Blog about Personal Finances, Investments, Money Management and Financial Freedom

The family budget: a magic key to clean up your finances

It is not necessary to have large fortunes to have the need to develop the family budget. Many families think that this budget is not necessary because they only have a modest source of income and their monthly expenses are typical of any average family, like paying rent, utility bills, some escapades to the movies, school for children, or vehicle expenses. Regardless of the economic slack your family may have, you need to prepare the family budget.

Just as it happens in a company, if you do not adequately handle the household economy, you’ll be committing serious mistakes with dire consequences for your pockets (and your health), and you’ll be repeating again and again the infamous phrase: “I can’t make ends meet“.

To avoid such awkward moments, you must bring order to your domestic economy and the first practical step to achieve this is to develop a simple family budget. The budget will bring the bills on time and help you avoid wasting money, allows monitoring of costs to reduce them, prioritize or delete them as far as possible; In addition, if you meet the budget by knowing the economic situation of your family to date, you will be able to make better forecasts, inviting the savings and to protect yourself against unforeseen events such as illness, damage to housing, vehicle breakdowns, etc.

A basic budget has two columns: the INCOME column and the EXPENSES column. In the income column you’ll write any money entries that sustain your family: wages, overtime, financial aid and generally any other source of income your family has during the month.

In the expenses column, you will record all monthly expenses classifying them into three categories:

  • Compulsory expenditure (which you can not stop paying and they are constant); for example, rent or home mortgage, a bank loan that you have requested, quotas for Social Security, or payment of your community.
  • Necessary expenses (you can not stop paying them, but you can reduce the amount of what you pay); Typical examples of this category correspond to electricity bills, water, telephone, expenses for food, clothing, transportation, etc. You see, you can not help incurring such expenses, but you can take steps to reduce the amount you pay.
  • Occasional expenses that can be totally eliminated if necessary, for example leisure and recreation expenses (food and beverages away from home, horseback weekend), non essential consumer goods, electronic equipment, etc.

Once you have registered with honesty all income and all expenses, summarize both columns and get the difference between the two. If the column total expenditure is greater than total income, then I don’t need to tell you (because you’ll already have noticed) that you are in serious economic problems and should start as soon as possible to eliminate incidental expenses and reduce the amount of necessary expenses (unless you’re able to earn more income). If, however, the income column is greater than expenses, you must interpret this difference as your ability to save; if so, mark the aim of saving at least 10% of your monthly income and commit to it.

Remember that the goal is to make the family budget income to cover your family living costs; so when you establish the budget, involve the family for a global commitment to savings and avoiding wastage. The budget will help you identify and eliminate unnecessary costs, reduce unnecessary expenses and reduce bills for necessary expenses.

To have more slack and for your budget to be your best financial partner, avoid as far as possible the use of credit cards, and beware of getting into long-term debt or high interest rates credits as possible (especially consumer credits or loans) and most importantly, never ever forget the golden rule: do not spend beyond your means.

How to overcome the fear of losing money

He who has never been afraid of losing money can cast the first stone?. It’s obvious that nobody likes losing money; we care for it as if it were our most precious asset, but we should understand on how that fear can affect our attitude.

The fear of losing money is inevitable (for both poor and rich folks);  It is not a fear of cowards, but a necessary fear. The bottom line is not about fear itself, what’s really interesting is how that fear affects us emotionally; in other words, how we manage our money in spite of that fear. On occasions, people fear so much the possibility of losing money, they won’t take any kind of risks, instead they will play it safe and end up losing.

How to manage the perception of fear, the sensation of lost and the experience of failure?

One of the best tricks to overcome your fear of losing, is redefining the concept of failure. What is the meaning of failure for you? You can see it as a tragedy or as a learning experience; You can understand it as a sign to let your plans succeed, or you can view it as an inspiration to go even beyond your desires. Possibly you see failure as a punishment for your ambition, or perhaps you prefer to understand it as a new opportunity; You can also see it as a defeat, while others see it as a sign to start over but more experienced.

Some people get weakened in face of failure, while others grow stronger. How and why does this happen? Basically, the difference won’t be found on objective matters, such as academic degrees, where they live, their age, or their wealth. The difference between one way of seeing the consequences of failure and the other lays on the attitude, and your attitude depends on what you believe in.

Concretely speaking, the fear of losing money is rooted in the fear of failure, and one of the practical ways recommended to overcome the fear of losing money is to assume that no one will take it out of your hands (unless you let them); money also won’t disappear by itself (unless you throw it out the window and the wind carries it away). In any case, you are the great money manager and you know there is no success without taking risks and learning. The more you acquire skills to manage your money, the less aversion to failure you’ll have, and therefore you’ll have less concerns at the possibility of losing money. Remember that no one has become rich without losing some money.

