With the rising energy prices and a grocery budget that is no longer sufficient, now might be the time for you to really take a close look at your finances. You might have the intention to spend less and save more, but how do you turn intention into actual action?
Believe it or not, thinking about this question is our passion at Flow. How can we support you in this journey, so you have all the tools you need to make a great money plan for your personal finances?
A good money plan considers that you want to live & enjoy today, be wise for tomorrow and take care of your future - all in one solid system. Today, in this article, we’ll show you how to set this up.
First, you need to understand the basics. There are things you can do that help you, and then you have other things that usually don’t work - and are not worth your time and energy.
To spare you from disappointment, we’d like to share what does work.
Move slow - take it step by step. Often we think true change only happens when we make massive adjustments to our ways, and are then surprised that we cannot stick to our plans. The truth is, massive adjustments are hard to keep up, and there’s a good chance you're going to fall back into the same old patterns over and over again. This is why your good intentions often don’t work out as well as you hope.
It’s key to move slow and take it one tiny step at the time. I know it sounds a bit boring, but this way you can keep up.
For example: when a kid learns to read, you wouldn’t advise starting with a Harry Potter book. It’s too much. It makes more sense to start at the appropriate level, and take tiny steps up while you practise and improve. One day, that Harry Potter book will be in sight.
Focus on a great system. Focus on a great system and not on the great goal. Imagine you want to start running, and you hope to go for that marathon. That’s a big goal. However, the goal in itself will not motivate you to get there. It is the system you think of that will lead you there. It’s the training plan you put in place, all the kilometres you train, through the cold, the wet and the hot. Furthermore, it’s about having a system that allows you to show up and keep showing up. Only then will you be able to maybe one day run a marathon.
The same goes for your finances. If you want to save 40k, and you're at rock bottom right now, it will take you some time. Setting aside €50 might feel as not doing anything at all. However, if you keep moving slowly, allowing yourself to faithfully save the money you can, you will end up with a savings account you can be proud of. It’s about showing up, doing the work, setting it aside and leaving it there, time after time after time.
Be patient. Being great at finances is way more boring than we think. We love big wins and quick schemes. But unfortunately, it’s the little but consistent effort you put in, that will cause the change. When you start saving €100 a month, then those €1200 you have after a year, might not excite you a lot. That’s because it isn’t exciting at all. But what if you keep doing it? And what if life changes, and after a few years you can save more? (because you make more money & are smarter with the money that comes in). Remember, it’s about the system, not the quick win. Nonetheless, you do need patience and allow yourself to move at your speed.
What's in a great money plan
A great money plan has many elements to consider. You want to enjoy life today, and it’s nice to know you have enough for the coming year. Wouldn't it be great to know that your financial future is secured as well?
Now, when we discuss budgets, many people automatically think that it’s meant to put you on a money diet. Spend as little as possible, make budgets and try to decrease those budgets over time. But it’s not in any way about spending less. Budgeting is a spending plan - a plan for your money that suits your situation.
Fixed costs. First, you have your fixed costs. The things that need to be paid anyhow, like rent, mortgage, insurances, healthcare, groceries, taxes, internet, mobile phone, etc.
Monthly spending. Then there’s monthly spending, your money for fun and extra’s that aren’t necessary, but you like them or want them. Stuff like clothing, going out, holidays, magazines, books, gadgets, sports, etc.
Future money. Lastly, you’d want to think about the future. It’s nice to have an emergency fund, and to have some extra savings. Moreover, you could invest and think about money for long term. Check to see if your retirement plan is good enough for you, and see how much you want to be able to spend when older.
Income. Of course, you need to be able to plan based on the money that comes in. Think about salary, and other extras, such as child benefits.
How do you arrange your finances in a way that you can see how much you can spend?
So, now you have a plan, but how do you keep track? Where do you keep an overview of where you are at? Because that is especially helpful when you are in a store thinking about whether you will buy those new running shoes or new speakers.
You set up jars, just like our grandparents did. You use bank accounts, saving jars and saving accounts to divide your money. This way, you’ll know exactly how much money you have left for each category.
Where do you get all these accounts?
Traditional banks usually offer one bank account and a savings account. It’s impossible to have oversight and insight with one big pile of money. Newer, digital banks do this way better. For example, Knab gives you 5 bank accounts and endless savings accounts - and bunq even offers 25 bank accounts within one subscription.
You can still keep your fixed costs at your current bank account, and choose a new bank for your monthly spending.
The next step: automate all
Of course, you don’t really feel like transferring all those budgets to all of your accounts each month. That’s why we highly recommend automating it all. In our Flow app, you can connect your bank accounts. When your salary comes in, you can divide the money (according to your money plan) to all the bank accounts and saving jars you have set up.
And now, you can sit back and relax, and get a bit smarter with your money each month.