7 steps to controlling your personal finances: how to plan your budget correctly

Setting up a personal or family budget can be crucial if you want to control your finances and expenses. UNN has collected some tips for you to help you create a budget even if you have never done it before.

A budget is a plan that demonstrates how you will spend or save money. By figuring out in advance exactly how much you can afford to spend in different areas of your life, you can more easily cope with meeting at least basic needs, and possibly save money. Planning will deter you from impulsive purchases and spending, and will force you to choose products more carefully in terms of price/quality ratio.

A financial analysis of income and expenses is a key step in the process of creating a personal budget. It will help you understand how your income relates to your expenses, identify savings opportunities, and ensure financial stability.

Analysts of the Deposit Guarantee Fund give their advice.

What steps will help you do your financial analysis?

Step 1. Gathering information.

Start by collecting detailed data about your income and expenses. Consider all sources of income: wages, additional income, gifts, and other sources. Also make a list of all expenses, including monthly payments, purchases, and bills.

Step 2.categorization of expenses.

Divide your expenses into different categories, such as housing, food, transportation, entertainment, education, and insurance. This will help you understand what you spend the most money on.

Step 3. Calculate the total costs.

Calculate the total amount of your expenses for each month. This information will help you figure out how much of your income you spend each month.

Step 4. Comparison of income and expenses.

Compare your total income to your expenses. Note: If your expenses exceed your income, this may indicate that your financial situation is unstable.

Step 5. Identify opportunities for savings. 

Select categories that can be changed to reduce costs. It is worth paying attention to such changes as eliminating some unnecessary costs, finding cheaper alternatives, or making rational use of available resources.

Step 6. Create a budget.

Based on this information, develop a personal budget in which you define the purpose for each category of expenses and set spending limits.

Step 7.track the results.

Constantly track your income and expenses, tracking the dynamics not only monthly, but also annually. This will help you maintain financial discipline and respond to changes in a timely manner.

Do not be afraid of the complexity of financial analysis of income and expenses, because it is a necessary and important part of successful Personal Finance Management. While your first thought along the way may be that it's all a bit confusing and complicated, it's actually an important and very useful process for achieving your own financial stability.

Here are some practical tips to help you understand that financial analysis of income and expenses can be affordable and effective:

-         Start with a simplified analysis by simply determining your total monthly income and expenses. You can think of the analysis as a gradual process. At first, focus on one or more categories, investigating them in more detail. Gradually add more details by allocating expenses to the categories you need.

-         Use financial tools. There are many online tools and apps for keeping track of your income and expenses. They can automate the analysis process and help you understand where your money is going.

-         seek professional advice. If you find it difficult to figure it out on your own, you can contact a financial advisor or expert who can help you analyze your situation and suggest strategies to improve your financial situation. 

Useful for financial analysis and work on reducing items of expenditure is the Pareto Law, also known as the "80/20 rule", the origin of this law is related to the work of the Italian economist Wilfredo Pareto.

According to this law, approximately 80% of results are achieved through 20% of efforts. 

For example, you can identify 20% of the sources of spending that make up 80% of your budget and try to find ways to optimize or reduce them. This can cover various aspects, from rational purchase planning to viewing expensive or unnecessary subscriptions or services.

To apply this rule in practice, we recommend that you:

·         Make A list of all your expenses for a specific period (for example, a month);

·         determine which of these expenses are most important and most significant to your budget;

-         select the part of the expenses that makes up about 80% of your budget;

·         carefully analyze these costs and identify opportunities for savings and optimization.

By applying this rule, you can focus on optimizing your main expenditure items to ensure more efficient management of your own finances.

The complexity of analysis is reduced when you divide the entire process into small steps, use the available tools, and overcome the fear of starting to learn new knowledge in practice.

It is the financial analysis that will allow you to understand your own financial situation, focus on the main issues and successfully solve them and, in the future, achieve your financial goal.

some financial experts recommend using the 50/30/20 rule.

Divide your net income into three parts:

-        50% of your income for important needs and essentials;

·        30% for whims and optional expenses;

·        20% to pay off debts, loans, or savings.

This plan can be adjusted according to your expenses, because mandatory expenses can sometimes require you to invest more, for example, if you rent a house. Once you find the optimal ratio, it will be easier for you to stick to the plan and control your expenses.  

It's important to separate needs from wants. But try to be as honest with yourself as possible. Perhaps some of the expenses you thought were necessary will turn out to be whims.

Experts also advise you to include one-time expenses in the budget in advance, for example, gifts for the holidays. And since you can pay a significant part of these expenses in advance, this gives you the opportunity to save on them for a long time.