Some key concepts of personal finance are presented in an educational way, making an analogy with business and citing practical tips for each of the tools. Basic arithmetic can help us !!!.
According to official figures in Colombia, approximately 50% of the population is below the poverty line. Although the way of measuring poverty is always debatable, it can be said that a family with an income of less than four (4) legal minimum wages, that is, $ 2,266,800, or, is in poverty. One of the factors why this situation occurs is because you do not have the adequate education or ability to manage money.
Perhaps for a decade, as never before, we have been concerned with our personal finances. Some with more knowledge and success than others. There are those who with "success" mean "no debt", others refer to "being able to buy everything the market offers them".
However, to help pin down, personal finance does resemble business finance. It is pertinent to define some financial statements: Income and Expenses Statement, Balance Sheet and Cash Flow, among others. And a tool, which without being properly a "financial statement", is essential to carry out planning and control, and is what we call "the Budget". And just as in business finance, it is pertinent to define financial indicators or indices.
Before continuing, it is pertinent to clarify that the perspective of other dimensions of human life should not be lost, after all, our world is not only "money"; they are even more important. There are aspects beyond money, such as personal and family life, physical health, social life, religion, politics, academia, ethical values, etc. Which we should not overlook, and incidentally must be in total harmony with the financial situation. Otherwise, one could not speak of success.
A budget is the key to planning and control:
A budget is a tool where we realistically record our life ideals. It is the quantification of each of our plans. It is important to do it, and hopefully with the family. Specifically, it corresponds to orderly estimating the income and expenses that we expect to have over a period of time, monthly, quarterly or annually. It is important because through the budget we allow our dreams to come true, as well as it allows us to evaluate and monitor the progress or not of these purposes.
The most important thing is that when we are making the budget, it must be realistic. In the case of income, take into account only what we are actually earning. For this, it is preferable to underestimate income and overestimate expenses.
The income and expenses status:
Corresponds to a structured register of Income, Expenses and its Result, actually caused. Funding sources are recorded there, which in the case of a person or family corresponds to wages, fees, leases, interests, commissions, among others. This item is recommended, they should be "maximized", which is in accordance with our age, education level, social status, economic activity.
It is also recommended that you should have a more or less diversified range of income. Do not depend only on salary income. The possibility of having extra income must be achieved, they can be low, but constant. As an example: teach classes, do manual work, catalog sales, with small investments; in short, depending on the availability and risk that you want to assume, the possibilities can be improved.
On the other hand, there are Expenses, or in business terms, “the exits”. Corresponds to payments for food, education, clothing, housing (rent or mortgage payment), transportation, and recreation. The list of expenses is generally longer than that of income. Here we recommend “minimize”, but not so literally. We mean that expenditures must be rationalized and optimized. In the company in general we call it “knowing how to buy”; that is, to acquire the goods and services with the best quality and at the best prices.
To make the records, semi-annually or annually, we must have invoices or receipts for each of the things that we buy or contract. It is necessary to take out, even if only, one or two days a year to record these payments, so we have time to reflect and perhaps answer one of the greatest unknowns in the universe: where does our money go?
Savings and investment:
As a result of the difference between income and expenses, there is a balance, we call this "savings". Saving must be a purpose that is framed within an end. We must always set ourselves an “altruistic” objective for this saving, this is one of the fundamental engines to materialize our ideals and prosper.
This must become a discipline, and for this you must form a habit. It is recommended to start with 5% of the income, for a period of one year; then 10%, and so on until we reach at least 30% savings on our income.
It is important to distinguish between savings and investment. While saving is the balance of our income that we have left after consuming; investment is the use or application of these savings and that generates a certain profitability. Where can we invest? It is a somewhat complex question, since it is not enough to have cash balances or the intention to obtain an income; It is necessary to have a minimum of knowledge for this. Or in such a case, have advice on this matter.
The important recommendation for the savings goal is that the equivalent of 3 or 6 times the expenses of a month should be kept in a "box". That is, if my expenses –payments per month for rent, credit cards, transportation, food, taxes, etc.- are $ 1,200,000, oo, it is recommended to have a balance of $ 3,600,000, oo and $ 7,200,000, oo, to meet needs. After this figure, the rest of the surplus can be dedicated to investing, for example, company, shares, currencies, titles.
The balance sheet:
Assets are all the physical assets that help us to develop our lives, that is, home, vehicle, furniture, fixtures, etc.
The Liability corresponds to the "debts", such as banks, people, suppliers, other commitments. This, according to business experts, and by analogy should not be more than 60% of assets. As an example, if your assets amount to $ 10,000,000, oo, your debts should not exceed $ 6,000,000, oo. Remember that debts are not necessarily bad; The bad thing is what we dedicate these resources to.
Equity is the arithmetic difference between the "asset" and the "liability". To determine the net worth that must be had as a minimum goal, there is a formula that a renowned Argentine author has established: Calculate what your annual income is, then multiply it by ten (10) and finally divide this result by 10. Example: If a person with 25 years has an income of $ 15 million a year, the calculation is: (25 years X $ 15,000,000) / 10 = $ 37,500,000, oo. That is, her minimum wealth must be $ 37,500,000, oo.
The success of personal finances does not have a magic or unique formula; The most important thing is to make the decision and act in a disciplined way. Anyway, having money is not enough to be happy !!!.
