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Personal finances

How to improve your management of your personal finances

If you want to manage your personal finances more effectively, it is essential to first analyse your present and future financial situations

One of the obligations we acquire as soon as we enter the labor market and receive our first salary is knowing how to manage our personal finances.

It may sound like a trivial matter, as we all know the importance of having a salary paid directly into our account or not buying a pair of sneakers when we already have three in the closet that we don't use. However, it would not be unusual to meet someone who has completely run out of money because they did not know how to control their expenses. Often, the main reason we purchase a product that we don't need or we contract a service that ends up working against us is none other than a lack of knowledge. When our money is at stake, it is essential to dedicate some time to analyzing our financial situation and to organizing our expenses according to our income. Good planning is extremely important in order for our personal finances to enjoy good health.

Personal finances - BBVA

Analyze your present and future financial situation

Analyzing our financial situation is the first step in order to maintain good control over our personal finances. A good analysis includes an evaluation of our net worth, our income, our expenses and all the future scenarios that will result in paying out money and that are easy to foresee.

We should consider the analysis as being like taking a photograph of our household finances. Only that way, after taking the photo, will we be able to take a view from a distance and identify where we are financially. That is, what is our capital and where does it allow us to get to. At the same time, with this analysis we will also be able to see quite accurately what our current expenses are and what our most foreseeable future needs will be. These are two essential aspects for better managing our personal finances.

To analyze our present financial situation, we must list all the aspects of our personal life, such as:

  • The number of individuals that make up our household. For example, it will make a big difference for our personal finances whether or not we have children that directly depend on us.
  • The number of individuals that live in the home and contribute a monthly income. A family with two children who both work faces a very different financial situation to that of an identical family in which none of the children have a wage. If one of the parents is unemployed, this will also lead to the finances being managed differently to how they would be if both were working.
  • The type of home and the arrangement under which they live there. An apartment does not have the same expenses as a chalet with a swimming pool, just as rent is not the same as a mortgage.
  • How long we are going to live in our current home and under the current arrangement. If we are thinking about moving house or staying in the same one but as owners rather than as tenants, we will have to organize our money in the most appropriate way in order to make the desired change.

Once we have analyzed all these personal aspects, it is time to calculate our net worth. That is, draw up a list of all our possessions and, on the other hand, another list with our debts. If the latter exceeds the former, we have a negative net worth, in which case it will be essential to start to take measures to reverse the situation.

Last of all, we need to make a series of future considerations, most notably with regard to our expenses. At this point in the analysis it is important to include all the foreseeable situations which, sooner or later, are going to compel us to make extra disbursement of money. These expenses should include everything from our car or a household appliance breaking to our partner becoming unemployed or us retiring. Everything is important in order to know our financial status in detail and to manage our personal finances wisely.

An expenses diary, your new best friend

If you want to learn to better manage your personal finances, you will have to make the effort to write down everything you spend and what you spend it on, at least for a few months. It's a little boring, but treat it like a personal dairy, only for expenses. This routine will help you to identify your spending habits and to quickly see which areas or aspects you dedicate the most money to. Moreover, with this process you will also be able to compare your expenses and your income.

When you have identified your spending patterns, you will be able to eliminate the expenses that are perfectly dispensable in your day to day routine in a way that is true to your particular situation, and thus without sacrificing quality of life when you make cutbacks. For example, if upon drawing up your expenses diary you realize that you have two coffees out of the house on a daily basis, it would be recommendable to prepare a large coffeepot in the morning and take it with you in a flask. You will see how at the end of the month, with that small gesture, you will have saved a considerable amount of money. It will also help the management of your personal finances to identify the things that you have at home and never use: if you sell them, you will gain very valuable money.

Set yourself a monthly budget and include savings

A perfect way to better manage your personal finances is to establish a monthly budget. You are likely to find it difficult not to exceed it at first, but this is like the gym or a diet - with willpower and perseverance you won't take long to adapt all your needs to that budget. Moreover, living according to a budget is almost the only way of guaranteeing that you will be able to deal with an unforeseen event without running out of money. Living with that peace of mind is not only good for your finances but, above all, for your health and well-being. 

In order for the monthly budget to be perfect and complete, you must include savings as one of the expense items. Learning to save is essential in order to enjoy good financial health in the long term. Although it is hard at first, if you include savings as just another part of your budget, you will not take long to do so unconsciously. If you still find it difficult, set yourself goals, from smaller to bigger, and always keep in mind the purpose of those savings: a long trip, a bigger house, your children's studies or anything that gives you more comfort than spending that money in the present.

Improve your personal finances with tools

Would you like to have a tool specifically designed to monitor your expenses and manage your personal finances in the best possible way? With BBVA Bconomy, the new tool of the BBVA app, you will have information about your finances that you were always missing. Always at hand, on your cell phone. Because the more you know, the better your decisions.

How to improve your management of your personal finances

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