Effective management of personal finances

Effective personal finances

We use money every day. Our nowadays economics cannot exist without money. To be happy in this money world we should know how to manage our finances correctly. In this article I would like to focus on my own experience and practical advices which can help to you to improve financial efficiency.


We are 20-30 years old now and we earn some money. Normally our salary income is higher than our expenses, we learn to earn more and we start getting excess of money. If it’s not yet like this, you should focus on getting to this point. When we were young we also spent money. But it was not our money. It was our parent’s money. They provided everything that we needed: food, place to live, toys, etc. The problem will happen when we will get old. We won’t be able to earn money like now, but our expenses will stay with us. We will still need a place to live, money for food and clothes. Of course, there are pension programs in almost all countries and your children can help you but it would be nice to have enough money to cover your old age. To achieve this we should start as early as possible to manage our finances correctly.

Financing needs

What do we need to make this happen?

  1. We should fully understand our expenses and incomes (financial accounting)
  2. Learn to plan our incomes and expenses (financial planning and budgeting)
  3. Learn how to accumulate capital (investments)

We can split capital in 3 parts

  1. Current (month expenses)
  2. Reserve (money for rainy day)
  3. Investments (accumulation and preparing for future)


Current capital is what we earn now and spent every month on our current needs. The point of current capital is to cover our everyday needs (flat, food, etc).

Reserve capital is money that we saved previously. Their goal is to cover our current needs if we loose our current incomes. For example, when you loose your job or you are sick for a long time. In these cases you won’t have stable incomes and you’ll need you reserves to avoid financial pitfall and live on the same level.

Investing capital is the excess that we need to save. It can consist of cash, deposits, tangible and intangible assets.

Financial accounting

Financial accounting is boring, monotonous, laborious but necessary work. The main goal of it is to track from where and how much money we get and where and how much money goes. After this, when we know our incomes and expenses we can start to optimize our expenses.

Financial accounting means writing down all your transactions.

12 October

+2000 euro - salary - to bank account
-50 euro - grocery store - from wallet
-150 euro - household goods - from bank account
+25 euro - amazon return - to bank account

Here are our transactions just for single day. Just imagine how you will handle this on paper or in Excel everyday. That’s why it’s easier to use specific application for this. I suggest Gembudget for effective financial accounting and analytics.

First you should structure your expense and income categories to be comfortable for you. The best way is to start with the smallest amount of categories possible and add them when you really see benefit. It also helps to create category “Forgotten” where you can write expenses if you current amount is not the same as in app when you check your expenses.

Here is the simple example of income and expense categories

Income categories

  • Salary
  • Additional income
  • Interest in bank
  • Gifts
  • Investment yield

Expense categories

  • Clothes
  • House

    • Household good
    • Rental fee
  • Food

    • Lunch
    • Grocery store
  • Other

    • Transport
    • Internet
    • Mobile
    • Sport
    • Rest

To make financial accounting more useful and make it possible to plan future you should fill it everyday at least half of a year. I made my financial accounting more than 10 years and it’s already my habit.

Here are several advices to make financial accounting easier:

  • It’s easy to forget which transactions you did even if you try to fill them every evening. That’s why I suggest to write down every transaction when it happens with your cash. With app it takes not more than 30 seconds.
  • As you fill your account manually it’s comfortable to fill all your transactions from bank accounts once per week. I do it every Sunday when I wake up. Usually it take not more than 15 minutes.
  • It’s nice to check if the amount of money in app and in reality is the same. I do it also every Sunday.
  • At the end of every month check analytics of your incomes and expenses. You will see your expenses for different categories and you can make it clear why are they bigger than you thought.
  • Don’t stop writing down your transactions. It’s easy to say “I don’t have time for this” or “I know my expenses” but every rich person will say “You should control your money”.

Financial planning

To plan your finances you should have your financial analytics for at least half of the year or even a year to see all seasonal expenses. While analysing your expenses every month you can understand where did you spend more than necessary. Without this analytics it’s impossible to say “Where did I spent this 300 euros” or “How much money do I spend on grocery store”. Maybe it’s time to cut or optimize some of your expenses.

It’s good to understand your standard month expenses and the amount of money that they take from your salary. While comparing months you can understand where did you go above the limit and why. This standard budget can help you to limit your expenses. The most important here is to have higher incomes than expenses. In other case you just can’t expand your budget.


The first place to use money that you have after all your expenses it to create reserves for rainy day. Reserve capital is some amount of money for days when you can’t earn your normal incomes for some reasons. I can recommend to have reserves of amount of your expenses for 6 month. If your expenses are 2000 euros per month than it would be nice to have 12000 euros as your reserves for rainy day. You can save this money as you wish (bank account, cash, etc). I prefer separate bank account. The main point is to be able to get access to it really quickly. That’s why I don’t recommend deposits where you can’t get money immediately (long deposits, stocks, cryptocurrency, etc).

The first most important thing to do for person who wants to be financial independent is to have reserves budget. After this you can go to next level, plan long term investing goals, diversify your investments and start to accumulate your capital for old age.