May 22, 2022 1:59 am

«If you want to get out of the red numbers, you have to write down even the coffee that you get in the machine»

The January slope is usually a time when the red numbers lead many families to put their hands to their heads, but according to Amalia Guerrero, author of
‘Clear accounts at home’
, it is always a good time to rethink improving our financial health. “Today can be a good day to put into practice savings habits or start paying off debts and change the use of the credit card for the debit card, for example.”

It is true that we all know what to do, he acknowledges, “but knowing it is not enough. You have to apply it. Money does not bring happiness, but when you have your needs met… it brings you closer together,” says Guerrero.

Yes, we have gone from being a conservative society, which did not take on debt, because it did not spend anything unless it had the money in cash, to being a society that finances everything. But we forget that what we pay at the click of a button then we have to pay for it. That’s where a lot of scares come from. Companies carry out brutal advertising campaigns, social networks influence (especially adolescents)… But we can’t blame them. Our children see that when we want something we press a button and we have it at home the next day.

At present it happens that, in addition, families have very easy access to credit. We continually have in our spam mail of that type with micro loans, consumer loans… I always say: The easier and faster they lend you, the worse it will be for you. It is possible that 600 euros will reach your account in half an hour, without asking you questions. You have to look at that fine print. They know that there is a great need and they have to compete but they have to reflect or ask themselves these questions: I can’t, I don’t need it, maybe later.

What is the ABC or the basic or essential concepts that every family should have?

One is the pre-saving: It consists of saving 10 percent of our income in a different account as soon as we receive it. Ideally, you would schedule an automatic transfer of 10 percent of your salary on day 1 or day 2. Get used to living with the 90 percent. It must be taken as an invoice, as a tax, something mandatory. Pre-savings is a tax that I impose on myself, as I like to call it ‘financial peace of mind bill’. I get used to living with what I have left. There are people who do not save anything.

The second basic concept is financial cushion: Money to cover my family’s expenses for at least 3 to 6 months. Ideally, your expenses should be your salary. In other words, if you win 1,000 euros, you should have 3,000 to 6,000 euros in an independent buffer account. This is not contingencies like a wedding, or a trip. It is to be used in case your washing machine or car breaks down, you are fired from work or you are taken to an ERTE. What is my recommendation? Between 3 to 6 months would be ideal. As big as it allows you to sleep peacefully. It is not the same what an official will need than a self-employed person, of course. In a pandemic, for example, only those who were at home and could pay their bills were calm. The one who could not pay for a plate on the table was not so good.

The next important step is make a budget. What is achieved with this? Take a still photo of where each euro that our economy spends goes: what goes to food, education, training, supplies, housing…

Where is it better to start?

In my opinion, by cost control. Why? You imagine you go on vacation. It looks like I’ve put on weight, but until you get on the scale you don’t see how much fun I’ve had. It’s like when you think I’ve been out a lot but until you see it reflected on paper you don’t realize it. That is why you have to start by controlling spending. My advice is to write down every day all the expenses you make, even if it’s a coffee from the machine at work or a sweet for your son, the greengrocer, the newspaper… Everything. People are scared because they think that finances are very complicated but it is common sense. The ant expenses are terrible. If you always have breakfast outside but your situation is not good, the reality is that you cannot spend 5 euros a day because in the end it is 150 euros a month. They usually reply to this: “You have to enjoy life because, what if tomorrow I get caught by a truck?” “What am I going to be, the richest in the cemetery?” Good. What if he doesn’t catch you? How many older people are there who can’t turn on the heating? When I see this my heart breaks. They have not saved anything, because they have always expected to receive their pension and In Spain we have pensions today, but what about tomorrow? You have to live in the present and keep an eye on the future.

How do you recommend doing this expense control? With a notebook, with an excel?

For what you know you’re going to do. Too many people get lost in paralysis by analysis. There are those who are looking for the perfect Excel, with a dynamic table, to download the bank’s movements… Either you’re a machine of the program in question or you’re never going to do it. Do it, even if it’s on a piece of paper behind the almanac. What does this exercise allow you? Be aware of what you spend your money on and also, if this is the case, what item you have to reduce.

