Get Rid of Bad Spending Habits: 5 Necessary Steps

Get Rid of Bad Spending Habits: 5 Necessary Steps

According to the latest sociological research, every third person has problems with money and can’t get rid of bad spending habits.

In case of unexpected expenses, almost half of families literally “collapses”. A broken refrigerator can become a financial disaster.

Increasing debts, small loans, leases, and other monetary expenditures increase physical and mental demands on the individual. In today’s world it is necessary to know your money to the last cent.

I mean literally.

If you don’t know where and when your money goes, how do you want to know its flow? In this article, we’ll outline a few important points to help you better manage your personal finances.

Personal finances refers to ways in which individuals or families:

  • they receive money (income / family income)
  • solve their own or family budget
  • saving
  • spending

over time, taking into account the different financial situations, risks and life situations that may arise in the future.

You can compare the personal finance area with the company’s finance and accounting. Every business needs a financial plan.

 

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Get Rid of Bad Spending Habits

If you don‘t have proper financial plan, detail overview and control over your expenses and income.

Unexpected events are just the cherry on the cake. They can also get you into a personal financial crisis . That’s why everyone should learn how to manage money properly.

Managing your money is a sign of maximum responsibility and readiness.

These factors are extremely important especially for families. Did you know that 60 to 80% of marriages ended with divorce just because of long-term financial problems?

The budget and plan should be the cornerstone of any responsible thinking family. This avoids possible financial risks, unnecessary debt, which in addition can unduly inherit your children.

Preparing family budget is very similar to creating financial budget in companies, summarizing costs and spending, and then comparing each other, with the primary goal of generating as much profit as possible (and financial savings)

The personal/family budget is actually a detailed financial management plan defined for a certain period of time.

Its creation helps to gain control over the financial situation of the individual / family, reduce risk of unnecessary spending, and prevent dangerous debt. Through well-prepared budget, you can find resources for savings.

The creation of the personal / family financial budget includes the above-mentioned summation of all expenses and income. In order to improve budget orientation, it is recommended that the revenue and expenditure should be divided into specific categories.

 

Budget adjustments

The budget should be constantly adjusted according to the actual life circumstances. Budget control should therefore take place once a month.

All personal / family budget items should be created for a single time period, such as one month . All budget items automatically refer to the selected time slot.

At the beginning of the budgeting process, it is necessary to write down the initial state of personal / family finances. Therefore you can compare your results.

Budgeting also depends on the way it is written down . You can use paper and pencil to process your financial budget , but you have to count on permanent overwriting and errors.

Another option is to write in a spreadsheet , such as Microsoft Excel or OpenOffice.org . Compared to paper and pencil, programs have benefits of choosing, editing, or even making certain adjustments.

Table programs themselves can perform basic or complex mathematical tasks, saving you time and simplifying work. The use of spreadsheets for creating financial budget gives you the ability to control them.

An alternative way of managing money, very old-fashioned, is to divide all revenue into envelopes.

To identify categories they belong to (rent, food, car, insurance, mortgage, etc.). However, this method requires a lot of discipline.

Another solution may be to determine daily limit you can‘t exceed. This system is also very difficult, as it requires a lot of discipline in decision-making and constantly comparing prices.

Being able to set the right daily limit is also an art. In addition, this method doesn’t deal with unexpected spending ( 55 Websites That Will Make You Smarter ).

 

How to properly prepare budget?

 

1.Make an overview of all your earnings

In the first place, you must write down all the sources of your household’s income. Only net income take into account (salary, interest income on savings, financial aid from friends and family, rental income, dividends and so on).

 

2.Create a list of all expenses

Expenses are the most sensitive item in your personal / family budget, so make sure you do it very carefully and try not to forget any detail.

Expenses are usually spent on life necessities (rent, mortgage, consumer loans, leasing, credit cards, insurance, bank charges, payments for electricity, gas, water, heating, telephones, food, health, cosmetics, clothing, pets, household maintenance, school) and spending which is impulsive (cigarettes, food in restaurant, holidays, fashionable clothes, hobby, sport, culture).

Try to include everything in the list. That will help you to get rid of bad spending habits.

 

3.Compare revenue and expenditure

In the third step, the most important process is the comparison of the sum of individual income and expenses. Ideally, the amount of income will be higher. If you have higher expenses than income, you either need to cut expenses or increase income ( Get Out of Debt on Your Own ).

 

4.Reassessment and adjustment of expenses

Once we have found a real picture of our personal / family financial assets, we can find strategy to manage our finances more efficiently. At this stage, we want to find items can be removed from expense list in order to reduce expenses. You can also think about increasing income.

 

5.Regular review and budget update

The financial budget makes no sense if it is not regularly updated and its items are not realistic.

Preparing a financial budget is one of the best investments in life. Having your finances under control is one of the most important factors of happy life.

 

Source: full article in Slovak language

 

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