Tweet

Your personal finance and your company’s finance have virtually no difference – they should be managed in the same way because of this. It all boils down to fixed and changing expense.

Your personal and also family finances are very similar in many ways to a company’s finance. Both of them are managed in such a way that is based on fixed and changing expense. Fixed expenses would be things like the repayment of car and house loans, heating, gas for the car, tissue paper, and electricity and food bills.

Changing expenses are things like enjoyment and leisure, holidays and your occasional Starbucks. You cannot totally reduce fixed expenses – you would always have to pay a minimum sum for this, however you can make sure that this fixed expense is kept to a minimum. For example, if you only need one car but you have three, getting rid of two of the cars is a great way to reduce monthly expense.

You can also choose to modify some of your habits such as buying things in large numbers and decrease spending on things. Small things like switching off electrical appliances also got a great way to help save money. When these things add up they make a difference.

However, the expense you can change the most by modifying your behavior is the changing expense. By forgoing your morning coffee, you can save a small amount of money that overtime amounts to quite a lot.

How often does your family eat at restaurants for meals? How much is this expense on your finances? I’m not trying to say that you should avoid buying things, however, you should notice how your money is being spent, then identify areas that can be reduced and increase your savings. It is really quite easy. All it takes to start is you knowing that there are two kinds of expenses and that you can affect them.

Now, write down a list of fixed and changing expenses of yours and their respective amounts. Once you have done that, now write down a plan to decrease these costs. Apple this ratio called the 70/30 ratio. 70 percent of your increase in savings goes to paying away your loans while the rest are your extra money to spend as you wish.

1.    Fixed expenses: house, car loans, water, electricity, oil

2.    Changing expense: movies, eating out at restaurants, Starbucks snacks

3.    Create your list of fixed and changing expense: Create your own list of monthly expense as this would give you a better overview of your money.

4.    Apply the 70/30 ratio: 70 percent of money saved goes to paying loans while the rest becomes your pocket money.

Though this may look like complicated, it is really simple as all you need to do is to make conscious decisions when deciding on how to spend your money. Just decide your priorities. You do not need to sacrifice your pleasure, but you need to make changes to how you and your family spend. This maybe hard, but it is necessary if you want to properly managed your finances.