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Food, rent, loans and «Wishlist» in the form of vacations and big purchases — how to combine everything, and even put it off «for a rainy day»? Financial adviser Anastasia Tarasova talks about budget planning in simple terms.
Pushing off the shore
Remember the movie Titanic? When the liner departs from the pier, it is accompanied by a small boat, setting the direction of movement. So it is with you and me, before talking directly about the distribution of finances, we need to set ourselves a movement vector and determine the starting point.
What do you have at the moment? What are your assets, liabilities, expenses and sources of income? You can do this in a table format or just write in free form text.
I, as a person of numbers, would prefer a table. You can build it as follows: we will have the names of the columns both on the left vertically and on the top horizontally. The top is your sources of income and assets, the vertical on the left is your expenses and liabilities. It is not necessary to count everything up to the ruble, it is enough to get the big picture.
Next, you subtract your expenses and liabilities from all income and assets. If the result is positive, great, you are on the right track. Near zero — there is room for improvement. If the amount is negative, it’s also not scary, you are already reading this article, which means that you have already begun to change something in your financial situation.
What is the budget
Further, it would be good to understand how the mechanism of the family budget functions. All our spending can be divided into three broad categories: long-term, medium-term and short-term.
long term spending These are global goals, like buying a car or an apartment.
Medium term spending — These are episodic expenses throughout the year: insurance, taxes, tuition fees, clothing, medicine, vacations, and the like.
Short term spending These are our daily and monthly expenses. This category includes groceries, utility bills, mobile communications, transportation, gasoline if you have a car, and loan payments.
When earning a salary, most people start with short-term expenses, then move on to medium-term expenses and, if there is anything left, save for large goals.
Your task is to do everything exactly the opposite. First set aside money for long-term goals, then take care of expenses throughout the year, and only then move on to routine expenses.
Why do I need it?
This approach will allow you to ensure that you are moving towards your goals, while meeting your daily needs, remembering recurring expenses and avoiding “cash gaps”. These are situations when you have to either intercept a payday loan or frantically look for money to pay for insurance.
If you think about it, then people know about paying for insurance in advance, at least a year in advance, and they could safely put aside the money gradually, dividing the upcoming payment into 12 parts. However, the majority thinks: “Why do I need this boredom? I am not an accountant, I will not waste my life on calculations.
On the one hand, this is true. On the other hand, planning takes much less time than it seems, but at the same time brings to life that very note of stability and calmness, which many people really lack.
Motivation that can support you and help you stay on track, especially at first, can be goals. Proper goal setting is extremely important. And it’s even more important not to turn it into some kind of carrot on a stick that you constantly go after but never reach.
Make your goals realistic and achievable. As you get what you want, you will grow stronger and stronger in the belief that anything is possible and your budgeting system works. And this is a huge incentive not to drop the account.
What if loans?
Credits and debts slightly complicate the situation with the normalization of the family budget, but in no case should they be an obstacle to a bright financial future.
You need to start working with them by identifying the most toxic loan. The one with the freshest and highest bid. Be sure to consider these two parameters together, otherwise you can choose a loan that, although with a high rate, has been paid off for a long time. There is no point in paying off such a loan ahead of schedule — all interest on it has already been paid.
Once the most unprofitable debt is found, try to pay it off ahead of schedule — pay a monthly payment and add more on top.
Where to get money for this? At first it will seem that this is impossible.
But you need to act on the principle of “every penny in business” — issue cashback cards, maximize the use of discounts on familiar goods, explore the possibility of obtaining tax deductions and benefits, and use the money that will appear/free as a result of these actions to pay off a toxic loan.
As soon as this happens, use the funds freed from the monthly payment to pay off other loans ahead of schedule, also sorting them according to the principle of toxicity.
A light in the end of a tunnel
When the debts run out, and the money from monthly payments is released, do not rush to spend it thoughtlessly. Think about your long term goals.
Accumulate these funds freed from the already habitual loan payments and direct them to the financial goals that we talked about above. It is advisable not to do everything at once, but in turn, it will be more effective.
One of the financial goals may be to create an airbag — roughly speaking, a reserve of funds that will help you out if you are left without a source of income or unexpected expenses arise.