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ECONOMY | 01.11.2024

How to create a family budget without losing your mind

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The beginning of the year is always a difficult time financially: Christmas gifts, the January slump, new resolutions, and so on. However, improving savings and reducing expenses are usually among the resolutions of a large number of people in Spain. So how can we get started?

Financial planning is fundamental to facing and effectively tracking the expenses that you are going to have in a given period of time, especially when there are several members in your family unit. This exercise of planning out expenses for a year ahead is not easy, especially if you do not have the same income on a recurring basis, but there are certain techniques that can help you plan your year.

First, look at the past and identify what your income level has been and what the main recurring expenses were in recent years: from the mortgage or rent to taxes or insurance. In this way, we will get an idea of what our fixed expenses are.

Variable expenses can be more difficult to quantify, since they are more variable, which has been the case over the last two years for the grocery basket and energy. It is important to consider seasonality. You do not spend the same amount on electricity and natural gas in the winter as in summer. So it is best to do a monthly analysis.

You should also review the more "discretionary" expenses, i.e., expenses that could be cut if the financial situation were to change. This category could include spending on leisure, eating out, and treats, among others.

Finally, investments should be factored in. For example, what is allocated per month to a pension plan or other financial vehicles to obtain a return or save for retirement.

This analysis will give you a clear idea of what your expenses are and the percentage of your income they represent. With a clear classification in these three categories, the next step is to estimate an annual budget. Ideally, this should also include savings, with guidelines that will ideally maintain the 50-30-30 rule: half of the family income would go to fixed and variable expenses; 30% to "discretionary" expenses, and the remaining 20% to savings.

Another of the most frequently used techniques when it comes to creating a family budget is the balance sheet. You make two columns: one for assets (your properties, cash, liquid investments, etc.) and another for liabilities (debts, such as mortgage payments and other loans). Adding up each column will give you an idea of where you stand financially and help you to plan more consciously.

Other tips to improve your financial planning

  1. Carefully track every expense

If you have identified what your main expenses are, it is much easier to do better financial planning. There are many ways to account for expenses: from applications for “smartphones” to more classic methods, such as kakebo. Once you have done this analysis, you can see which you prefer to cut and which to keep.

  1. Be clear about your goals

To improve savings and optimize spending, you need to be clear about your short-, medium- and long-term objectives. This will make it much easier to stick to the budget you planned at the beginning of the year.

  1. Consume consciously

The best way to save is to spend consciously: consuming less, minimizing spending and focusing on what brings the most to your life.

  1. Get the whole family involved in planning.

If your family has more than one member, it is best to take everyone's priorities and goals into account to optimize spending, especially discretionary spending.

  1. Be flexible

Sometimes unforeseen events arise that may force you to go over budget. In that case, your spending limits may change and you should be able to adapt your budget to this new situation.

The importance of consistent savings

Creating a budget and good financial planning will help you improve your ability to save. “You have to save now and always, because in our lives we set different types of goals,” says Javier de Berenguer, investment manager and fund selector at MAPFRE Gestión Patrimonial.

De Berenguer outlines different types of savings:

  • Emergency savings. These are liquid assets stored in short-term vehicles or a bank account, serving to cover unexpected expenses.
  • Savings for planned future expenses. These funds prevent the need for expensive private financing, such as paying for college.
  • Savings for retirement. “This type of saving is the crucial in Spain today,” the expert explains, emphasizing that public pensions must be supplemented with private savings to sustain one’s quality of life.

How to save for each of these objectives varies, and it must also be taken into account in the family budget. Eduardo López, a wealth management expert at MAPFRE Gestión Patrimonial, suggests that having all your savings readily available isn't necessary. There are various investment options, from pension plans to savings insurance and investment funds, tailored to your specific goals.

MAPFRE has a large number of financial vehicles that can help in this regard: from pension plans to mutual funds, not to mention savings insurance.