Controlling spending and saving, two sides of the same coin

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In ancient China, it was believed that the balance between yin and yang—opposite yet inseparable forces—was the foundation of the world. Similarly, Aristotle later noted that virtue lies in finding the middle ground. This idea holds true today in our everyday financial lives. We constantly juggle a variety of expenses and savings habits that, much like the sun and the moon, are opposing yet interconnected forces forming the two sides of a coin that never stops spinning.

When it comes to expenses, which include all payments made to cover our needs such as food, healthcare, education, work-related costs, transportation, leisure, and many others, we should differentiate between two types: fixed expenses and variable expenses.

Fixed expenses are those necessary payments that recur with predictable frequency, allowing us to know in advance when they are due and the amounts involved. Examples of common fixed expenses include your mortgage or rent, and insurance for your home, health, or car.

On the other hand, variable expenses fluctuate regularly because they are not fixed, and in some cases, you can even avoid them entirely. When planning your finances, it's crucial to distinguish between necessary and unnecessary variable expenses. Experts recommend prioritizing payments related to health, saving for retirement, and transportation, among others.

Unfortunately, it's all too easy to go over budget and incur expenses that, while not entirely unwelcome, can become a bit of a nuisance by the end of the month. Often, we buy products and items that we hadn't planned for, but which seem insignificant at first.

Examples include eating lunch out, buying a pack of candy, or grabbing a take-away coffee on your way to work each morning. However, to minimize the negative impact of these small daily expenses on your budget, it's best to allocate a fixed amount of money for them and stick to it.

Additionally, we often encounter expenses that are hard to detect because, despite their importance, they are not typically accounted for in the budget. Examples include the hidden costs of misusing household appliances—like keeping them on standby—or unexpected home repairs.

Clearly, saving money is never an easy task. It requires effort and perseverance. Setting a goal and sticking to it until you achieve it is crucial. However, some small tips or tricks can make the process more manageable. For example, the 50, 30, 20 rule for saving divides your monthly income into three categories, specifying what percentage should go to each area.

According to this savings rule, 50% of your salary should cover essential needs like housing, food, clothing, transportation, and utilities such as water, electricity, and internet. Another 30% can be allocated to personal preferences and discretionary spending. Finally, 20% should be dedicated exclusively to savings. This approach helps you build a growing reserve for future needs, whether for emergencies or investment opportunities to enhance your financial returns.

Originating from Japan, the Kakebo method encourages you to meticulously record all your expenses. By carefully analyzing your daily payments, you can identify areas where you can cut back and eliminate unnecessary costs. This practice will undoubtedly enhance your ability to save.

In simple terms, saving means setting money aside for the future. One effective approach is to adopt the pay yourself first method, a concept that originated in the United States and is well-regarded by financial analysts. The philosophy of pay yourself first treats your savings as a non-negotiable, fixed expense, giving it top priority over all other payments.

According to this savings strategy, when organizing your finances, the first step should be to determine the percentage of your income that you want to allocate to savings. Moreover, to ensure you can comfortably cover your other expenses, it's essential that the amount you set aside for savings is realistic and manageable.

At BBVA, we're committed to helping you develop a savings and spending plan that safeguards your financial well-being. That's why our BBVA mobile app offers tools like 'Set up your Account,' which lets you automate your savings by setting maximum and minimum balance thresholds or by rounding up your card payments.