Personal Finance – Ultimate Guide to Improve Your Accounts and Manage Your Money
Personal Finance is an inescapable knowledge to anyone. Sooner or later in your life, you will have to deal with managing your money and in this guide, you will find everything you need to do it.
Before we begin, I want to ask you What are you looking for from reading this article?
In fact, I’m afraid that, intrigued by the title of the site, you may be looking for an easy way to get rich in a short time.
I would like to dispel any doubts immediately.
For years I have been repeating that, even if I have met people in my life who seem to have found shortcuts to achieve wealth, I am inclined to think that everything requires a particular talent and that results can only be achieved with effort and dedication.
There is luck to deny it, but even badly managed legacies quickly dissolve and brilliant ideas often follow trivial errors and repeated mistakes.
What are your expectations in the financial sector:
- Do you want to become a millionaire and rich right away? ask one of the many (crap) gurus out there;
- Do you want to stop working and move to a Caribbean island? Not a bad idea I’ll try to give you some advice;
- Do you want to save and live frugally? You can probably also teach me something, I love balances not extremes, but every euro saved today is transformed into the heritage and future wealth;
- Do you want to stop spending in a convulsive way? I don’t think it’s a book that can give you the solution, but let’s try.
- Do you want a financial instrument that can guarantee you stellar returns? I haven’t found it yet, but if you know one we can talk about it;
- Do you want to pay off your debts? I have some advice for you, first, start saving;
- Do you want to discuss with someone how to improve your Financial Management? Here we are!
This article basically aims to help you set up a method of managing your personal finances that is consistent with your life choices by giving you the tools to manage some extraordinary situations in life.
The starting point is the Control of your Situation, which if you accept the challenge, you must be able to question in order to analyze and share.
Secondly, I would like to help you Automate your Finances, making them easier to manage and giving you time that today is real wealth.
Finally, I would like to give you some useful advice in managing investment choices.
I have been asking myself these questions over the past 10 years by developing my own method that I now share.
What drives me is the condition in which I see everyone around me of eternal economic precariousness, the perennial inability to make it to the end of the month despite salary increases, bonuses, and seemingly normal life.
Are you ready? Let’s go!
In this article
- Analyze the initial situation
- What should I do with the Income and Expense Statement?
- How to reduce expenses?
- Reduce expenses but without eliminating what makes you feel good
- Optimize your tax burden
- How to increase your earnings?
- The Net Equity
- How much should your net worth be in the various stages of your life?
- Automate your Finances
- Manage your investments
- Regularly review your Finances
Table of Contents
Analyze the initial situation
The first aspect to focus on, if you want to better manage your Finances, is to answer some simple questions.
How much they amount:
- your Monthly Income ;
- your Monthly Releases ;
- your Net Worth, net of Debts?
As for a company, there is an annual balance sheet, for each individual, there is a monthly income and expenses balance sheet and net worth.
Building such budgets is one of the most tedious activities to do, but it is also one of the most useful.
Regarding the Statement of Income and Expenses, there are various tools.
There are those who record their expenses on a piece of paper, those who use tracking apps, those who (like me) have given up on keeping track of their expenses but manage to process them thanks to the apps connected to the account.
I must say that nowadays, as electronic payments are now prevalent over cash payments, it is much easier to keep track of your expenses and categorize them.
Even for lazy people like me, it is quite easy to find out what are the main expenses that affect their budget.
What should I do with the Income and Expense Statement?
Once you have built the Income and Expense Flow you must clearly maximize the difference between these two values.
There are no alternatives if you want to build a Heritage you have to:
- Increase Revenue;
- Reduce Expenses.
The difference constitutes the Savings that will make up your Net Assets.
Always remember that there is a limit to how much you can save while there is no limit to how much you can earn.
How to reduce expenses?
Initially focus on your Expenses and sort them in descending order from largest to smallest.
There is no point in eliminating the single coffee at the bar and honestly, it is not easy to quit smoking either (although of course, I recommend that you do so).
Much easier to renegotiate some major expenses.
Here the Pareto law helps us, that is the 80/20 rule.
In compiling your Income / Expense Statement, you will find that 20% of your Expenses represents 80% of your Expenses.
Usually, the House, the Mobility, and the expenses for the Food are among the most relevant.
