Each of us has a personal monthly budget and consciously or not, more or less effectively, manages it. Unlike governments which can run deficits (deficit is when you spend more than what you earn), we ordinary people, cannot afford that. That is why it is good to have at our disposal a couple of practical ideas on how to manage our cash better.

The personal budget, it turns out, is a pretty simple thing. It has only two things in it: (1) the money that comes and (2) the money that goes. In the middle there are all the saved funds, personal investments, car, house, etc. How we take care of (1) and (2) defines what we will have at our disposal in the middle and how we will make it increase. A person who strives to live a good life and to be rich, has the useful habit of regularly monitoring what comes and goes from his account. Even for non-mathematicians it is clear that having a real picture of one’s private finances is a necessary, even though insufficient condition for living comfortably. The story “one does not know how much he/she has” is indeed more valid for those who do not have than vice versa.

What is the money that comes?

It is useful to make a list of the money that comes to your bank account each month. If you are a college or university student, it is possible that it comes from scholarship, parents, emoluments from additional work, etc. If you are working, you can include your monthly salary, but don’t forget the opportunity for a 13th salary or a bonus, if such have been envisaged by the company that you are working for. It is possible for you to have another income from a small external business – if you are good at sewing clothes for your girlfriends, repairing the cars of your neighbours, shooting weddings on Saturdays, translating in your leisure time, organizing a course, etc. If you have profit coming from investments, i.e. dividends from shares, they shall also be included in the column “the money that comes”.

What is the money that goes?

The first thing is to see how much are the fixed costs that you cannot skip paying each month. University students for example probably pay rent, Internet, food, telephone bills and a monthly transport card. Working people pay bills for electricity, water, mortgage, food, children’s clothes, etc.

Whatever remains after the fixed costs is additional disposable income – for additional usage, entertainment, investments, etc.

What remains there?

Obtaining a certain goal in life, including in terms of personal finances can hardly happen if you do not set it for yourselves. If your goal is to have BGN 1 million in your bank account when you are 65 and now you are 25 than that is absolutely possible in case you save nearly BGN 650 on average each month and you invest it at an yearly profitability of 5%. The reason lies in the compound interest. If for 40 years you save BGN 650 each month and you keep it under the mattress at the end you will only have a little above BGN 300 000. But thanks to the compound interest, with which your investments are gaining, you will have thrice as much without any additional efforts (The article “A simple explanation of the compound interest” is coming soon).

And so, if you have a goal and a budget, the first step is to open (a) bank account/s and find a trustworthy personal banker/personal financial adviser there. It is important to check thoroughly the bank that you are about to choose – in terms of reputation, rating, management, convenience, etc. Always request detailed information regarding the annual fee on the account, if there is such; regarding the interest that you will receive; as to whether there is a limit on the number of the transactions each month, etc. In a good bank your questions will be met with in a respectful manner, because educated clients are preferred everywhere.

Let’s summarize the key questions regarding the personal budget:

- What is the money that comes?

- What is the money that goes, especially the fixed monthly costs? Do you have any ideas on how to reduce them?

- What remains there and what do you do with it – save it, invest it, spend it on entertainment? The solution is individual depending on the financial goals. If you do not have such goals, set them to yourselves.

Congratulations, you already are your personal chief accountant and you may as well certify your first budget!

As we promised in the beginning, the budget is a simple thing. The true challenge is not making it, but being disciplined to observe it, and that goes also in respect of our long-term goals.

This material was written by an author, nevertheless ideas and recommendations from the lectures from the course “Managing your money” by the online training platform Coursera have been used. If interested, anyone can take the training free of charge… or save 6 hours of video lectures and tests by reading the most important parts of it for 5 minutes here. The online training modules have been drawn up by Prof. Peter Navarro, holder of Ph.D. in Economics from Harvard University, who is a Professor at the Irvine University, as well as the author of global bestsellers in the field of economics. The next article from the series “Finances for non-financiers: practical ideas on how to smartly manage your money” will be published on January 29th.

About “ Finance for non-experts”

This article is part of the series of financially-oriented expert materials in the corporate blog and the digital channels of UniCredit Bulbank – facebook, twitter, etc. - on the topic of “Finance for non-experts: practical ideas for smart money management”. Money: starting with a clean slate as of January 2016 was the first material. In the course of last year, the bank published, among the financial topics in its blog, articles such as Why we should use bank cards instead of cash? or Five symbolic quotes from Star Wars that may help you get richer, etc.

More information for media:

UniCredit Bulbank, Identity & Communications Department

Viktoria Blajeva, Phone: + 359 2 9264 993, wjlj/ebwjepwbAvojdsfejuhspvq/ch