Control over your personal financial budget

Current conditions demand control over your financial budget

The emergence of high inflation — along with rising costs of living, store prices, energy bills, and more — is posing increasing challenges for individuals. To maintain the same standard or quality of life, we now have to dedicate a larger portion of our personal financial budgets. While a year or two ago we may have allocated only a portion of our income to “life expenses,” that portion is now steadily growing for nearly everyone.

Since there’s no indication that the prices of everyday goods and services will return to pre-COVID levels, every individual today must take control of their financial budget, monitor expenses, and optimize costs.

Fortunately, there are several tools available to help us. The goal is to ensure rising living costs don’t overwhelm us, but instead remain under control — allowing us to achieve the true purpose of budgeting: to have money left over at the end of the month to invest and thereby build greater financial security and long-term independence.

Personal financial budget

A personal or family budget (if a couple manages their finances together) functions much like a business. Just as a company must manage its balance sheet and monitor expenses, income, and profits, the same applies to our personal finances.

n a household budget, we must constantly monitor and control expenses.

The idea behind managing income and expenses is to ensure the personal or family budget remains in positive balance — meaning we spend less than we earn. If we consistently have a surplus, we can invest it further.

The key to a healthy household budget is positive cash flow.

To achieve this, we first need effective control over income and especially expenses. Managing expenses allows us to generate savings, which we can use to pursue financial goals — saving for retirement, our children, an emergency fund, or a property purchase.

To gain control of monthly income and expenses, start with a thorough analysis. This will show whether you’re living within your means and if too much is being spent on non-essential items.

Praktičen nasvet: Če do danes še niste nikoli naredili analize svojega osebnega finančnega proračuna, potem se lahko tega lotite na zelo enostaven način. V obdobju enega meseca vodite vse svoje odhodke in na koncu meseca naredite natančen pregled in analizo. Za učinkovit pregled lahko uporabljate programsko opremo excell, za še bolj enostavno uporabo pa so vam danes na voljo tudi pametne aplikacije – kot je primer aplikacije Toshl.

Practical tip: If you’ve never analyzed your personal finances, start simply. Track all your expenses for one month and analyze them at the end. You can use Excel or budget-friendly apps like Toshl, which provide real-time expense tracking and budget limits.

This analysis will give you insight into whether your balance is positive or negative and where your money is going. Regular monthly reviews are highly recommended.

Reviewing and optimizing expenses

A healthy household budget requires close control over monthly spending (some advice summarized from Why Am I Broke by Aleš Babič). Consumer desires — often confused with needs — can be managed with discipline:

• Ask yourself: Do I really need this item?
• Calculate how much time you need to work to afford what you want.
• Consider whether it’s necessary now, or if the purchase can wait.
• Always shop using a list prepared in advance.
• Buy only what you need, not what you want!

Through monthly expense analysis, you’ll likely identify opportunities to save — for example, by switching mobile or electricity providers or eliminating small, recurring costs.

When reviewing clients’ expenses, we often find that savings can be found simply by optimizing existing costs:

• Review all subscriptions: Cancel those you don’t actively use.
• Examine debts (credit cards, overdrafts, loans): Prioritize repaying the most expensive ones.
• Rethink food habits: Weekly meal planning and cooking at home saves significantly.
• Plan large expenses in advance (e.g., vacations, clothes, home equipment during promotions).

When optimizing expenses, it is probably most important to carefully review and assess your debts and liabilities. The maximum debt level of a household budget should not exceed 40% of regular monthly income.

You should also check what types of debts you have. For example, if you have a mortgage with a favorable interest rate for your home, where you feel comfortable and can service the loan without difficulty, then that’s perfectly fine.

However, if you have credit card limits, expensive consumer loans, or even multiple credit cards used for deferred payments, it’s clear that these debts are costly and drain money from your household budget.

With such a large share of debt — especially the kind that takes away more money than you could realistically earn from investments — it becomes very difficult to achieve personal financial freedom.

That’s why optimizing your current monthly living expenses is essential, and you can begin this process immediately after carefully analyzing where your money is going each month.

Natural standard & the 10% rule

“People buy things they don’t need with money they don’t have.”

Too many people today still live far beyond their financial means, burdened by debt and overextension — in this case, they are living an artificial standard that is neither sustainable nor desirable.

A natural standard is much healthier and more sustainable in the long run. It means living within your financial means and having something left over at the end of the month. As we’ve seen, optimizing our expenses is essential. Optimization also helps us understand the limits within which we can live, so we must always set a budget that defines our monthly standard of living.

Within your budget, you need to clearly specify how much you allocate for fixed costs and how much you’ll spend on other ongoing obligations (children’s education, groceries, hobbies, etc.).
If, through analyzing your income and expenses and optimizing costs, you’ve reached a positive balance, you should immediately start saving that surplus — and then invest it further!

The 10% rule says you should start saving 10% of your monthly income immediately — and never stop. This is the ideal scenario. If 10% isn’t possible, it’s still extremely important to start with whatever amount you can, even just a few euros per month — it’s better than nothing and definitely contributes to building long-term financial stability.

That’s why you should take this rule seriously and always — until it becomes a habit — invest at least a small percentage of your income as soon as it hits your personal account. It’s truly amazing how big of a difference this can make in the long run if you remain disciplined and consistent.

Let’s look at one possible idea for how to allocate your monthly income so you can continually invest the positive surplus. Ideally, your income would be divided as follows:

• 55 % daily expenses and housing costs,
• 10 % education,
• 10 % long-term savings (“do not touch”),
• 10 % investments (car, house, etc.)
• 10 % entertainment (spend monthly),
•  5 % charitable giving.

If you’ve taken proper control of your money, you’ve already made significant savings. If you’ve also managed to reduce your debts (the money that was leaking out), your savings are even greater. Being able to effectively control your expenses is the first requirement for successful personal financial management — especially in the times we live in today.

Matjaž Štamulak, independent financial advisor and lecturer, www.cresus.si