Analysis of your own financial situation

Why analyze your home budget?

Imagine that when you return home by bus, you have slept through your stop and get off in a totally unknown place. Everything looks alien, you do not see any characteristic points. Fortunately, there is a map of the entire city on the stop shed. You are saved! After all, you know where you live, so you can easily find your way back. You only have one very important problem. There is no indicator on the map: “here you are.”

Your plan fell apart, because although you know where you want to go, without a starting point it will be very difficult to determine the optimal route. Sure, you can drive blindly and eventually hit, but no one wants to do that. So you start searching using clues such as the name of the stop or street.

In the same way, you use the household budget. You set a destination such as a specific amount of savings per month or a specific asset value. Then you check your current situation and are ready to draw a path that - although it will not be simple - will lead you to your goal.

Where am I? Your current financial situation

If your home budget is a map where you have everything that surrounds you (in terms of finances), then you can treat its analysis as a compass that will help you choose the right direction.

The budget at the beginning will show you one of the following three states:

Income higher than expenses - Comfortable situation. Although you have not yet taken major steps to optimize your cash flow, you are already generating surpluses. By keeping costs in check, while increasing income and investing, you're getting closer to fame-shrouded financial freedom. Although to tell the truth, if you are undercutting your budget, it will be a very long way and closer to a comfortable retirement than being a rentier.

Income equal to expenses - Living from salary to salary is very risky. If you only have enough money until the end of the month, what will you do if the transfer is delayed or an unexpected expense jumps out? It will be fragile. After all, it's not bad. You are coping, and making corrections is still ahead of you.

Incomes lower than expenses - Red light. In the months when you have one-time large expenses, this situation has the right to happen and is normal. If it repeats, then you are on the straight path to a spiral of debt and bankruptcy. React, there is no time to lose!

When reviewing the budget, focus on the principle from general to detail. Navigate the main categories. If the costs exceed the assumed levels, just look into the subcategory and catch leaks on the ship.

So that there are no inaccuracies: the spending limits that you set for yourself are not engraved in the rock. You do not need to strictly adhere to them, but when you exceed them, it is time to analyze and understand why this happened. If you spend more on food, is it due to food price inflation or simply too many meals in the city instead of at home?

Confront your assumptions with reality. It can be frustrating at first, but one of the frequent excuses I hear from my readers is fear! Fear of knowing the true scale of expenses, and as a result - the sources of financial problems. Take it for logic. What is worth doing? Pretend there is no problem or get rid of it?

Where am I going? Your financial plans

Once you have made sure that your financial statement is as close to the truth as possible, it is time to start planning the changes that have a chance of being realized and set about fulfilling them.

First of all, plan your financial goals for the long term. Preferably by the end of the year. I am not talking here about funds familiar to you from the previous material - purposeful and irregular expenses. It's about new priorities.

• How big are you going to build savings?
• How long will it take you?
• Can you get rid of some unnecessary expenses?
• When will you increase your earnings?
• How will you do that?
• How do you protect your capital from inflation?
• What do you ultimately want to invest in?
• What can you automate?
• Do you want to retire early?

And many other questions you can ask yourself.

Once your budget is in order, your goal is to maximize the benefits of the capital you already have, of course, while maintaining adequate liquidity. First of all, you should pay off any consumer debts. Early repayment is a certain profit with a certain interest rate, which you are unlikely to beat with your own investments. If you have debts and do not know how to take care of them, then I will devote the whole next module to it.

However, I assume that you have no obligations. So start improving your situation now. This is a long-term game and there is nothing to wait for, and the strength of the compound percentage will positively surprise you. Focus especially on big decisions that give definitely better results than shaking up every penny.

And remember that no one except you will change your approach to finances. Even me. You have to do it yourself. I will be happy to show you what is worth paying attention to, but I will not force you to sit down to the budget for these tens of minutes and plan your actions. Reading one or even several articles can be constructive, but without applying in practice even part of the knowledge - this is basically a waste of time.