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Know your rights when making payments in Europe.
Do you know what the gross domestic product is? What about inflation? (only in Portuguese)
Key tips to protect yourself when choosing online or mobile banking services.
You should draw up the household budget at the beginning of each month, by following the steps below.
It may also be useful to draw up an annual budget to plan the payment of expenses you have once a year.
Income is “the money earned”.
To prepare the monthly budget, make a list of the income you receive, taking into account only net figures.
For a more prudent management, you should set a monthly budget only on the fixed part of your income.
Income from guaranteed sources of income that can go into your monthly budget, like a salary or a retirement pension. This income is backed by a contract (work or retirement) and you know how and when you will get it.
Income that you should not consider in your monthly budget, as you are unsure if you will actually receive it or, even if you are sure, you do not know exactly how much it will be. This type of income may include commissions on sales, annual performance bonuses or birthday gifts and inheritances.
Expenses are “the money you spend”.
Keep a record in your budget of the expenses that the household plans to make throughout the month.
In addition to including all expenses, it’s important to distinguish between necessary and superfluous expenses, and between fixed and variable expenses.
When rating expenses by importance, there are:
They are spent on essential goods and services (such as food, clothing, housing, health and education), which in some cases you can reduce but not completely eliminate.
They are spent on non-essential goods and services, which satisfy your wishes, but go beyond your needs (such as travel, leisure activities or restaurants).
When needed, we can fully reduce or eliminate these expenses.
When rating expenses by flexibility, there are:
These expenses cannot be eliminated in the short term as they do not depend on your consumption (such as rent or housing loan instalments).
These expenses are conditional on your monthly consumption and can therefore be reduced (or even eliminated), although some cannot be cut beyond a certain limit (such as food, water, gas and electricity).
Classifying expenses is important when managing the household budget. The greater the weight of fixed expenses (which you cannot change) in total expenditure, the harder it’ll be for the household to cope with financial contingencies, such as unexpected increases in spending due to illness, or loss of income due to unemployment.
Once you have established the household income and the expenses you’ll make throughout the month, you can calculate the budget balance.
Budget balance = Total income – Total expenses
Even if the balance is positive, you should assess whether it is enough to meet your savings target for that month. If you are unable to meet your target with this balance, you can still reassess the budget, as you’ll be doing this exercise at the beginning of the month.
Saving is crucial to dealing with unforeseen situations, such as an unexpected increase in expenses, a fall in income, or both. Saving also makes it possible to cover expenses that you can anticipate at certain points in time, such as the birth of a child or retiring. Finally, saving helps you buy valuable items (such as a car or a home) and make your dreams come true (travelling).
To save, it is crucial to set goals and targets for your savings and to remember them when drawing up your monthly budget.
Keeping in mind your goal for saving – to set up an emergency fund or travel - is a strong incentive to increase your commitment to saving every month. Setting savings targets that you want to achieve in a given period - 3, 6 or 12 months - helps you be more disciplined and make more conscious decisions about your monthly spending.
To make sure that you meet your savings targets, imagine the amount you want to save every month as a “fixed expense” of the budget and this “expense” should be incurred as the month starts. In other words, savings should not be the amount that is left over after all your expenses have been paid, but a sum that you put aside at the beginning of each month.
To help you draw up your household budget, employ useful tools, such as:
Todos Contam website - Household budget calculator(in Portuguese only)
Todos Contam website - Savings calculator (in Portuguese only)
Household budget - The importance of a budget
Credit > Managing debt > Arrears prevention