Personal finance advice

Personal Finance Advice | Tips for (well) managing your budget are too rarely applied

Personal finance advice

Personal Finance Advice | Tips for (well) managing your budget are too rarely applied

Personal Finance Advice

We sought out personal finance advice from a financial planner to help you manage ypur money and plan for your future. It is true that even if the tips for managing your budget are abundant, they are not always applied by everyone. There are several reasons for this, including:

  1. Lack of time: For some people, managing their budget is not a priority and they do not have the time to take care of it.
  2. Lack of interest: For others, managing their budget may seem boring or tedious, so they are not motivated to do it.
  3. Lack of knowledge: Many people are unsure of the best way to manage their budget and don’t know where to start.
  4. Temptation to spend: It can be tempting for some people to spend their money rather than save it or invest it, even though they know they should.

However, there are several steps one can take to overcome these obstacles and better manage their budget:

  1. Set clear goals: Setting clear financial goals, such as saving for a big purchase or paying off debt, is important for having actionable motivation.
  2. Establish an action plan: Once the objectives have been established, it is necessary to develop a concrete action plan to achieve these objectives.
  3. Automate savings: It is possible to automate savings by setting up regular transfers to a savings or investment account.
  4. Call on a professional: If you feel overwhelmed or need help setting up a budget management plan, you can call on a financial professional or a financial advisor. wealth management.

Ultimately, it’s important to find strategies that work for you and take concrete steps to better manage your budget.

8 Essential tips for your personal finance advice

  1. Creat budget and prioritize your spending
  2. Eliminate delayed debits and cut unnecessary expenses
  3. Know your fixed costs and set financial goals
  4. Monthlyize your expenses
  5. Create precautionary savings
  6. Make the banker an ally
  7. Cash or promotions: make the right choice
  8. Manage with a provisional budget
  9. Set aside 10% every month
  10. Track your progress

1. Create a budget and prioritize your spending

The first step in managing your finances is creating a budget. This will help you track your income and expenses, identify areas where you can cut back, and set financial goals.

Start by listing your sources of income and then categorize your expenses, including fixed expenses like rent or mortgage payments, utilities, and car payments, as well as variable expenses like groceries, entertainment, and clothing.

Prioritize your spending

Once you have a budget, prioritize your spending. Focus on paying off any high-interest debt, such as credit card balances, before spending money on non-essential items.

Additionally, allocate money toward building an emergency fund and saving for long-term financial goals like retirement.

2. Eliminate delayed debits and cut unnecessary expenses

Limit (and even eliminate) the use of deferred debit cards or charge cards or credit cards

One of the most effective ways to manage your budget is by cutting unnecessary expenses. This could mean canceling subscriptions you don’t use, reducing your entertainment budget, or buying generic brands instead of name brands. Small changes can add up over time and make a big difference in your financial situation.

Deferred debit cards are a real obstacle to allowing you to manage your finances well.

They are neither more nor less than a debt to your bank, which clearly distorts the vision of your expenses during the month.

Depending on the banks and the bank statements they generate, it really complicates reading your bank balance before you receive your salary.

If you want to use them, you really have to reserve them for the professional expenses that you may have to advance and which are reimbursed to you by your employer.

Forget about it!

Deferred debit cards can be useful for those who want to enjoy the convenience and benefits of a credit card, such as the ability to make online purchases and earn rewards, without the risk of accumulating debt or paying high interest rates.

However, it is important to note that if you do not pay the full amount due on time, you may incur late payment fees and interest charges, which can add up quickly and negate any benefits of using the card.

Cut unnecessary expenses

One of the most effective ways to manage your budget is by cutting unnecessary expenses. This could mean canceling subscriptions you don’t use, reducing your entertainment budget, or buying generic brands instead of name brands. Small changes can add up over time and make a big difference in your financial situation.

Use cash

Using cash instead of credit cards can help you avoid overspending and make it easier to stick to your budget. Withdraw a set amount of cash each week and use it for your variable expenses like groceries and entertainment.

3. Know your fixed costs and set financial goals

Whether you are self-employed or employed, it is always important to have an excellent knowledge of your monthly fixed costs.

A priori, we often tend to minimize them and when we start to add them up, we can reach fixed charge ratios of more than 70% of total charges. At this stage, it is then normal to feel “suffocated” by the weight of these loads.

To correct the situation, you sometimes have to be able to question a lifestyle that is unsuited to your income.

Set financial goals

Setting financial goals is an essential part of managing your budget. Identify your long-term financial goals, such as buying a home, paying off debt, or saving for retirement. Then set smaller, achievable goals to help you stay on track and motivated.

4. Monthly all expenses (as much as possible)

Your salary is monthly, your expenses must also be. Monthlyize as much as possible: Taxes (on income, housing tax, property tax), insurance premiums, condominium charges… whose deadlines are not always monthly.

We are sometimes tempted to postpone certain deadlines to deal with specific financial difficulties, or on the pretext of not wanting to “advance” money to the state or to certain suppliers.

In the case where you provision these expenses well on bank books, it is already a good thing, but it requires great rigor. On the one hand, you must ensure that you regularly fund to cover the charges you anticipate, but on the other hand, you must resist the temptation not to use this money for other purposes!

Monthly payment of ALL fixed costs seems to us to be the optimal solution. This saves you unnecessary mental burden and puts you face to face with your financial reality as soon as possible (and not in December, when it’s time to finance the end of year celebrations).

