Whether you bring home €1500 or €15,000 per month, poor financial planning can really hurt you. Do you know if you end each month better or worse off then the last? Step one is to take stock of where you stand financially, only then will you be in a position to make the necessary changes you might not want to face up to, but will ultimatly need to take.
Below i suggest a method one might use in getting control of their finances, you might have your own take on it, thats fine, as long as your clear about where you stand, codding yourself will only affect you in the long run.
Step One: Where is your money going?
Take out a sheet of paper, list your annual income.This should include, net (after tax) salary, pension, any social welfare benefit (child welfare, rent relief, state pension), mortgage interest relief and any other income you are in receipt of during the year. Add it all up and this figure is what is available to you.
Next (and this part can be quite scary!) list all of your fixed outgoings, mortgage, rent, loan repayments, managment fees, TV licence, school fees, car tax, tv/phone/internet, life/health insurance, crech fees, pension contributions etc.
You will also need to estimate your other bills, gas, electicity, car/house insurance, waste collection, mobile phone, road tolls, petrol etc. If you are unsure how to estimate, take a look over the last 6 months worth what you spent and divide it out by the number of months to get an average. I would suggest that you always err on the high side of an estimate, its better to be suprised by a lower than average bill in the future rather than be suprised by one you need to find extra money for.
Add the fixed expenses to the changeable expenses and subtract it from your income. The figure you arrive at is the money you have left to live on. This money is to pay for your food, clothing, holidays, savings and anything else you want or need. Divide this by twelve to find out what you can spend each month.
Step Two: Make a plan
Now you can see in black and white what you have and what you need, how does your financial situation look? Depending on what figures you came up with you might be comfortable and have a healthy surplus to play with or you might be put to the pin of your collar. Either way you should decide what to do with the money that you have to hand. Can you afford to save some, if so, how much? Make a decision on what amount you can put aside.
If your monthly living amount seems tight it might make sense to rationalise your spending, some insurance might be more worthwile than others, are you getting the best value electricty/gas/tv package etc? More specific info on this area will be covered in future posts. It dosnt matter if your a captain of industry or his P.A. either way you owe it to yourself to get good value for the money you spend.
Step Three: Put your plan into Action
I would suggest starting each month with a clean slate.
Using your online banking facilities can really help you do this. Figure out what you need to put away each month for your fixed expenses, for example, if your managment fees are €1200 per year then you should set aside €100 every month to go twords this.
Set up a savings account with your bank or an online bank like RabboBank, either way it is easy to transfer the money for your fixed expenses to your savings account. This way the money is out of your current account and not immediatly available for you to spend. It also has the added benefit of earning you some interest and when that bill eventually lands on your lap, you are prepared.
If you had planned to save something then transfer it out of your current account on pay day as well.
If your a 'super saver' then also put any money you had left over from last month into your savings account, you would be amazed how fast your savings will grow if you do this.
A lot of gas and electricity bills are paid every two months, now you know your average monthly spend on these why not pay them on pay day too? Most utility companies allow you to pay a bill online, pay what you think you will owe every month in advance via Laser/Visa Debit, dont wait for the bill to arrive. So if you know you pay on average €160 every bill on electricity, then pay €80 every month, if it turns out that your final amount over the two months is less, then you dont have to pay as much next month. You can do the same with TV/Phone/Internet providers such as UPC.
The idea is that on the day you get paid you pay out whatever you need to pay. The amount you have left over is your spending money, you can adjust your spending accordingly.
If you have €600 left over after paying all your bills, fixed and variable, and its 30 days till your next pay day then you know you could spend €20 per day and your on target. Some days you wont spend anything and others you will spend a lot, just divide the number of days by the amount you have left in your current account and you will know how you are fareing. Your also safe in the knowledge that you have set aside your savings for the month so you will be well preared for your big expenses like car tax or insurance.
Everyones situation is different and it will be harder to estimate expenses for some but the basic idea remains, your income must at least meet your outgoings over a year or your in trouble. You may have to take drastic action but unless you have a true grasp on the figures you may be lulling yourself into a false sense of security.
FS
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