Financial institutions, to assess whether you are a good candidate to lend you money, ask you about your income and expenses. They want to discover your borrowing capacity, how much you would be able to pay for the loan and continue living your life.
We should all do the same. We should evaluate how much we can allocate to the payment of debts. Thus, we would avoid headaches, bad nights and very bad business.
How to manage your money?
Money management should be a class in colleges and universities. In fact, companies should train employees on how to take care of their income. I say it for this: the world knows of many characters that thanks to a good management of their personal finances produced a lot of money.
I have as an example Mario, a good friend of my house. Mario is a good businessman and has built a very solid heritage with his work and his money management. I remember once I was crossing accounts with my brother. They had a difference in pesos that didn’t add up. In the end, my brother told him to stay with them.
“Well,” said Mario, “if you don’t love them, they serve me.” With this I save a liter of milk.
It was a lesson for everyone. Each peso, each dollar, counts as an expense or as a savings.
Let’s see a good way to manage your money and distribute your income :
The experts – including grandparents – say that if you save 10% of your income monthly, you will go far.
Basically for three reasons:
- You will have extra money for extraordinary expenses: Many times, contingencies require you to make loans, that is, to incur interest payments, most of the time, high interest rates. If you have money in sight, not only do you have the capital to cover the emergency, but you will save on interest expenses.
- The money saved will generate profits: having savings in a checking account is not a good idea. You can look for other financial products that rent better. In this way you increase capital. Remember: every sun, every dollar counts.
- The goal of saving is accompanied by dreams: the motivation to achieve something will be a good ally
That is the most important item. It’s about life itself.
Normal expenses, that is, food, clothing, public services, education, transportation or medicines, should represent a maximum of 40% of your income.
Each case is different, of course. A person who lives alone is not the same as one who lives with his parents. For this exercise, we will assume that you are responsible for all the expenses of your life.
If your expenses exceed 40%, you can surely reduce some item to achieve the savings goal. If they are smaller, great, you can increase the savings.
Experts, and banks, assume that no more than 30% of income should be allocated for rent and mortgage debt. If you add and subtract, you will see that they are right.
30% is a figure that allows you to reach the end of the month with money in your pocket, controlled expenses, full fridge, paid bills and some fun.
If you have or are planning to have debts to cover improvements in quality of life or investments, take care that in total they are not more than 10% of your income.
This percentage includes credit cards, free investment credits, car debt or family loans.
I like this item very much
And it seems fair that we dedicate a separate chapter. It is not a superfluous expense, nor indispensable. It’s fun. Going to the movies, dancing, dining with friends, buying books, watching Netflix series, walking, surfing, climbing. Whatever you want. And you can dedicate up to 10% to happiness, which is fashionable today.
In summary, in debts allocate up to 40% of your income. That will keep you calm, with a good pace of expenses, investment, welfare and entertainment:
Housing / rent or mortgage debt: 30%
Other debts: 10%
Based on these percentages, calculate your budget. Check if you are spending the right thing. Recalculate if necessary. At the end of the year, you will see that it will be worth it.