How to manage your budget properly ?

The first step in managing a budget is to analyse the financial inflows and outflows. This will help you to take a step back and look at your overall financial situation. Certain inconsistencies or anomalies may already be attracting your attention.

You need to know how much money you earn each month and estimate your monthly expenditure.

A budget analysis should generally be carried out once a year or when a specific event occurs, such as a change in family or financial circumstances. For example, if you're preparing to take out a mortgage, finance a renovation or car purchase, or make any other major acquisition.

To efficiently identify your expenses, categorise them. Separate your fixed expenses (rent, insurance, loan repayments, property tax, subscriptions, etc.) from your variable expenses (energy bills, vehicle maintenance, sporting and cultural activities, shopping, etc.).

 

For variable expenses, you should set aside a provision and adjust the amounts regularly to bring the budget into line with reality. When it comes to shopping, for example, you can take three months' worth of expenses, add them together and divide the total by three to give you a monthly estimate to work from.

 

Within these two broad categories of expenses, sub-categories relating to housing, mobility, children, telecommunications, etc. can be specified. Match your budget to your life and your actual situation.

Once you have identified your income and expenses, subtract the two to calculate the monthly amount you have left. Depending on the result (positive, close to zero or negative), you will already have an idea of the adjustments you need to make to balance your budget.

• If the difference between your income and expenses is positive, this means that your financial situation is healthy and relatively well-managed. You can deal with unexpected expenses and build your savings.
• If the difference between your income and your expenses is close to zero, this means that your budget balance is shaky and that you need to pay particular attention to it, because any unforeseen major expense could tip you over the edge into financial imbalance.
• If the difference between your income and your expenses is negative, this means that your expenses are higher than your income and that you must quickly adopt solutions to balance your budget so as not to let the situation worsen, with the risk of getting into debt.

The 50/30/20 rule is a method that involves dividing your budget into three categories of expenses and allocating a certain percentage of your income to them:

• 50% of income allocated to basic needs (food, medical care, rent, etc.)
• 30% of income allocated to pleasure spending (holidays, leisure, shopping etc.)
• 20% of income allocated to savings and debt repayment

Let's assume that the all-inclusive net income of your 2-person household is €6,572 ⁽¹⁾ per month. Using this method, you should not exceed the following amounts:

• €3,286 for your basic needs
• €1,971 for pleasure spending
• €1,314 for your savings and loans/debt repayment

You may adjust the distribution of these categories according to your financial priorities. If, for example, you are resident in Luxembourg, where rents are quite expensive, you can do a 60/20/20 calculation. This rule is therefore more of a theoretical tool to be adapted to your own situation, and its aim is to succeed in setting aside a minimum amount of money.

To save part of your income, you can choose betwee several savings solutions.

You could invest the money in a savings account as soon as you receive it, either weekly or monthly.

You can also choose to set up a standing order for the amount and frequency that you see fit, which will be done automatically.

Discover our savings products

What if your savings give you tax breaks? 

BGL BNP Paribas allows you to save while benefiting from tax deductions via a range of solutions tailored to your life goals. Prepare for your retirement, buy your own home or take out life insurance.

 

Sometimes life can change very quickly, and so can your financial situation. To help your savings grow, don't hesitate to talk to your banker regularly about how you can get the most from your budget management.

A word of advice: don't wait! The earlier you start saving, the more you’ll be able to accumulate