I started with a pocket notebook all my life. It’s more, I recommend that people examine themselves week by week.. Because if you do it once a month… you realize when there is no solution. If you detect that you have spent a lot on leisure during the week, perhaps the following week you will stay at home. If what you have seen is that the expense has been made on clothes, perhaps you are aware that you should check your wardrobe because you have things that you do not have time for or brand new. The pandemic has shown us that we can go several months without spending hardly anything and tighten our belts until we feel our economy. Start there and pre-save at the same time.

Even if you have debts?

It doesn’t matter, save even one percent. Of course you have to focus on paying your debts but save even if only that. Why? What we are trying to do is create the habit of saving. You start by saving one percent of your income and you pay off debts in parallel. You can now increase your savings percentage. One percent means nothing (it means not taking the last round, for example), but it gives you the feeling that you are capable of saving, it gives you courage, strength or the confidence that you are building a plan.

The problem we have is that if we make plans as if we weren’t going to live our whole lives… Have you stopped to think about whether you get fired tomorrow? How long could you maintain your current pace of life? That is brutal because it is common for people not to have to make ends meet. We take things for granted, that we will always receive a salary or a pension in the future. Now I make you this reflection: Think how you would feel if you had savings to pay your family expenses. Imagine if those savings are for two years. You have to think that this crisis does not mean that there will not be more in the future. Financial education improves people’s lives, it gives you peace of mind. I know too many who can’t sleep because of anxiety.

For example, those who are in the red, or live directly from the credit card. What plan can they put in place to pay off debts?

In that case, I propose to follow the ‘cancellation snowball method’. It consists of seeing the debts, ordering them by amount, interest rate, concept of the debt and the time I have left to pay, fifteen, twenty months… Whatever. What do we also need to know? The commission they charge us for early cancellation. With these data on the table, I can now pay off my debt in two ways:

From the psychological point of view, paying off the smallest debt, or from an economic point of view, that would mean paying off the debt that has a higher interest (10 or 15 percent… whatever).

When I have already identified the debts on paper or excel and I have already said which one I am going to pay off first, what I have to develop is a plan to pay off those debts. That I have to do? First attend to all the fixed payments that I have in my house (housing, supplies…) and cut everything extra (clothes, leisure, outings, trips…). That is, tighten my belt for as long as it takes to clean up my economy.

Of course, at the same time that I implement the concept of savings, even if it is one percent. In this way you are already telling your brain that, even if it is 50 euros a month, at the end of a year you will have 600 euros. Some hole covers already. And it’s more than you had before.

One last piece of advice to start the year off on the right foot.

That we pay attention. When you start to control your expenses, you make a budget and you begin to realize what you spend your money on. It may be that you are spending a lot on your home insurance, but as you have noticed, you worry about calling another company. Or that you are paying for a gym that you don’t go to but pay a fee religiously, or in subscriptions that you don’t use, car repairs… That’s where the pre-savings can come from, since you can cut up to 1,000 a year. What happens is that when you go to the day you don’t realize it. But if you see it month by month or at the end of the year you analyze items is when you realize the reality of your economy.

I always say that the best way to teach our children is by example because the word convinces but the example drags. Mother Teresa of Calcutta used to say, don’t worry if your son doesn’t listen to you, they are watching you all day. You can’t tell a kid to eat healthy while you gobble down a chocolate chip muffin. The same thing happens with finances.

It is good that they see that you save, that you explain to them that before buying a TV you have to pool the money, compare in different stores, make a budget, or go shopping with a list, in addition to comparing prices of white label products … In the same way that making a pizza at home is not the same as buying it at the supermarket or ordering it at a restaurant.

You have to explain to them that mom and dad work and in exchange for that they earn money, because if they don’t believe that the cards have magical properties. This is essential when they are very young and it can be done in a symbolic way, because they have no filter, but when they are teenagers it is also very important that they know the situation at home.

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