Personal Financial Management System

Financial literacy is one of those areas of knowledge that is not taught in schools and universities. She has to learn personally to everyone, walking across the field of rakes with cuttings of different lengths. Some fly in the forehead, others only reach the waist.

I want to share my experience in building a personal financial system that allows you to manage cash flows that run wildly in both directions in our pockets and bank accounts. I hope my experience will be useful to someone, and will allow to avoid meeting with a pair of the above mentioned rakes.

Written in the wake of the publication Zlobnost " Financial accounting for non-entrepreneurs ."
Cost and revenue accounting is the cornerstone of personal finance management. But they are not limited to everything.

Why do you need it?

We all remember the tasks from the school program in the style of “Into a pool of one pipe pours X liters of water, and pours Y liters”. With money, exactly the same thing happens. We receive income "from the pipe" in the form of wages, bonuses, income from investments, etc. They join us in the "pool", i.e. in the wallet, and at the same time poured through the costs. At the same time X and Y change. Sometimes in each month.
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The main purpose of creating a financial management system is to maintain the state of the “pool”, in which it is always full, regardless of the X and Y values ​​at a particular point in time.

Getting to build a system

So, to begin with, let's define what we can manage in general in the sphere of our finances. Our revenues cannot be fully attributed to managed values, and here's why. We have a salary that we cannot simply take and increase at the request of the left heel for a specific month. There are bonuses, the payment of which is not entirely dependent on us either (if hard times have come in your organization, bonuses will go first to the knife). Even the profitability of bank deposits can vary at the request of the bank (within the framework of the concluded agreement).

Remaining costs and savings. Here we will deal with them.

Reserve fund

I highly recommend having one. In a reliable bank. Size your current monthly expenses (all, and not just mandatory) for at least three months. The upper bound here is floating. Someone recommends focusing on six months, someone for a year. Personally, I chose six months. Upon reaching the upper limit of money can be sent to invest.

This is untouchable money. They embark on a turnover only as a last resort. For example, if you were fired and you need to live for something, or urgently need money for treatment. In addition, they perform an important psychological function: they give a feeling that there is money. And it removes a very large load from the soul and eliminates a certain amount of stressful situations.

The formation and replenishment of this fund should become a habit. A very painless way is the unconditional transfer of a certain part of the income received, immediately after the arrival of this money. I transfer to this fund 10% of my salary (permanent income), and about 30% -50% of premiums (non-permanent income). The remaining 90% of the salary allows you to live in peace, but the premium still “fell from the sky” (more on this below).

Current expenses

These include everything that we spend money on every month. Utility payments, loan installments, food, transportation, etc. It is important to understand that they are not constant. And that's fine. For example, utility payments vary depending on the season and temperature overboard. And when you are on vacation, the cost of transportation and meals at work also decline.

I would also recommend adding an “unforeseen” expense column here. And limit it to a specific amount (determined empirically). No matter how you plan a month, all of a sudden there will be a need to go to dry cleaning, buy new shoes, or a simple desire to go to a restaurant.

Those. This is the amount you spend each month just living. It is based on it and the reserve fund is formed.

Expected expenses

Not all expenses are monthly. But not all “sudden” expenses are unforeseen.

For example, car insurance. We know that we must pay the policy once a year (or quarterly). And the amount can be impressive for our budget. And then there is the New Year, with its costs for tangerines and fireworks, vacation, wife's birthday, and yours too.
All these events we can not just predict. We know they will happen. And even the date can be called. And the "sudden" realization that next month you have to give money to an insurance agent, and even buy your wife a good gift and pay for a holiday in a restaurant, can inspire terror. If we are not ready.

But if the necessary amounts are set aside in advance, on such days you feel like a king. For such savings, I use “target” bank accounts. At least two of the three banks whose services I use allow them to open. This is a regular term deposit with the possibility of replenishment (but not partial withdrawal). In banking applications, such contributions are shown separately, accompanied by progress towards the goal, which further motivates.

Replenish such target accounts is also desirable monthly. First, it allows smoothing the “quick drain of water from the pool” by stretching it over time. Secondly, it helps to monitor whether your lifestyle coincides with your income. Thirdly, “hidden” from your SMS from the bank (I mean the standard type “debited X, account balance Y”) will not give rise to excessive illusions of the presence of untold riches, and corresponding temptations.

Life hacking: the remaining 50% -70% of the premium (see formation of a reserve fund) can be sent to target accounts. They are accrued by the usual depositary interest, which is a bonus for being so disciplined. The sooner the required amount is on the account, the greater the bonus will be when you close the account.

Great purchases

They are not always can be attributed to the foreseen expenses, so I will take them separately. It happens that I want to buy a new TV the size of a wall. Or a car. Or a fullframe camera with a pair of lenses. The amount of purchase is impressive. There are two ways to move towards this goal. The first is the accumulation of the entire amount, as mentioned above. Through a separate account, for a specific period. The second is a loan. Knowing your real financial capabilities (i.e., specific figures for current monthly income minus expenses), you can better assess whether you can afford it or not. Any adjustment to current monthly expenses is a bell that is a “bad” purchase. As soon as you have the thought “I’m going to cut down my unforeseen expenses a bit, and then everything will come together” - think again. And further.

Life hacking: Determine the amount that will be the monthly "tact" of accumulation for a very-useful-but-expensive purchase. For example, you want to buy something for 20,000 rubles (or another amount for which you do not need to go to the bank and take a loan). And your “tact” is 10,000. Start a separate target account (or open a new one-liter jar), and transfer those 20,000 there within two months. If by this time the desire to buy this product has not disappeared, then it is really needed. This will avoid impulsive high spending. Well, if you want to buy something for 1000 rubles - buy. Even if this is a mistake, its price will not be high (just remember to attribute this purchase to unforeseen, and keep track of the costs of this item in a given month).

"Fallen from the sky"

Speaking about the formation of the reserve fund, I called the award "fallen from the sky." Personally, I consider this money that way. I do not plan to spend them until they are in my account. And all the more I do not spend them on the assumption that “they will give me the bonus at the end of the month and the budget will converge”. Let the expected premium come on time in 9 out of 10 cases. But this one can hit very hard. Both on the current financial situation, and in relation to the organization in which you work, or even to a specific person (to the boss who promised to reward, but did not keep his promise). Maybe you will understand deep down that the premium was not paid for good reasons. But the thought “this is a setup” will still dwell somewhere in the head.

It is much more pleasant to think not about where to get money after the lack of a premium, but about where to spend it after receiving it.

Live well, live well even better

I have another "reserve fund". My personal. Funds from which are spent on "all garbage" (c) my wife. Electronics, computer games, interesting stuff with Ali, etc. It allows me to carry out all these expenses, sometimes for large amounts, without worrying about the family budget. This is my vent, so to speak. My salary is rising -> contributions to this account are rising. Deductions increase -> opportunities to treat yourself to a loved one increase -> mood increases -> motivation increases. The welfare of the family is also important, but still buy yourself a new piece of iron - it's damn cool.

What to do with non-distributed income

There is a huge amount of action. Invest, save, repay loans ahead, engage in charity. On this topic, you can write a separate post.

Instead of conclusion

I described my personal finance management system. She works. Together with the record keeping that Zlobnost described in her article, she allows not only knowing where the money goes, but also knowing where to send those who came. It helps to manage your finances, and do it quite effectively. I know that in January I will have a salary lower than in December. And it does not cause any panic. I also know that in February salary will be more than in January. There is no euphoria either. Is it boring Maybe. But then I completely control the dangerous thought “I can afford it”, which tends to occur immediately after receiving the SMS about the account refill.