Personal finance: how to organize home bookkeeping and improve your financial situation
The well-known wisdom "Money loves an account" can be heard often, but few follow it. It is extremely rare to meet a person who keeps track of his expenses, to see the one who makes up the family budget is generally unlikely. The main reason for financial difficulties is the lack of a well-functioning system of financial accounting and control. If you want to improve the financial situation of the family, organize household accounting and take on the duties of the chief household accountant.
We keep records
Modern accounting is electronic accounting. Developers of computer programs try to make the work of an accountant as easy as possible by creating automated accounting systems. It is also worth taking advantage of new technologies to manage personal finances. On the Internet you can find a large number of programs specially designed for home accounting. “Your Money", “Family Accounting”, “Family Budget”, “Home Finance”, “DomEconom” – these programs are free, just download and get started.
The basis of home accounting is information about family income and expenses. Therefore, it is necessary to keep a daily and detailed record of all purchases and expenses made, as well as regularly enter information about income in the family budget. Cost accounting is needed, not only to know how much money was spent, it is also important for us to know what they were spent on. By analyzing expenses by types and categories, you can check how rationally funds are used in order to further adjust your financial behavior and eliminate unreasonable expenses.
Planning a budget
To effectively manage personal finances, you need to learn how to plan a budget. A budget plan is a plan for the future income and future expenses of a family. It must be realistic, based on exact numbers, and consistent with the family’s financial goals. The budget is developed for each coming month, based on income and expenditure data for previous periods. Gradually, you can move on to long-term planning, which is necessary to achieve financial goals with a long implementation period. Such goals are associated with expensive purchases and large cash savings, for example, for a child’s education or starting his own business.
The results will appear very soon. First of all, we can talk about the results associated with a change in consumer behavior. Considering and analyzing expenses, a person begins to make a different decision to purchase a product or service. You will notice that you have become less exposed to advertising and marketing tricks, and the number of emotional purchases will decrease. In the first months, this will reduce costs by 10-20%. More serious results will appear when you move on to the planned budget, it will help to completely improve your financial condition. You will forget about debts and loans, your own money will be enough for both mandatory expenses and planned purchases.
For those who still doubt
Nobel Prize winner in economics Richard Thaler, studying human economic behavior, discovered the effect of "mental accounting". With the help of experimental studies, it has been proven that subconsciously we keep a kind of bookkeeping and, like an accountant, we allocate our money to various income and expense accounts.
The disadvantage of "mental accounting" is that money has a different value for us, depending on which account it is in, i.e. 100 conditional units on the account "my salary" are not equal to 100 cu on the account "my bonus" or 100 cu on the account "deposit interest". Since money has different values, we spend it in different ways. As a rule, the money received from additional sources of income, we spend more easily, and most often they go to buy things we do not need at all.
The same is true with expense accounts. "Mental accounting" replaces the real value of money with the subjective value depending on what we plan to buy. You can be both frugal when it comes to spending on food and a big spender when it comes to buying clothes. The value of money is established by our habits, life principles, psychological attitudes, unfortunately, common sense and calculation do not participate in this process.
"Mental accounting" interferes with the rational use of our money, and we should try to reduce its influence in making financial decisions. To do this, it is necessary to conduct "real accounting" – to take into account the income and expenses of the family, to plan the family budget.