The Best Recommendations for Managing Your Finances

“(…) when I buy something, or you, you don't buy it with money; You buy it with the lifetime you had to spend to have that money. But with this difference: the only thing you can't buy is life. Life is spent."

Jose 'Pepe' Mujica, in Human (2015)

Not being clear about how to handle personal finances causes frequent difficulties, the kind that put your peace of mind and the order of (almost) everything in your life at risk. Most of us have gone through them at some point and we would like to have the key to financial success, but there is no universal formula that solves everything.

What they may not tell you about this topic is that you need to know yourself well and train key skills, such as impulse control and the ability to postpone unnecessary pleasures.

In this post, we tell you several tips that experts on the subject recommend so that you achieve and maintain good management of your finances.

Tips for managing your personal finances

• Plan and do not improvise .

Finance is a field where behavioral planning is smart . Although not everything is under control and unexpected situations will surely arise, it will help you a lot to plan how you manage your money and, in the event of justified unforeseen events, readjust your planning. Improvising will bring you more surprises, especially negative ones.

• Be clear about your income , expenses and debts .

Nobody should know your finances better than yourself; therefore, it is essential that you do not miss anything and know how much money you receive periodically, what kind of things you spend it on, how much you spend on each one, how much your debts add up and with what terms you must pay them. It is the basic information for you to organize.

• Do not exceed 50% of your income in rent and housing expenses.

Although this may vary from city to city and according to your income level , this percentage is the ideal limit if you live alone. Given the rising cost of living and housing , households often choose to distribute expenses among working members and many single people decide to associate and live together to cushion this type of expense more comfortably.

• Save 10% for specific or unforeseen purposes.

Simply being able to do this should give you peace of mind regarding your finances . It is an indicator of stability . Save this percentage of your income and you will be able to face most unforeseen events and conquer that project that you want to make a reality.

• Pay attention to the behavior of inflation .

After the height of the pandemic, the economies of many countries have experienced significant inflation. It is crucial to keep an eye on fluctuations in indicators such as the Consumer Price Index (CPI) , euro and dollar exchange rates, and oil and gasoline prices . From this, you will be able to anticipate unavoidable expenses and even refine or reorganize the products you buy when you go to the market.

• Never exceed 30% of your fixed income in credit installments or loans .

More than that proportion will put you in trouble, unless you already have enough savings to cushion the impact. If you have already reached that 30%, evaluate very rigorously if what you want to buy is (a) necessary and (b) urgent ; if you don't meet both criteria, you could wait. Also, avoid scheduling your credits for as many installments as possible, as you will have to pay more in interest , you will compromise your ability to borrow, and the consequences of a financial calamity such as unemployment will be more serious.

• Make decisions based on the money you have, not what you will have .

The future is uncertain and the present very changeable. When planning how to manage your finances , never assume more than is reasonable . For example, the renewal of a contract is never a sure thing and the salary level does not always increase.

• Control ant expenses (small) and budget them .

Coffee with office colleagues, cake after lunch on Sundays, drinks with friends on Saturday, mid-afternoon snacks... All of these are ant expenses and it is important that you recognize them, budget them and limit them according to your economic possibilities. .

• Spend less, invest more .

This is a healthy maxim for your finances : try to reduce what does not generate profits and increase in the things that with a high probability will have the opposite effect.

Closing

Some people say “No one has seen tomorrow”, but tomorrow always comes and the responsibility of receiving it with intelligent management of your finances falls on you, which is not incompatible with enjoying life and the moment in a sustainable way.

Furthermore, if you are in charge of a household , it is not just about you and you must deal with the impact of your decisions on others and their quality of life . So, for those cases, the recommendation is to listen to their opinions about the large expenses and investments and make decisions with those who share with you the financial responsibilities of the home .

As we stated at the beginning, this topic is linked to your way of being and seeing things. Pepe Mujica's (in the opening sentence) is a fairly rational and very wise position. If you want to put our recommendations into practice , cheer up, it can be improved!