Most people know that controlling expenses is a good way to take care of finances and that it’s important not to spend more than you earn. In theory it seems easy, but in practice, many people find it difficult to follow these recommendations. Especially when the person does not monitor their financial commitments and, as a result, loses control of their expenses. It is from there that the problems with debts begin and the commitment of income increases.
And the debt scenario is more common than you might think. In the last year, according to the Central Bank, the indebtedness of Brazilian families reached 41%.
Don’t want to be part of this statistic or want to understand more about income commitment?
What is Income Commitment?
When receiving your salary at the beginning of the month there are always those expenses that are a certainty. The so-called essential costs involve housing, transportation, food, education and, eventually, health. These are expenses that no one can avoid and that it is recommended not to exceed 50% of your income.
What is left of your salary can be saved, invested in leisure, or used in loans. These are extra expenses, which do not have the same regularity as essential costs. So, theincomecommitment is that amount that must be reserved every month to pay a bill.
Financial imbalance happens especially due to the wrong calculation of accounts in the family budget. Many people forget that once a debt is incurred, it must be added to the basic costs.
Which is why cash purchases are always recommended. If your extras are used for aloan to value ratio, this amount will also become fixed.
How much should the income commitment threshold be?
If the income commitment is a budget amount that will have a certain destination every month, what should your limit be?
With this question, we return to our initial concept: it is essential to spend less than you receive. This is a simple budget guarantee so that all your obligations are met at the end of the month.
The most common recommendation is that the income commitment limit be a maximum of 30%. Especially if within this amount a portion is allocated to loans and financing.
Think that in the final sum 70% of your salary can be compromised. Which means that for extras and emergencies less than a third of the total amount remains.
It is even based on these calculations that many loans and financing can be refused. Banking services may even charge lower commitment fees, around 20%.
The important thing is that if the intended amount exceeds this percentage of your budget, for security reasons there will be a refusal.
What do the experts say?
We need to question whether it is desirable to commit 20% to 30% of your income to debt, even though Brazilian legislation itself regulates and accepts these amounts.
Economists and other market specialists, however, argue that a lower percentage should be sought. The main justification is accrued interest, which can snowball into family accounts.
Medical emergencies can be another reason to keep your income commitment level under control. Because even if essential costs must take into account health, unforeseen events can happen. As a result, there are experts who defend an average of 5% commitment.
The argument in favor of such a radical economy? It’s just that people with income of up to two minimum wages tend to spend more than 50% on basic expenses.
All my income was committed to basic expenses, what to do?
Let’s assume that you are part of the mentioned group, or for some reason, committed every month’s salary to basic things. It may seem desperate, but the advice is not to stop paying debts.
The interest and penalties only make matters worse over time. Diversifying sources of income can be an alternative, and in the worst case, selling a good also helps.
Loansshould be considered very carefully . After all, you don’t want to take on a new debt to pay off the old one.
To get out of overdraft , settle debts and escape expensive credit card interest , it is best to plan. Saving 5% to 20% of your monthly income, for example.
There are tips too for anyone planning to do more than get out of debt. Like the cases of those who want to invest, whether in a car, their own home, or opening a business.
The ideal is to have an emergency reserve with an amount corresponding to six months of work. This capital covers emergencies and other eventualities that may arise along the way.
Now let’s better understand the relationship between the commitment of income, loans and financing.
Commitment of income, loans and financing
As we saw briefly, loans and financing need to be proportionate to your income. The financial institutions themselves tend to refuse the concession if the income commitment exceeds 30%.
Despite the precautions they entail, these financial practices can offer many advantages. Because when those installments to be paid every month guarantee your financial freedom, or goods like your own home, they are not debts. They are long-term investments and are among the accounts treated with the most seriousness by Brazilians.
It is not by chance that real estate debts have low default rates. To keep your loans and financing up to date, remember the tips presented in this article:
- When making a debt, be careful not to compromise your future salary. Make your calculations based on the extra money. In the following month, increase the percentage of fixed expenses with the value of the new account so as not to make mistakes in the calculations;
- Create a reserve of at least 6 months of salaries to cover any eventuality;
- Save 5% to 20% of your monthly salary;
- Investments like automobiles are more advantageous if you make a down payment before buying;
- Beware of superfluous spending! Contracting installments of an electronic device that will be exchanged in a short time is not a good investment;
- If you have home and car payments at the same time, make sure that the sum does not exceed one third of the monthly budget;
- Whenever possible negotiate interest rates.
Personal loan?
Knowing the concept of income commitment and how much of your budget it can take, family accounts are grateful. Are you catching up on your expenses and thinking about getting a loan?