Often on your and other financial situation people are judged by the level of income. If a person earns 1 000 000 dollars a month, he’s richer receives 30 000 dollars a month. This approach is fundamentally wrong and in most cases can lead to erroneous conclusions. Wrong processing of the welfare of the neighbor does not hurt, and misunderstanding their own financial situation will result in further deterioration. To find the truth will help analysis of personal finances.
Audit of the current financial situation it is impossible to spend only on the amount of income. You must consider the cost, availability and amount of indebtedness, assets, investments. With a solid earnings the person may experience the situation when consumer spending in the aggregate with debts significantly exceed revenues. The result is a personal budget is scarce, and such a person would be wrong to assume the rich. Conversely, with proper and rational use of small income it is possible not to have debts and to stay in the black by the end of the month.
How to analyze your personal finance?
Analysis of personal Finance is based on the movement of money within a certain period of time. The greater the amount of time selected, the more accurate and complete will be audited. To account for easiest to use computer programs or apps for mobile devices. The main thing is to understand the basic principles of home accounting. After collecting data for at least 6 months, you can begin analysis.
Analysis of income. All the money earned are divided by source of income, compares the change amounts from each source of income from month to month, and the number of the sources themselves. At first glance it seems that, ideally, another month should increase the number of income sources and size of income, but should take into account time and labor costs. It is more profitable to discard some unpromising sources of income for the benefit of others or with the aim of finding new.
The cost analysis. By analogy with the income of all the costs for analysis are divided on the sources and amounts determine the direction in which spending began to increase or decrease, calculated what percentage of income is based on expenditures in each of the months. It is necessary that the expenditure does not exceed the quantity of income even with the growth of the latter. At this stage, it’s time to unsubscribe from unnecessary expenditures. Balance should continually increase revenues and reduce costs.
Debts. In addition to ongoing monthly costs, you must control the total amount of debt. The correct budget implies a complete lack of debt, but on the way to a perfect financial situation often be a debtor. Most importantly, this condition does not become a habit. Debts are divided into short-term (borrowed from a neighbor to paycheck, etc.) and long term (mortgages etc.). In the analysis of debt is better not to share at the time, and feasibility. It is permissible to have the duty to credit for housing or education, and loans to a new phone or a fur coat to do. Every month the number and amount of debts should be reduced.
Investments and assets. They need to be. The lack of investments and accumulated assets is an alarming signal for the financial situation. The analysis determined what share of income each month goes to replenish the financial safety net, which is invested. Then it considers a passive income that can bring investments and assets. If this amount exceeds the total amount of expenses and the total lack of debt, we can assume their financial situation successful.
Through the analysis of personal Finance to understand which of the four types belongs to the current family budget, and what the article should be adjusted to achieve the desired financial situation. Conventionally, the ratio of the incomes, expenses, assets and investments can be divided into the following types of budget:
Type I “Miserable”. The low level of income and expenditure, the absence or small size of assets, the inability or unwillingness to make investments, constant shortage of funds, debt is either missing or there are short-term small debts.
Output: to work to increase income. To look for alternative sources of income or to change the scope of activities. To reduce costs has no special meaning, because at a given level of funds likely to be expended on Essentials.
Type II “Scarce”. Low income levels, expenditures exceed over revenues, availability of debt, constant lack of funds, even if assets the amount of debt greatly exceeds their cost, the investments are either absent or are unsuccessful.
Output: Make a plan to repay current debt. To prevent the emergence of new debt. Analyze and optimize costs. To begin to build a financial safety cushion. To improve their financial literacy.
Type III “Wasteful”. A high level of income and expenditure, reckless spending, assets appear, but once spent, there may be debts quickly covered by earned income, the availability of investment, possible high passive income.
Output: begin to keep a record and analysis of personal finances. To cut unnecessary expenses. To create a reserve Fund from vacant as a result of saving money. To accumulate assets.
Type IV “Surplus”. A high level of income, a complete lack of debt, spending less than your income, available funds, availability of assets, there are investments.
Output: it is Recommended to strive for this type of budget. Serious changes are needed. Continue to increase revenue. To direct efforts towards developing passive sources of income.