Regardless of occupation, salary and goals, everyone has one thing in common: to have an organized financial life . After all, no one likes to be in trouble at the end of the month, lose sight of their debts or have no idea how much they are spending.
Can you relate? Well, we have good news for you: organizing your finances is not a task that can be done overnight. However, it can be easily broken down into several smaller steps that can be started as soon as you finish reading this article. Still have questions? Keep reading to find out:
Why is it so important to control spending?
When you control your spending, you can achieve your goals without getting into debt . After all, if you don’t know exactly where your money is going, you’ll definitely end up spending more than you should and compromising your financial future.
Think of spending control as a map: without it, it’s hard to know which direction to take. Bringing the metaphor to reality, financial mismanagement makes you spend more than you earn , which results in accumulating debt and wasting the opportunity to invest in what really matters.
If you don’t track your expenses, for example — like streaming subscriptions or delivery orders — seemingly small expenses will eventually eat up a significant portion of your income without you realizing it.
How to have an organized financial life?
To have an organized financial life, the ideal is that you focus on these steps :
- Identify your financial reality;
- Make a financial plan ;
- Cut unnecessary expenses;
- Prioritize paying off your debts;
- Build an emergency fund;
- Start saving and investing;
- Study the subject;
Remember: it’s okay to take it slow and take control of the situation as you can. No matter how big the steps you can take right now, the important thing is that you start and commit to maintaining the discipline over the months.
Identify your financial reality
First, you need to be clear about the most basic information about your finances, that is, know exactly how much you earn and how much you spend each month , to check whether your account is balanced or not.
Extra tip: creating categories for these records helps you better understand your current situation. Then, separate your expenses into housing, rent, food, pharmacy, leisure and everything else that is part of your routine.
Set budgets
Here, you must establish boundaries for every area of your finances . After you account for your income and expenses, you will know better how much you can and must spend in each category of your month — food, leisure, etc.
This way, you are less likely to spend more than you should and end up compromising the good use of your money due to mere carelessness or lack of knowledge. In addition, it is an excellent way to explore your financial behavior patterns.
Cut unnecessary expenses
With budgets and expense records properly created, it’s time to map out unnecessary expenses that can be cut . Believe me, there will always be something to be
left behind: a streaming subscription that you no longer use, excessive delivery orders or a plan with cheaper alternatives.
Here we have a kind of self-knowledge process , since only you will be able to point out the expenses that do not make sense to keep. Therefore, we strongly recommend that, before starting this step, you have all your expenses recorded.
Prioritize paying off your debts
One of the first major tasks that must be completed to organize your financial life is to get rid of debts , especially those that accumulate interest and become larger as the months go by.
Tip: Check the possibility of renegotiating your debt to get more favorable payment terms. Also, don’t make the mistake of investing in order to pay off debts. After all, no safe investment would be able to offer you the interest needed to overcome the interest generated by an overdue account.
Build an emergency fund
Once your debts are under control, you can focus on creating an emergency fund . This is an amount that, as the name suggests, is set aside for use only in unforeseen circumstances — it will give you peace of mind when faced with unexpected expenses.
Ideally, this reserve needs to be able to cover 4 to 12 months of your standard of living if your monthly income is compromised, whether you are self-employed or a CLT employee.
Also in an ideal scenario, the recommendation is to set aside 20% of your earnings each month for an emergency fund . But don’t worry: you can still build this safety fund with whatever percentage you can manage at the moment, even if it takes longer.
Start investing
Investing your money is one of the most important steps to having a better structured financial life . This is because it is through this strategy that you protect your resources against loss of value and take advantage of the power of compound interest so that your assets gradually increase.
If you are a beginner in the subject and are afraid of making an investment, you can start investing in fixed income . In this class, there is a variety of safe and suitable securities for this beginning, with remuneration formats in which you know exactly how much you will receive in the future, or at least which indicator will be used in the correction.
Study the subject
Here, we refer to learning more not only about organization, but about investments as well — we call this set of issues financial education .
The financial market is full of concepts that impact your relationship with money, directly or indirectly. Therefore, it is best to learn about them to be even more capable of making smarter decisions and getting the most out of your assets.
If in doubt, here are some topics that may be of interest to you:
- Fixed income and variable income ;
- Mark to market ;
- Inflation ;
- Economic cycles;
- Private pension ;
- Income Tax ;
- Diversification .
Involve everyone in your household in the process
Taking care of finances is very effective when you live with a family unit in your home. In this context, it is ideal to keep records so that family and individual accounts are separate, so that it is easier to distinguish common goals from personal ones.
If you have children in your home, this is a good opportunity to teach them, little by little and in a playful way, values that will be important in the future when dealing with finances, such as patience, determination and analytical thinking.