I’ll give you some examples of expenses that I have managed to reduce and that (over time) have led me to great savings:
- Renegotiate the loan installment thanks to the subrogation;
- Negotiate the Rent Installment;
- Moving out of the city;
- Go to Work by Bike;
- Change Bank;
- Look for the best insurance for my car every year.
Reduce expenses but without eliminating what makes you feel good
If you do not want a cheap life and are always attentive to all your expenses, I advise you not to eliminate leisure and entertainment which are basically also the reason why we live.
Keep a portion of your budget for your discretionary spending (unnecessary ).
There is a simple rule you can start from which is the Rule.
This rule says that your income should be earmarked for:
- 50% to Necessary Goods;
- 30% to the discretionary expenses that is to unnecessary things ;
- 20% to Savings.
Obviously, the percentages must be calibrated on the Phase of Life in which you are.
If you live at home with your parents, obviously the savings percentage must increase to at least 30%.
It is much better to save when you are young because time is a powerful ally on your way to riches.
The right time to start is not tomorrow or next year, it is simply NOW.
Optimize your tax burden
Perhaps when you listed your Expenses above you did not consider the largest expense we all incur annually:
If you are a freelancer or have a business, choose a good accountant and always question what he tells you with a critical and constructive sense.
In short, always try to challenge him in the search with you for the best way to save what you have to pay to your famous majority shareholder.
If you are an Employee the challenge is a little more constrained, but no less important.
Never forget about the expenses you can download and deduct.
The tax return must not be resolved in a click of the mouse, but must be the end of a process in which the various choices have also been weighted from a fiscal point of view.
How to increase your earnings?
Once you have reduced and controlled your expenses, you can focus on Revenue.
Yes, because there are a thousand ways to increase your income.
Even in this case, however, the law 80/20 applies.
That is, concentrate on a few things and not on a thousand projects and ideas.
Let’s imagine that your only source of income today is your salary or whatever you get from your professional services.
Pen knows first of all how to increase it, how to make you pay more.
Can you work overtime, get a promotion, a bonus, change companies and negotiate a higher salary?
If you are a professional you can raise your rates and find that you will only get rid of the worst customers.
If you can do it you absolutely must move now.
In addition, think about possible Collateral Earnings.
My additional income comes from online businesses, but there are a thousand ways, even offline, to start earning if you have a minimum of resourcefulness.
I have collected some examples on this page.
They range from Matched betting to the Opening of a Blog or a Youtube Channel.
As you go through the years, try to untie your income from the time it takes to achieve it and spend your time only on the most profitable activities.
The Net Equity
Once you have analyzed your income and expenses and have optimized the difference, you can build your equity.
Equity is simply the sum of all your assets from which you can deduct the number of your Debts.
I recommend that you measure all your Assets monthly in a simple excel sheet and focus on their growth.
The growth of the assets may take place thanks to a continuous process of accumulation, to the growth in the value of certain assets, and to the interest obtained on investments.
Over time, you will be able to accurately predict the evolution of your assets and estimate their value within a certain time frame.
How much should your net worth be in the various stages of your life?
Once you see your Heritage grow, you will also need to start setting goals.
In fact, working by objectives makes it much easier to identify the actions necessary to improve your finances and achieve the desired result.
I leave you a possible list of the ideal amount of your net worth in the various phases of your life:
- 20 Years = Zero
- 30 Years = 1 Year Salary
- 35 Years = 2 Years of Salary
- 40 years = 3 years of salary
- 50 years = 4/6 years of salary
- 60 Years = 8/10 Years of Salary
If you have higher equity it simply means that you started saving and investing earlier, or that you will be able to achieve financial independence before your peers.
If, on the other hand, you are late, it is the ability to accelerate by increasing your income and decreasing your expenses, certainly not by investing everything in high-risk instruments.
Automate your Finances
If you want to maximize your chances of success, there are no great shortcuts other than following a simple and straightforward method.
However, a powerful accelerator to improve the management of your Wealth is to automate your Finances.
What does it mean?
It means linking your accounts, your income, and your expenses in such a way as to limit your choice to a minimum.
Managing your finances is BORING and if you can minimize your actions you will be able to avoid useless tools that do not allow you to reach your money.
Nobody (except nerds like me) likes to count how much money you have, how much you spent last week, and how much that single $ 10 investment made last year made.
It makes no sense other than to waste a lot of time.
