The field of personal finance is complex and requires constant decision-making. Decisions of consumption, savings, investment … many decisions that may assume greater complexity with the natural complications of everyday life. In this article, we will talk to you about the pillars for a better organization of your money and your personal finances.
Unfortunately, it is not customary to spend too much time organizing our personal finances . Incidentally, the inquiries of regulators to the (dis) organization of household finances are known. In this context, it is essential to understand the pillars or the bases for your financial success. They are not secrets and are not magic formulas. Rather, they are factors that you must master in order to start earning some financial freedom and following your dreams.
The Three Pillars of Personal Finance
The financial decisions of most people are based on three broad areas that complement and reinforce each other:
1. Consumer Day-to-Day Decisions;
2. Savings and Investment;
Proper management of these three large areas will allow for greater comfort and financial security. In reality, we do not live for money. Rather, money exists to serve us and to allow greater comfort in our lives.
Consumer decisions are the decisions we make most often. From the time we wake up until we lie down (and even in our dreams) we are faced with the need to make choices . And in this context, emotion and reason are in constant struggle. We want to live in comfort and have some pleasures but we have to pay them … and how to manage all these emotions?
To help you, we leave 3 great ideas that can make all the difference in managing your personal finances and improving your consumer decisions:
Permanent Cost Cutting Posture
Consumption and saving are attitudes towards life. Of course much of the consumption is in essential goods. But a large chunk of our money is directed at superfluous goods or even expenses that are too high for our family budget. And here we can cut. Even while maintaining the same consumption and the same services it is possible to save money.
We do not advocate that we should live for money. None of this. But why not devote some of our lives to organizing our money? Why not look often for our expenses and question us if they make sense?
Saving is a posture that is gained by habit. If we want to save we have to be attentive to the expenses and consumerism, leaving naturally some space for the spontaneity and for some “madness” or extravagance.
Spend Less Than Win:
The second great idea to control your personal finances in day-to-day spending is to spend less than you earn. Is obvious? Yes. But for some reason it is something that is often overlooked. Of course, we have access to credit cards, authorized overdraft of the orderly account or even quick personal credits … and these facilities become great difficulties especially in a stressful situation.
Spending less than you earn will free up money for your savings (which we will see in the next point) and you will see that you will have a sense of financial security as you have not in the past. And the best thing is that we often get to spend less than we earn simply by cutting some small expenses (for example, if you bring home lunch twice a week you’ll already be saving around € 40 a month).
Suggestion of action – Look at your daily habits and see if you can reduce your expenses with slight changes in consumption. For example, smoking at least 3 cigarettes a day or choosing a cheaper restaurant (believe me, it will make all the difference).
Much Dialogue Is Good for Personal Finance
The third great idea in the field of your personal finances is to earn the habit of talking about money at home . In moderation but often enough to allow tight control of the family’s money.
We suggest you create the habit of meeting with your spouse once a month to discuss the family budget. At these meetings you will have the opportunity to talk about the goals and dreams of the family. On common and individual expenses. About savings goals and efforts. Among others…
You should also create habits of dialogue with your children in order to convey the importance of money and making choices. Believe that from the age of three or four children already have the ability to perceive some terms and content … try giving them a piggy bank and you will see the difference!
The second major area of decision in personal finance is that involving savings decisions. How much to save? How to save? Where to apply the money? All decisions more or less simple but that become more complex with the impact of aggressive marketing strategies (which can be reduced if we move to see less television!).
Savings should be Automatic:
If you want to save you have to make the savings process something automatic. It’s no use thinking you’re going to be able to manually transfer some money on a voluntary basis. It will not, at least consistently. Three ideas you should implement right now:
- Identify a savings account that fits your needs and goals. Ideally this account should be independent of your account in the normal order;
- Schedule an automatic transfer to this savings account;
- Transfer the money as soon as you receive your order.
Try this strategy in three steps and you will see that at the end of some time you have forgotten that you are saving. We have many trainees who tell us they do not spare but that in the middle of the training they say they have a PPR or an automatic transfer … but they have already forgotten ?
Define Savings Objectives
The human being is a being of habits who needs motivation to act. In the field of savings, we have to know why we are saving. Knowing the goal will make the process much easier because we will have a purpose for the sacrifice. We suggest three major goals:
- Establishment of an emergency fund , which will provide you with the financial security of knowing that you are safe in case of difficulties or unforeseen circumstances;
- Savings fund for the long term . You can spend the money for retirement, for the studies of the children or others. There may be several goals in the same account;
- Saving for a little pleasure or for rewarding you for achieving the goals you set out in the two previous points.
With these three savings accounts you will be ensuring your financial security, ensuring the satisfaction of goals and needs while gaining additional motivation by rewarding yourself for achieving all these goals. Have you seen? Makes sense?
And Where to Invest Your Money?
The field of investment is an even more complex field. We can say that it goes hand in hand with savings because it involves an increased set of knowledge. Know different classes of assets and financial products. Know your risks and your opportunities. And define a diversification policy …
In the field of investments we usually warn some simple but powerful ideas:
- Diversify your investments across multiple asset classes;
- It invests on a regular basis, which makes it possible to enter the market;
- Invest for the long term so as to benefit from compound returns;
- Invest only in products you know and do not invent;
- Look for the collective investment, namely the investment funds.