.
It is only you who can take control of your finances. So do it now, and achieve all of the goals and dreams that you have. Just keep to your plan!
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