If you want to gain a lot of peace of mind and save time, the best thing to do is to channel your revenue into an automatic flow.
Ok, but how do I do it.
Very simple, let’s assume we are starting from scratch.
First, open a Deposito Account into which 20% of your monthly income can be paid.
To do this, set up an automatic transfer so that the same day the monthly salary arrives in your account, you can transfer it without even realizing it.
Forget about this money, at least until you reach an amount equal to at least 6 months of your salary.
This represents your Emergency Fund which you will need to cover sudden expenses or the loss of your main source of income.
It might take you a few years to set up, but that’s not a problem.
Once established you will probably have one of the most powerful weapons to manage emergencies and adversities that for many constitute a real disaster.
After setting up your Emergency Fund, open an Investment Account.
To avoid duplicating bank charges you can also decide to keep it on your main account but from a management point of view, it would be preferable to separate these accounts.
On the Investment Account, follow a gradual growth strategy and avoid too risky instruments.
For example, it starts with the creation of a Wallet on Moneyfarm powered by automatic monthly payment.
Alternatively, invest in ETFs by dividing your capital between an ETF linked to a stock market index (e.g. Mondo Internazionale) and a Bond ETF.
Obviously, by increasing the quota allocated to shares you will increase the variability of your portfolio and the exposure to normal stock market fluctuations.
However, if you have a long enough time horizon you shouldn’t have problems and see a continuous and progressive increase in your assets.
Each month, therefore, only what is intended for current expenses will remain in the current account.
In this way, you will automatically get used to limiting your expenses to what you have and you will give priority to saving.
I recommend that you always remember to think in percentage.
As soon as you get a nice salary increase, the share allocated to savings and investments automatically increases.
Once your finances have been automated, you should be able to build your Financial Map, which is a clear and precise diagram of how money flows into your accounts and is constantly growing.
Manage your investments
Once your finances are automated you will start accumulating money in your investment account and you will then have to start investing.
In investing, the rules to follow are actually quite simple.
The real problem is that we often forget about it and therefore we burn up capital and months of work and effort in a few minutes.
The real obstacle is in fact human psychology.
If you notice it always happens that we buy when the prices are high and we sell when the prices are low going from euphoria to drama in minutes.
How do you get good results?
First of all, remember that if your capital to invest is low, it is not advisable to increase the risk share to try to accelerate the growth process.
Rather, it pays to steadily increase your assets and focus on finding new sources of income and ways to reduce expenses and costs.
This is because the true magic of compound interest begins to be felt when equity begins to rise.
For low figures, the power of interest is actually quite limited.
A 10% interest on 10,000 euros invested amounts to 1,000 euros which is probably less than what you can save by cutting and rationalizing a series of unnecessary expenses.
So start saving as soon as possible, and try to set savings goals.
Invest in very simple tools and automate as much as possible.
As your capital grows, you also begin to focus on your investment strategy and financial goals, i.e. on the financial needs associated with the various stages of your life.
Focus on the return on your investments, then, but also on the cost associated with them.
There are investment instruments that try to sell us in which the expenses and associated costs are very high and nullify any possible return.
In this sense, never trust anyone who offers you a safe investment or one in which you will earn very well.
Always try to understand what is the interest of whoever offers you investment and if he has an interest in promoting it.
Finally, remember that experience shows that no one (not even Warren Buffet and perhaps not even your favorite Youtuber) is able to predict the market.
It is therefore advisable to invest continuously without being too influenced by the market phases.
In this regard, take advantage of the Dollar Cost Averaging system, i.e. constant investment at regular intervals.
This way you will better manage fluctuations in the value of financial instruments.
Don’t forget to study in such a way as to better understand some phenomena and the functioning of many tools.
Regularly review your Finances
To better manage your finances, you don’t need to become an investment expert.
You don’t even need to spend all your time checking your accounts, bills, and investment prospectuses.
Just choose the right tools and less than 60 minutes per month.
The important thing is to automate the processes and choices.
However, at least every 6 months you will need to take the time to review your processes, your investment choices, and the services you use.
This way you can incrementally improve and change your choices.
Some changes will be imposed by some changes in your Life, other changes will come from investment opportunities or from a thorough examination of some aspects that do not work.
Remember to always think coldly and rationally without forgetting that there are no shortcuts to win in the money game where you only need dedication, commitment, and time.
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