5. Save! Store at least 3 months’ worth of income in available savings

We consider as available savings, the money which is stored on the secure savings accounts of the type certificat deposit or life insurance (funds in Euro, USD…).

Savings are a fundamental tool (and a very relevant indicator) of financial management.

This part of your resources that is not (immediately) consumed is essential for:

  • Cover the vagaries of life (claims or drop in income): this is precautionary savings
  • Provision for anticipated constrained expenses (taxes, copro charges, etc.) that would not be monthly: this is constrained provision savings
  • Provision for your medium-term projects (holidays, car changes, professional retraining, real estate projects): this is “project” savings
  • Strive towards financial independence: these are the reserves awaiting investment.
  • Savings is a sort of shock absorber that allows you to compensate for the financial fluctuations that you may encounter, both in terms of income and expenses. Its importance is paramount (more important than anything else).

6. Make your banker an ally

We advise you to maintain a healthy and regular relationship with your banker. You might think that finding the right bank adviser is more a fluke or chance than a management choice, but we don’t really agree.

You must see your banker as a service provider (financial in this case), a real partner with whom you can maintain frank and useful communication, at the service of your financial situation.

Your banker will thus be more inclined to offer you financing solutions adapted to more tense financial situations.

If you are unable to have this kind of relationship with your banker, perhaps you should think about changing it or at least compensating for these shortcomings by using a coach specializing in personal finance?

7. Don’t give in to promotions at the expense of your cash flow

Consider the following example:

It’s the 25th of the month and your “shopping” budget is almost exhausted. You absolutely need detergent, but also enough to cook 7 meals for your family of 3, for a maximum of $ 40. What is the best decision between:

A box of 25 laundry capsules at $ 6 ✅
A box of 70 detergent capsules at $ 12
Keep your clothes dirty 😉
We promise, if you decide to keep your clothes dirty, we won’t allow ourselves to judge. Especially since our coaching services take place remotely 😉

More seriously, this question is an opportunity to contrast two principles that should allow you to make the right trade-offs for your budget: savings and cash flow.

When faced with a volume purchase like this laundry detergent, it is difficult to resist the temptation to buy in large quantities for a more attractive unit price. However, by too often making a purely “economic” choice, you clearly risk exceeding your budget and going into bank overdraft.

In many cases, when your budget is tight, it is preferable to spread the expense over time even if it is more expensive. It is more realistic to consume strictly what you need for the current month, and not for the next 3 months.

8. Manage your finances with a real provisional budget

As you can imagine, we recommend the construction of a monthly budget and regular monitoring of actual expenses compared to the estimated budget (once a week is enough). It is an indispensable tool for reconciling your bank account and your life. And that is of course what we train our clients to do.

The expression “follow your accounts” translates the fact of “undergoing” the situation. If you content yourself with looking at what you have spent at the end of the month without having defined a target beforehand, it is too late: you risk being in budget deficit, i.e. having consumed more than your income allows it.

And the more you accumulate budget deficits, the more difficult it is to overcome them later, it is a vicious circle towards a first debt, then the interests which accumulate until forming an excessive indebtedness.

The forecasting work not only allows you to aim for a balance between your expenses and your income, it is an opportunity to set realistic savings goals that will allow you to gain serenity and freedom in your life.

What is budget deficits?

A budget deficit occurs when a government, business, or individual spends more money than it earns or receives in revenue. In other words, a budget deficit represents a shortfall between income and expenses.

For governments

A budget deficit usually occurs when expenses such as public services, infrastructure, and national defense exceed revenue from taxes, fees, and other sources of income. Governments may borrow money through the issuance of bonds or other debt instruments to finance the deficit. If the deficit continues over time, the accumulation of debt can become a concern for the government and the economy as a whole.

For businesses and individuals

A budget deficit can occur when expenses such as rent, utilities, food, and other living expenses exceed income from salaries, wages, or other sources. This can lead to financial difficulties, such as unpaid bills, debt, and a negative impact on credit scores.

How to address a budget deficit?

To address a budget deficit, governments, businesses, and individuals may need to take measures to reduce expenses, increase revenue, or a combination of both. For governments, this may involve implementing austerity measures, increasing taxes, or reducing spending. For businesses and individuals, this may involve reducing discretionary spending, increasing income through additional work or investment, or seeking financial counseling or assistance.

9. Set aside at least 10% of your income each month.

As we said earlier, savings are an essential shock absorber to your financial stability.

It should be understood that the savings rate matters more than the amount you save. It means, it does not depend on your income.

If you save $ 70 on income of $1000 per month, this represents a savings rate of 7%.

It is much more virtuous and will have much more long-term impact for you than for someone who has an income of €5,000 and who only manages to save $150 (i.e. a savings rate of 3%) .

Still, if you have high incomes and can’t save, you’re not to blame. We often find that our lifestyle adapts quickly to our income. But the ability to save money has to be worked on!

This requires some effort to “break” the routine consumption in which you have been able to settle, in order to find a savings capacity that will allow you to carry out your spending or investment projects.

10. Track your progress

Finally, track your progress regularly. Review your budget regularly to ensure you’re staying on track, and adjust your spending as needed. Celebrate your successes along the way to stay motivated and focused on your financial goals.

In conclusion, managing your budget is critical to achieving financial security and independence. By creating a budget, prioritizing your spending, cutting unnecessary expenses, using cash, setting financial goals, and tracking your progress, you can improve your financial situation and reduce financial stress. Remember that small changes can add up over time, so be patient and persistent in your efforts to manage your finances effectively.

Photo credit: Gunjan2021 via Pixabay

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