How to be financially savvy with 1 simple step

Financial

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In this post, you will learn a simple technique to improve your financial decision making by learning how to budget your money.

If you struggle to make ends meet, you should think about creating a budget for yourself.

Even if you don’t struggle, a budget only adds to your life. You will sleep much better because you don’t have to worry about money ever again – if you live within your means.

Companies do it all the time – they create budgets and stick to them – and profit from it. So why shouldn’t you do the same?

Write down everything

Create an excel file, take out a sheet of paper or your phone – it doesn’t matter. Now write down all the income you have – from your job, from your parents, from your side-gig. Every penny has to be written down.

Now write down all the expenses you have, let’s start with the yearly ones (Car insurance for example) then the quarterly(Some taxes maybe) and last but not least the monthly expenses (Spotify, Gym, Netflix, Rent).

Okay, now we have all the fixed expenses tracked. If you have never tracked before, you have to assume what you might spend in a month on variable expenses like groceries, clothing, eating out.

Write everything in your excel file with a declaration when you have to pay it – then divide everything so you find out what the monthly payment is. (Example: Car insurance is 600€/year divided by 12 months is 50€/month)

It looks like this:

Track everything for a while

To verify your variable expenses track them for a while – and I mean every cent. I would say do it for half a year so you have a rough overview, but if you can’t stick to it even a month is fine enough – but you need at least some data. For me using YNAB helped me a lot. If you want to subscribe to YNAB you can click HERE so we both get one month free.

Evaluate your spending

Yes, knowing that you spend 200€/Month on Starbucks is good – but spending that much isn’t. Find out where you can maybe save some money – it’s totally up to you though, I cannot give you recommendations where you should spend your money – but take a hard look at yourself.

Create an emergency fund

A good practice is having an emergency fund to survive about 3-6 months on it without any income.

Look back at the screenshot. In this example, I spend around 1450€/month this means for a 3 months emergency fund I need 4350€ saved up. I even saved for retirement, you can even subtract from that and the amount needed goes down to 3450€.

Take the retirement money and the leftover money away and stash it in a high yield savings account until you reach it. This means 550€/month is possible in this example and within around 6 months we have the fund saved up and can go from there and invest heavily for retirement or things we want to buy.

Conclusion

Having a good overview of your finance not only allows you to make good financial decisions, but it also helps you be more confident money-wise.

Follow up on my latest post about my category setup.

 

 

A quick example for retirement

Investing 100€ per month for 45 years (assuming you start at 20 and stop at 65) into an index fund which costs 0,2% per year and increases by 7,5% per year on average, means you invest 54.000€ and end up with 388.000€ in the end. That’s massive.

What does this tell you? Knowing your expenses and not overspending every month can give you a nice cushion when you get to retirement – you don’t even have to renounce on things right now, you just have to be mindful of your spending.

If you have any questions on how to create a budget yourself, let me know in the comment section down below and I am happy to help.

Click HERE if you want to improve yourself in other areas as well!

-Julian

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1 thought on “How to be financially savvy with 1 simple step”

  1. Pingback: 10 YNAB categories to make budgeting easy - not a chore! - Basicproductivity

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