At this point it is well worth extracting a powerful phrase from the book “Rich Dad Poor Dad” whose author, Robert Kiyosaki, says bluntly that the losers avoid failure, while failure turns losers into winners. So you shouldn’t panic in the face of failure because your natural response to that fear will be to do nothing, and you shouldn’t stop playing in fear of losing. Also don’t get compliant for playing it safe because, even when winning, you would not have learned much. Do not forget that you have the sufficient capacity to win, and if you end up losing money, do not worry because you will always have the tools and skills to find new opportunities to recover and recapitalize.

Our final recommendation: don’t be afraid of losing money and never think in terms of poverty, because that is always followed by a large army of burdens, fears and apprehensions.

3 ways to maximize the usage of your salary

Most people manage their budget using mental accounting. It is easy to imagine the fate of our salary or what we will do with that money, even before we receive it. But on payday we come back to realize (again and again) that every penny counts and that we have very little money left over to add any additional expenses.

Maybe you’re thinking that you need to increase your monthly income, getting an additional second salary or working more overtime, but it often goes unnoticed that the way you maximize the usage of your income is as important as the amount of money you receive.

Three smart ways to maximize the performance of your salary are:

  • Benefit from tax incentives that you could take advantage from.
  • Ensure good protection for you and your family to avoid costly bills in cases not covered by public health care.
  • Preserve your money by reducing unnecessary expenses. Try reducing your grocery bill and spend less on fuel; reduce your wasteful spending, discard habits of onerous consumption and rethink your social preferences.

In many cases, we prefer to use money for leisure and recreation rather than be earmarked for basic payments, acquiring a good health insurance or reducing mortgage debt. In other cases we acquire a new car or a house in the beachfront, just for the desire to look wealthier and not by necessity. This seems to be the reason why in some societies, credit growth for the purchase of consumer goods has accelerated in recent years, and it is also starting a boost on mortgage lending.

We live in an atmosphere of constant anxiety about money, and that anxiety can affect our personal and family life. We always want to win more to buy more, and as you may have noticed, in many cases the solution to our lack of freedom in the family budget can’t be found by working extra hours or finding a second job. In most cases, it all works out with a little more financial discipline to help you maximize the usefulness and enjoyment of the money you earn.

Try to achieve an adequate financial balance; When you succeed, you’ll notice that money has ceased to overpower you.

Some signs that you are financially lazy

On many occasions we have heard very encouraging expressions such as:

  • Starting tomorrow I will begin to save more.
  • I am convinced that I should not spend so much.
  • I’ll start saving for retirement.
  • I will pay all credit cards debts.

And so many others like them, which represent a good start to bring order to financial matters. People tend to promise things for themselves, but sometimes something comes up that requires that financial goals to be relegated to the background.

Just like there is a large group of people who have good intentions to straighten their economy and set their financial goals, there are others who do not even speak about these issues, much less take the minimum actions to enjoy a better financial situation . These people are not aware of the need to set goals, they believe that the world of finance is not for them or, worse, have mental laziness to think about such issues even if their financial health is critical. These people are genuinely “financially lazy”.

By their way of thinking and their attitude towards money and finance, financially lazy people own certain qualities that prevents them from achieving higher levels of welfare and economic conditions. I invite you to review your financial attitude in search of some of these signs:

  1. You do not have sense of urgency. If you feel that there is no reason to worry now by financial issues, or your favorite phrase is “someday” (someday we will think of retirement, someday I’ll have more money, someday I’ll be able to start saving, someday I’ll have my own house, someday we will live without debts), perhaps you are financially lazy. Never think that this is not the right time to think about money savings, loans, retirement and investments. Every day you must think in financial terms, because if you do not, your life and your family will be increasingly exposed.
  2. You think things are fine just as they are now and so they should stay that way. Some financially lazy people do not have a strong desire to improve their financial situation, which makes them to remain happy and static in their comfort zone. Remember that there are always opportunities for improvement; there is always space to enjoy greater welfare, but financially lazy people do not find the incentive to take the first step; They think that what they have is good enough for them and prefer to keep things as they are.
  3. You feel you do not progress because you are looking for perfection. Many people who want to approach perfection end up paralyzed and being financially lazy. Those people, very demanding and too harsh with themselves, are devoted to go through the same ideas over and over again; they are happy thinking and analyzing, but they fail to act, and when they finally manage to complete a mental puzzle on their financial goals, they may not know how to prioritize, they are out of ideas to take the first step, or are unable to accept mistakes and tolerate failures. Remember that fear paralyzes and the end result of thinking too much is inaction.

A minimal financial education, self-esteem and good attitude in front of uncertainties may prevent you from being financially lazy. Always act with a sense of urgency (starting today); enhance everything you can improve (never get complacent) and do not devote much time seeking perfection, because in the end who is perfect in this world?