The Eight Most Common Mistakes In Personal Finance

The arrival of the new year always implies posing new challenges. In a country like ours, where it is necessary to improve the level of financial education of the population, a good resolution for 2020 is to learn to manage personal finances.

  1. Presentation, Financial, PlanningNot making monthly budgets. Comparing personal or family income and expenses allows us to know the economic reality that we face. The budget will allow you to know what are the concepts that make up those expenses and, if there is any need for adjustment, it will be easier to identify which one can be dispensed with. Failure to do so will raise concerns about unexpected payments.
  2. Do not build an emergency fund. Having a “cushion” of money is a necessity to be prepared for unforeseen events (broken appliances, a serious illness, theft, etc.). Not having this support will force us to request loans or use a credit card, so the amount to be paid will increase due to interest.
  3. Make unnecessary purchases. Whims in the supermarket, expenses on clothes that are not necessary, a new smartphone just for having the latest model? These are examples of purchases that can be dispensed with and will allow us to better organize our expenses and adjust to our income.
  4. Don’t think ahead. Retirement looks a long way off for those just entering the job market. Many do not think about that possibility and are likely to face problems with lower income and several fixed expenses (for health, especially). To avoid this situation, it is convenient to develop a form of savings that allows you to have a good complementary fund and enjoy this stage of life with peace of mind.
  5. Graph, Chart, Finance, Statistics, DataDon’t invest. “Money shouldn’t be standing still.” It is a classic recommendation from specialists: make the savings profitable. It is not an easy task and requires spending time or following the advice of an advisor. It is important to understand the different possibilities (deposits, stock market, investment funds) and their respective degrees of risk, in order to choose the most convenient one and obtain the profits we expect.
  6. Have only one source of income. Growing professionally in a company full of satisfaction, but it is not advisable to let it become the only family income. The possibility of losing your job or having to assume more expenses is always present. Therefore, it is advisable to see what are the possible niches to obtain extra income. Teaching or an entrepreneurship are some alternatives that could help you get extra money to supplement your main income.
  7. Abuse of credits. Obtaining a loan to finance yourself is a good idea, as long as it is planned. Using this method as an alternative to pay debts constantly and without control will push us into a spiral of debt from which it will be increasingly difficult to get out.
  8. Uncontrolled ‘hobbies’. It is normal to have a hobby: collecting something, going to concerts, traveling, etc. However, this does not mean shopping without control. A good practice could be to determine an exclusive annual budget for our “hobbies”, which is in accordance with our economic possibilities. That way we will know that what is spent will not affect other payments and we will enjoy that little whim more.

Tips For The Efficient Management Of Your Personal Finances

The idea for this talk was born after several years of personal research, where I tried to understand how I should organize my finances in order to achieve my goals and my dreams with the money I generated from my work. The road was long, but finally, here is the summary of all that research. These tips can help you begin your journey to properly organize your personal finances.

Create a personal financial budget and record all your expenses!

It is essential to start organizing your finances that you know very well what your monthly income and expenses are. And for that, your best ally will be excel! I know that for many, it is a totally unknown terrain, but luckily today, thanks to Google Drive, it is available to everyone and everywhere. For me, it was what worked best for me because having my budget in the “cloud”, I can check it from any PC with internet access, and I can always keep it orderly and controlled!

In general, the first budget that we put together is quite theoretical, and we lack several or a lot of expenses that we do not have registered in our heads. To improve our estimates and have control of our finances we have to know the reality of the facts and the expenses, we have to know how, on what and when we spend!

Control your debts

Another issue that must be analyzed once you put together your budget is the% of your income that corresponds to debts, which can be: debts to family/friends, loans of any type of credit cards. The sum of the amount corresponding to the monthly debt payment should not exceed 35% of your income! If that happens, Ok, we have a problem! and you have to put together a plan to get out of this situation!

Credit card debts, for me, are the worst of all because if we don’t control them, they can increase very easily! So if you have debts of this type, it is essential that you identify the total amount of your debt month by month and verify that it is decreasing and not increasing! Many times even without using them, if we do not pay the total, the interest month by month increases our debt!

Create an Emergency Fund

Once you know your monthly income and expenses, you can start to build an emergency fund for possible contingencies such as something breaking in your house, some type of medical treatment that is needed in the family and social work does not cover, some atypical expense that arises or even if some of the people who generate income in the family are left without a job. Having an Emergency Fund allows us to live peacefully and is a gesture of love towards the people who live with us because with this fund, we are protecting ourselves, and we are protecting them. So if you don’t have it, don’t hesitate and start generating it.

The amount of the Emergency Fund should be at least 3 times equal to the fixed costs that are in your budget, and ideally, it would be equal to 6 months of the total budget expenses. For example, suppose that my monthly fixed costs are $ 30,000 and my variable costs are $ 20,000; in total, I have $ 50,000 of monthly costs in my budget. Well my minimum emergency fund should be $ 30,000 x 3 = $ 90,000 and ideally it should be $ 50,000 x 6 = $ 300,000.

Define your financial goals

Without goals, there is no plan, and without a plan, there is no effort. In order to keep your finances in order over time, it is essential to define savings objectives in the medium and long term.

Since if an expense goes against your objectives or takes you further away from it every day, you are going to question it, and you are going to try to avoid it. On the other hand, if you do not have a clear objective, money can freely enter and leave your life because it does not have a specific destination and therefore makes it more difficult for us to generate savings and maintain order in our finances.