The only advice you actually need to manage your finances

In this weeks blogpost I want to adress a topic, which many people try to avoid by all means, because they think they are just bad at handling their finances and it is just to complicated to manage your finances smart. There is a lot of financial advice out there and it is easy to lose the forest from the trees, but if you actually break it down to the essentials and avoid those money gurus, who try to sell you their investment plan with a catchy get rich quick line, it is actually the easiest thing you can do. You can get started right now and automate your finances in an hour and then benefit from it for the rest of you life, without even thinking about it. To get started I want to share a few tips, which sound really simple, but like I said, managing your finances is no magical trick.

Take a look at your income and your spendings

Many people don't pay attention to where their money is going each month and are often surprised where all their money went last month. To get started you should look at the fixed costs, you have to pay each month, like rent and other bills. Then you should look at your variable costs grocery shopping or buying clothes. Average those costs by looking how much you spend on these areas over the last few months. Now you take a look at your income, which is probably the same every month, if you are not self employed. Now you just divide your costs into different areas like living, food, fun or whatever you like. If you subtract your costs from your income, you see if you are overspending on some areas or if you have a solid surplus. You can do all of this in a excel spreadsheet, but you can also just use one of the zillion expanse managing apps which are out there. If you completed this step, you are probably ahead of 90 % of your peers and completed the most important lesson on managing your finances.

Automate your bill payments

When it comes to managing your finances, you want to make it as easy as possible, so you should automate all the fixed payments you make each month. Automate all the trancactions you can, so you don't have to worry about missing a payment. It is probably advisable to pay all your monthly bills at the beginning when your monthly income just arrived, so you don't eve have the choice on overspending and having to worry about not being able to pay your rent. You can also transfer the money to a seperate bank account or sub bankaccount, so it is seperated from your “fun money", which I will be talking about in my next point.

Spend your money consciously

We all made those purchases, where we felt guilty afterwards and figured out that we don't even need this thing after all. This is where concious spending comes in. After we figured out what our fixed costs each month are, we should also plan some "fun money", which we can spend guilt free on stuff we actually enjoy spending money on or on something, which actually adds value to our life. So after you made all the transactions you have to make each mont to "survive", you should think about what to spend the rest of your money on. A good formula is spending 60 % on bills, grocery shopping and other stuff you need to spend your money on to basically survive, 10 % should go into your savings for vacations, gifts or unexpected expenses, but 20 % should be used for guilt free spending, which can be anything like going out for dinner, buying this expensive pair of shoes you have always wanted or treating yourself with a massage. It can be whatever you love spending your money on and because you already transfered your savings to a seperate account and covered all your monthly expanses you can actually spent spend this money without feeling guilt.

Invest early

You probably noticed that there are 10 % missing in my calculations and those 10 % should be transfered to a investment account. The single most valuable investment strategy is getting started now. You've probably heard a lot about compound intrest, but it is simply the truth. Getting started with investing early, even when you are just investing 50 € per month, can grow into thousands or even hundreds of thousands. Investing sounds pretty complicated at first, but let me tell you it is not. You can just choose one of the dozen investment platforms out there like scallable capital or trade republic, open an account in minutes and make a order for an automatic trancsaction of the amount you want to invest each month. But what do I invest in ? The simplest path is choosing an index fund like a MSCI World and putting all your money into that and it is practically guaranteed that you will get a 10 % return on investment each year. But this fond manager is guaranteeing me 25 % growth of my fund each year ? Only a really small percentage of the managed funds are actually outperforming ETFs and you have to pay much higher fees, so just choose the ETF that fits the most for you. In times of stagflation the stock market looks like a bad place to invest your money in, but the good thing is, if you automatically invest money each month, you are also buying shares when the prices are low and if you are investing with low risk the stock market is a pretty safe place to make your money grow, without being an expert. But I don't have 50 € to invest each month. This is a pretty common excuse for people who don't care about there financial situation and are living from paycheck to paycheck, but if they would take a closer look at their expenses they could defnitly carve out 50 bucks each month and yes to be financially stable and being able to live without worrying constantly about money is sometimes coupled with abstaining from some stuff others are wasting their money on.

I hope you could take out at least one valuable lesson out of this article and I encouraged you to tackle your financial situation. If you want to read more about this topic I highly recommend to read the book "I will teach you to be rich" by Ramit Sethi. The title sounds a bit clickbaity, but it is actually a must read to get started with your finances.

Cheers Emil