Managing your money intelligently is not always easy; it requires great discipline and relentless will. Business Cool lets you discover today the golden rules to follow to better manage your financial life.
60% is the number of French people who exceed their overdraft at least once a year. It is sometimes difficult not to give in to temptation: private sales, fast-approaching sales, weekends in the sun… Expenses can quickly reach levels that we did not necessarily expect. To avoid finding yourself in a tight situation and being caught off guard, the best thing is to anticipate and organize in advance.
Learning to establish a budget and respecting it will allow you to better manage certain, sometimes unexpected, expenses. It is no coincidence that Bill Gates, the founder of Microsoft and became one of the most influential businessmen in the world. The latter firmly believes that we can only be optimistic in the long term if we are pessimistic enough to survive in the short term. Concretely, this involves pessimistic saving and optimistic investment.
Rule #1: 50/30/20
The 50/30/20 rule is a method that will help you manage your monthly budget in an easy, intuitive and sustainable way. It consists of:
- 50% for your necessary expenses (rent, loan repayments, taxes, insurance, transport costs, food expenses, etc.),
- 30% for what you want (restaurants, trips, hobbies, etc.)
- 20% for your savings or to repay your debts.
Thanks to this method, you will have an overview of your budget and future expenses. It will also allow you to save for future unforeseen expenses and to better control the future.
Over time, your spending will balance out and you will be more aware of your spending habits. You will be able to avoid impulsive purchases which will not bring you any added value. The rule was founded by Harvard graduate, bankruptcy expert and U.S. Senator Elizabeth Warren and her daughter Amelia Warren Tyagi. They developed this approach to budget management in 2005 in their book entitled “ All Your Worth: The Ultimate Lifetime Money Plan »
For example, if your net salary is €1,000, the sum of €500 must be allocated to your needs and necessary expenses, which are:
-
rent;
-
electricity and gas bills;
-
transport costs;
-
insurance (health, car, animals);
-
minimum monthly loan payments;
-
basic diet.
These categories may vary from person to person. However, if your total needs exceed 50% of your take-home pay, Elizabeth Warren suggests making some changes. For example, changing electricity supplier or perhaps looking for a cheaper apartment.
Rule #2: Establish a budget and stick to it
Keeping a budget and monitoring your money coming in and going out is of great benefit, it will allow you to know the state of your finances and not be overdrawn after a week. The overall goal is to know where your salary is going so you can make the right decisions. It is important to keep in mind that the euros spent can add up very quickly. However, there’s no harm in spending money as long as you stick to a budget and your savings goals.
To help you in this process, we offer the following solutions:
- Keep a notebook with two columns: expenses (fixed and variable) and income (salaries, housing assistance, etc.). Fixed expenses correspond to charges that recur every month on fixed dates, such as telephone bills, rent, electricity, Spotify/Netflix subscriptions, etc. Paying them at the beginning of the month will allow you to get rid of them for the rest of the month. This will make it easier for you to manage your budget calmly and put money aside.
- Track your expenses on computer or phone using a suitable application or software such as Excel.
Rule #3: Set financial goals
At some point in your life, you will inevitably have to set financial goals: repay your student loan, invest in real estate, have enough money to travel around the world, etc. It is therefore recommended to think concretely about these objectives and how you can achieve them. Start by writing them down on paper to create an action plan.
If your dearest wish is to go on vacation to Bali this summer, you need to plan ahead and compare prices. You also need to save every month to be able to achieve this goal. Your dream vacation can become a reality if you plan ahead and take the right planning steps.
The point of setting financial goals is above all to avoid overdraft (worst case scenario). This is somewhat of an easy choice, but you must also keep in mind that this involves fees, which are a source of additional banking fees and debt. Limiting overdrafts will allow you to have a relationship of trust with your bank advisor (which is still important if you wish to submit a credit application, for example).
Rule #4: Use certain tools to manage your budget
Many people can help you better manage your budget. They generally offer very practical solutions and comprehensive, easy-to-use services to monitor your accounts. We can take the example of the Banking application. Its mission is to make money management simpler and accessible to everyone. The application will guide you with its different features, its algorithms and its team of experts at your disposal to help you make the right decisions regarding your money.
The application has the advantage of being the only player independent of banks in Europe. She will be able to provide your support without conflict of interest. Bankin’ today has 4 million users in France, Great Britain, Spain and Germany.