Taking advantage of the fact that we are still at that time of the year when everything is good resolutions and menus with more kale and less nougat, we are going to start this question and answer session with the budget so that with a bit of luck, in 2022 it will cost us a little less. make ends meet

It's ten steps, there's no loss.

1. What is a budget and what is not

The budget has such a bad press that most of us associate it with deprivation, as if it were a corset in which we had to put on our Christmas lorzas at all costs. But the budget exists to help us, not to punish us. In the end, a budget is nothing more than an X-ray of our economic life, and, like someone who takes a blood test, it will give us information to make decisions that improve our financial health. It is not an enemy, it is an ally that will help us achieve our goals.

2. The budget has to be annual

A reader asked how to make a monthly budget, but the ideal is to make an annual budget divided into twelve months. Plain and simple because January, with its sales, its Three Wise Men, the Boy who never plays and its cost, has nothing to do with May, its long weekends, the income statement and the spring-summer change of clothes.

3. Income

To get off to a good start, the first line of our budget will be income. If we work for someone else, this does not have much mystery, but, as a reader who wanted to know how to make a budget if one is an artist asked, for freelancers it has a little more substance. Depending on the type of profession we practice, predicting our income will be easier or more difficult, but there are two things that can help us focus the shot:

1. Use the past as a guide: The easiest thing to do, unless we are just starting out, is to use the past to plan for this year. For example, if we sell t-shirts, we can take the sales from the previous year and think about how much we want to increase them. In this way, by looking at what happened in the previous year we will also see if there are seasonal patterns or better and worse seasons for our business. It is important to be realistic, if last year you sold 100 shirts, a lot would have to change things so that this year you sell 10,000.
2. Use a unit that makes sense for your business: when you are self-employed or an entrepreneur, it is often easier to plan your income thinking of projects, units or clients than directly in euros. Thus, we can start our budget by planning how many units we think we are going to sell each month or how many projects we are going to do or how many clients we are going to gain, and then translate it into hard and cold euros.

Then, depending on how the year progresses, we will refine our revenue forecasts. Also remember that VAT is not your income, but of the Treasury so as not to be scared with the quarterly declarations.

4. Savings

As this year we are going to take the financial bull by the horns, we are not going to wait to see if there is anything left over at the end of the month to start saving, but we are going to plan our savings from the beginning like the professionals of the guild. We can start with 10% of our income or any other amount that seems reasonable and affordable. The important thing is consistency, no amount is too small.

For the self-employed, the savings will be calculated on our net income, that is, after deducting the expenses of our business or our professional activity.

5. Expenses

Now that we have our income row and our savings row, let's get down to expenses. To make this thankless task easier for us, we can use several tricks:

1. Classify: the easiest thing to plan is to divide the expenses by categories and see what expenses we are going to have in each of them. We can start with the largest, which is usually housing, and go further with transportation, leisure, clothing, education, etc. Within each category we will break down as much as possible so that we do not forget anything. For example, the housing category could be broken down into: rent (or mortgage), electricity, water, heating, community expenses, home insurance, IBI, and so on until they are all covered.
2. Each sheep with her partner: what we should not do is fall into the temptation of having wildcard categories such as “others” or “several” that do not provide useful information. You have to assign a category to each expense yes or yes.
3. As always, the past is our best guide because, although in January we are full of good intentions, it is normal that in February we have returned to our usual guilty pleasures. Realistically, changes tend to happen gradually, so to get an idea of ​​what you're going to spend on something, it's best to look at what you spent last year and start there.

For the self-employed, in order to plan the expenses of your work, it will be necessary to take into account that, if you plan to sell more this year, the variable expenses, which are those that depend on what you sell or produce, will also increase in proportion. Fixed expenses, on the other hand, will be the same regardless of whether you invoice more or less, so it is important that you separate them when you plan your expenses.

6. The great forgotten

There are a number of expenses that we tend to forget and that can destroy our budget. So that this does not happen, do not or forget to include:

7. The unforeseen

The good thing about making a budget is that the better we do it, the less we will have to save, because fewer things will catch us by surprise. That is why it is important to include all that we call contingencies, but which can also be planned, such as the replacement of appliances, spills or car repairs. We can assign them an amount and, if they don't pass later, there will be time to spend it on serums and other modern cosmetics viguerias.

8. The Master Formula

And now that we have our income, our savings and our expenses planned, the moment of truth arrives, because

Income – savings – expenses = 0

There will be negative months and positive months but the year has to add up to zero. If it comes out more than zero, it means that we can save more and, if it comes out negative, we will have to cut expenses or find ways to earn more. The good thing is that, if the accounts do not work out for us, we have time to take measures and that the blood does not reach the river.

9. Tracking

Once the budget is done, all we have to do is do the monthly follow-up to make sure that reality is at least a little like fiction. Once a month we should sit down to see what we have spent and adjust our budget. It is not necessary that the budget be perfect from minute zero, as Machado rightly said, the path is made by walking.

10.Your profile picture

In the end, your budget is a snapshot of your financial situation and says a lot about you and your lifestyle. This finance thing is not one size fits all, the important thing is that your budget represents you and that it adjusts to your priorities and your tastes so that the money goes on things that make you happy and not on paying Treasury fines.

THE BOSS: NATALIA DE SANTIAGO

Engineer by training, financial by vocation and specialized in the economic impact of climate change. She has worked in finance, in Paris, Madrid and Munich, and in 2009 she founded MyValue Solutions, the first Spanish start-up specialized in the development of Open Banking technologies, which in 2021 was acquired by a German group. In 2021 she published with the Planeta publishing house, Invest in you, a practical guide to better manage our money and live more peacefully.