You may wonder how you can determine if you are managing your money well. Although there is no universal rule to answer your question, there are some performance indicators that you can apply. With them, you can find out if your handling in some aspects matches the recommendations of the experts.
What indicates a good management of your money?
There are a number of criteria that allow you to determine when you are managing your money well. They work as a kind of indicators that your finances are well managed, and you have savings and investment capacity.
Of course, these criteria do not apply in particular situations of life, for example, when you are attending an emergency. Or when you are investing in a private enterprise of your own or a third party, or acquiring real estate.
The three main indicators that you should apply, to determine if you make a good management of your money are:
Personal savings rate
The personal savings rate is the part or fraction of your gross income that you dedicate to saving. Experts agree that an adequate savings rate is between 5% and 10%.
If you manage to be in that range, it means that you can face the future and the unforeseen with greater availability of money.
The debt rate is the proportion of your monthly net income that you dedicate to the payment of your loans. Net income is obtained by subtracting the fixed expenses incurred month by month from all income. The only debt you can consider in these expenses is that corresponding to the mortgage loan.
Those versed in personal economics point out that the debt rate should not exceed 35%. In this way, you do not overload your finances in the payment of debts and you will avoid falling into arrears.
Percentage of unproductive expenses
An unproductive expense is one that is not used to generate an income opportunity; that is, it is a waste. If you buy a computer to improve the performance of your work, you are making a productive expense. If you use your credit card to cancel a birthday dinner, you make an unproductive expense.
The relationship between unproductive expenses and total expenses should not exceed 15%, to avoid waste.