I am going to write a series of articles related to this field because I believe a lot of people don't have financial education or misunderstands the meaning of it.
A few years ago I was in the same situation, didn't know anything about personal finance. At the end of the month I always had to borrow money from friends. Moreover, I was very frustrated because I didn't have enough money to live, complaining every month. So I've decided to attend to a financial education training where I've learned a few strategies which I have applied in the last three years and I want to share them with you.
The golden rule
After they're getting paid, people spend their money based on this formula:
INCOME - EXPENSES = SAVINGS
Usually this means that most of the time you will not save anything because there is always something to buy, right? And if you don't have enough money you will borrow from a friend because you fell in love with that shiny thing you saw at the mall.
Usually people don't ask for money to buy emotional things. They need money for living because they discovered in the middle of the month, after buying cool awesome things , that they don't have enough for living. I will come very soon with an article about how to resist the temptation of buying something you desire but not necessary need it.
People who has financial education apply this formula:
INCOME - SAVINGS = EXPENSES
Yes. You've got it! First save money and after that spend what remains.
But how much should I save, because I don't even know how much money I spend?
What if I will not have money to pay the bills because I saved them?
This is the moment when we need to talk about budgets.
Where is the golden rule?
I thought you already figured out that the golden rule is:
DON'T SPEND MORE THAN YOU EARN!
Let's talk about budgets.
Budgets.Budgets.Budgets.
In order to budget your money you have to define a few categories which apply to your expenses. After creating these categories, you have to figure out how much money you will spend on each one. This means that you will need to track your expenses.
The first benefit of creating a budget is to understand where your income is going during the month.
The second benefit is that when you're going to buy something you will know exactly how much money you'll spend because you've already defined your budget.
How to create a budget?
When I first started to create budgets I struggled a lot to detect all the areas of my life where I could spend money. After a few months of testing I found the best approach which I am going to share with you.
These are the main categories for budgeting your income:
1. Savings - I use 10% from my income here;
2. Housekeeping expenses - rent, phone, internet, electricity, gas, water bills;
3. Car expenses - fuel, car wash, car insurance, vignette, supplies (like brake pads, oil change, windshield fluid etc).
Tips: Only fuel and car wash are monthly expenses. For the others you'll have to add a small amount of money each month so when you will need for example to change the brake pads, you will have enough to pay from this budget.
4. Feeding - food, drinks;
5. Nonfood- toilet paper, soap, napkins, detergent, etc;
6. Clothing- men's clothes, women's clothes, kid's clothes;
7. Cosmetics - shampoo, make-up, shower gel;
8. Health care- a small amount of money every month, medical insurance;
9. Donations- with these money you can buy someone food or clothes. Or you can go and sustain a good cause;
This list helped me a lot in the last years. Because my goal was to become financial free, I discovered a strategy which helped me to go on that direction. I am going to share it with you in the next article.
Until then, don't forget to follow me to see more articles like this and resteem this post if you think it has a valuable content.
Also, if you have any question, please comment bellow.