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Manage personal finance like a professional, Part 2

Let’s take a deeper dive into finance management

7. Calculate and categorize incomes and expenses

If you want to track your expenses, you should get a financial planner. Most people forget to record small expenses, assuming that they do not affect the total budget, but in reality, these small bits and pieces can eventually build up to an ample amount that may remain unaccounted for. The secret to successful financial monitoring and getting a clear picture of your finances is in the tracking of all financial operations, even the most insignificant ones.

Categorize your expenses. Break down high-level categories into smaller ones. For example, the «Eating out» category can be divided into «Restaurants» and «Fast-food». At the end of each month, you can conduct a detailed analysis and realize that you should probably cut down on burgers and fries. Use the statistics to make conclusions and adjust your next month’s spending in categories where you exceeded your limit.

8. Spend less than you earn

The key to a positive balance is to spend less and earn more. The success in achieving this goal is directly related to all the previous points. By estimating your income and drafting up a plan of expenses, you can get an idea of how much money you can put aside every month. This amount should be taken into consideration when setting the yearly savings target to have something for the rainy day. Try to save money, but don’t forget about setting realistic goals.

9. Avoid debt

To set your personal finances straight, you need to get out of debt. This is about bank loans and what you owe to friends or family members. Any financial consultant will give you this advice: while paying off your debt to a bank, always deposit more than the smallest required payment amount.

For instance, you want to take a 100,000 RUR loan from a bank for one year. The minimum monthly payment in some banks is around 5% of the full amount. In this scenario, if your monthly payments equal to the minimum payment, you will only be able to pay off 60% of the loan during this year. Interest will be charged on the remaining part and you’ll end up overpaying a lot. In order to avoid this situation and pay the debt off in less than a year, experts recommend making 1.5-2 minimum payments a month.

10. Invest

The minimum amount of savings – the so-called parachute – is the amount that will let you live without a stable income for 3-5 months. This is what every person should have. Do not ever think about spending anything from this fund with the exception of the most extreme (extreme, very extreme, Carl!) situations.

Everything above the parachute is your regular savings fund – the money that is not supposed to be there but works for you. The most efficient way of using your savings is to invest them.

If you have up to a half a million RUR, the best option is to invest in yourself. With this amount at hand, there is no point in investing in a project, since you will spend a disproportionally large amount of time and effort learning their options and controlling your investment. You can deposit the money to a good bank and watch your money grow, but the best option would be to invest in self-education and improvement. Start learning things that you had always been interested in, fill in the gaps in your education, attend conferences, seminars, and master-classes. You will then be able to channel your knowledge into the right area and apply it to start your own business.

If you have at least a half a million RUR, you can actually consider putting your money to good use. Let’s assume that you’ve followed our advice and deposited a part of it. You still have some money to invest. Just don’t forget the good old rule: 90% of your assets – the foundation of your capital – must be invested into conservative tools (a stock portfolio developed y a professional financial consultant, a long-term deposit at a reliable bank, etc.), while 10% can be spent on high-risk assets with a large potential: stocks of rapidly growing companies, starting your own business, cryptocurrencies, etc. We’ll talk more about this in our future posts.

11. Pay attention to your financial education

In order to learn to manage your finances, you need to get acquainted with the most important financial tools at least on a basic level. It’s important to understand that it’s risky to invest in something that you don’t know about, which is why you should educate yourself in the financial area.

Find out what taxes you are paying and how much you are paying. Learn how taxes and interest rates work, fill in the blank spots in your understanding of investments. Monitor the situation on your own, but if you have problems, don’t hesitate to contact an independent expert.

By the way, our Moneon application will help you out with many items from the list. We won’t list everything the app can do, but the short story is that many of our users reduce their monthly spending by 25% in the first month – that’s how good it is.

There are no people who can’t manage their finances. There are people who look for excuses to not do it at all. Start with really simple steps described in the article and you will be able to manage your budget much more efficiently. The rest is up to you!

About author
80 lvl Editor. I’m so good at finance management, that I managed to build up the whole map in SimCity 2000 on the highest difficulty level.
Control your finances
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