# How do I get my finances in order?

2022-07-14

Before you can think of long-term investing, you have to get your finances in order. Take a look at Peter's journey to see how you can achieve it, too.

Peter enjoys life, but sometimes he overspends a bit. He realizes it when money runs out already in the middle of the month. Then the next few days become difficult and saving money is out of the question. That is why he wants to plan his monthly budget in the future.

Peter has a decent salary in his job. But as soon as the salary arrives in his account, it melts away. In order to find out where his money is disappearing, he has decided to plan his monthly budget. He wants to be able to put money aside for major expenses and set financial goals.

## Keeping a traditional or digital budget book

First, Peter obtains an overview of his personal finances. To do so, he starts keeping a budget book. This can be done on paper by listing his income and expenses for a few months, or he can create a simple spreadsheet in Excel. In addition, many credit card providers offer the feature within their apps of having expenses automatically analyzed according to different categories. According to the Swiss Federal Statistical Office, households in Switzerland spend around 20 percent of their disposable income on housing and around 10 percent on groceries.

With the smartphone app, Peter has a better overview of his financial affairs. The application assigns the bookings to individual categories. Peter can assign specific budgets to each of them. This way, he is always informed about how much money he can still spend on restaurant visits in the current month, for example. A traditional method is the so-called envelope method. One envelope is labeled for each category like groceries, rent or student loans. The monthly budget is put into the envelopes in cash. Many apps offer the same budgeting system in a more convenient, virtual way.

## Planning and investing

If Peter has spent less money than planned on eating out at restaurants, he can set aside the remaining amount. This way, he can treat himself to something special every now and then. From now on, he saves a fixed amount of money in a separate account (“pay yourself first”) by standing order at the beginning of the month. As soon as there are three net monthly salaries in the account, he invests the monthly savings amount in a passively managed global equity fund. This grows his assets over the years and allows him to supplement his pension later.

## How to achieve your financial goals?

If you follow these five actionable tips, you can reach your financial goals easier and faster. Start with one tip and when you implement it well, you can try the next one to ultimately have more money at the end of the month.

### 1. Visualize your goals

Start visualizing your goals. For example, hang up pictures of the travel destination you are saving for. Imagine that you have already achieved the goal to slowly adapt your mindset.

### 2. Write off personal items

Do as a business does and write off purchases annually. For a new car, you could set aside one-sixth of the purchase price each year.

### 3. Save at the beginning of the month

Have a savings amount deducted from your account at the beginning of the month. Then you will pay yourself first and spend less money.

### 4. Follow the 50-30-20 rule

You need 50 percent of your disposable income for fixed costs. 30 percent can be spent on personal needs such as hobbies, travel or consumer electronics. 20 percent is left for savings or to pay off potential debts.

### 5. Track your progress

If you have any money to spare, invest it in a broadly diversified, low-cost portfolio excluding the risks of individual stocks. Track the progress of your portfolio and net worth with Ghostfolio, a web-based personal finance management software.

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