Budgeting for Your Personal Finance
This article is validated by Davide Berti, a senior private banker financial advisor and digital entrepreneur. Every post on this website is written by the editorial team and validated by experts.
Translated into simpler terms, it means “planning your spending ahead of time, based on what money you expect to have.” It’s like changing how you think about money. Instead of letting money control you, you control it based on what you need. Think of your family like a small business. Just like a business, you want to keep your family’s finances strong to avoid problems.
We need to learn how to take care of our money because schools usually don’t teach this. So, we have to learn it ourselves, and that’s where I come in to help.
Here’s what you should do:
- Keep track of what you spend: Look at your bank statements from the past three months and write down everything you’ve spent money on.
- Sort your spending into categories: Split your expenses into different groups like rent, groceries, utilities, etc., so you can see where your money is going.
- Know how much you make: Figure out exactly how much money you earn. If you work for a company, check your pay stubs. If you’re self-employed, set aside money for taxes.
- Check your budget: Do a simple calculation to see if you’re spending more money than you’re making. Subtract your expenses from your income. If you have money left over, that’s good. If not, you need to find a way to spend less or earn more.
Are you saving money?
If you’re spending more than you’re making and not saving anything, that’s not good. You’re building up debt that you’ll have to pay off later. To fix this, you can try to make more money or spend less.
Saving money can be hard, especially at first. Spending money feels good right away, but saving takes time to pay off. However, saving is really important because it helps you build wealth for the future.
Warren Buffet, a famous investor, says, “Save first, then spend what’s left.” This means you should save money before you start spending it.
Saving money gets easier over time if you do it regularly. Starting is the hardest part, but don’t give up!
Some practical tips:
- Use different bank accounts for different purposes to avoid confusion.
- Set up automatic transfers to make saving easier.
- Remember, the point of saving isn’t just to have money sitting in your bank account. You should use it for emergencies, paying off debts, or investing it.
Now, let’s talk about the 50/30/20 rule:
This rule says you should divide your money into three parts:
- 50% for essential expenses like rent and food.
- 30% for non-essential expenses like entertainment and eating out.
- 20% for saving for the future.
This rule is simple but effective. You might need to adjust it based on where you live or your age.
For example:
Anna earns 2,000 euros a month. Following the rule, she saves 20%, or 400 euros, each month. She spends 50% on essentials and 30% on non-essentials.
Following this rule doesn’t mean you can’t enjoy life. It just means being responsible with your money. If you’re unsure if something is necessary, ask yourself if you can live without it. If you can, it’s probably a want, not a need.
That’s it for today. See you in the next article!
