How to take care of your money in five steps

Controlling card spending, avoiding overdrafts and knowing where the money is going is a good start to managing household finances

The first weeks of the year come loaded with good intentions. One of the most common is to increase the ability to save and, above all, to improve the domestic economy. This goal is not so difficult to achieve, if you learn to manage your personal finances correctly. Avoiding excesses with the credit card, establishing a savings plan or not having overdrafts are a good way to save and keep these accounts up to date. Here are five tips to improve our daily economy and prevent your pocket from suffering throughout the year.

Write down your day-to-day expenses

It is the first step that must be taken by those who want to take control of their personal finances. Jotting down your most common outlays over a month or two will help you determine how much money is being spent, what it is spent on, and most importantly, how much can be saved. In addition, it will help to determine which expenses are superfluous and which could be saved or, at least, lower their cost.

There are lots of tools to help you keep track of your expenses. The Japanese Kakebo, a notebook in which the disbursements distributed among various categories (leisure, transport, etc.) are recorded day by day, can be a good start, especially now that it has acquired a certain popularity in Spain. Another solution is to use an Excel table or use one of the applications available on the market, many of them free.

In any case, the important thing is perseverance. Thus, when the month ends, it is possible to find out what is being spent the most on and try to save by modifying habits.

Establish a savings plan

Once the consumption habits are known and it is known how much money is available each month – and after deducting the expenses necessary to live from day to day – it will be time to try to improve the ability to save. The most common trick is to hire a savings account and transfer a certain amount of money each month. Currently, according to the ranking of the best savings accounts of 2016, you can earn up to 3% APR with total availability.

But saving is not only about transferring a part of the monthly income to an account, but about trying to reduce the most common expenses. Therefore, you can analyze the conditions of the products you have contracted and see if you could not save by subscribing to cheaper ones, such as changing the ADSL, opening an account without commissions or changing the supermarket. The trick is to compare.

Keep accounts up to date to avoid overdrafts

Having the account in the red can be very expensive. An overdraft of one euro for about 10 days can end up costing more than 50, if the different commissions and interests that must be paid for leaving the account negative are added, according to a study. Fortunately, there are banks in which these costs are considerably reduced to a few cents. Again, the trick is to compare.

However, the best way to save is to keep your accounts up to date to avoid reaching this situation. It is important to anticipate what expenses will be incurred in order to have a sufficient balance in the account. A solution is to put a reminder, such as an alarm on the mobile phone, that remembers a couple of days before the receipts that will be charged to the account, as well as the letters of the loans or the mortgage payment, so that it gives time to check the balance and, if necessary, make a deposit to avoid going into the red.

Do not spend more than 35% of income to pay debts

This point is key to managing the domestic economy in the correct way. It is advisable not to dedicate more than 35% of the income to satisfy the total of the debts that are had. That is, if you have an income of 1,000 euros, you should not spend more than 350 euros to pay loans, mortgages or credit card fees. One piece of advice, if financing is requested, is to calculate that percentage downwards, so that at a later date, if more financing is required, have a certain margin of maneuver not to exceed that 35%.

In any case, the percentage will depend on the family situation. A family with two children and a single income of 1,000 euros is most likely not able to spend 350 euros to pay the debts. However, a person who earns 6,000 euros per month is likely to be able to allocate a much higher percentage.

Monitor credit cards

Credit cards can become a threat to the daily economy, if not used in the right way. Swiping the card through the data-phone more times than the account, paying a very low percentage of the amount of purchases each month or having a “plastic” with an APR that is too high can mean not only an excessive expense, but also entering a spiral of debt from which it will be difficult to get out.

The ideal thing is, whenever possible, to pay by debit or deferred debit, that is, either pay the money for purchases at the moment or in a single installment at the end of the month without interest. If you need to split the payment, it is best to use a card that applies an interest below 20% or, if it is higher, that discounts a part of the transaction amount. And, above all, pay as much as possible each month to pay off the debt as soon as possible and pay the minimum amount of interest possible.