Personal financial planning: 7 tips for setting it up

Financial situations can affect anyone’s physical and emotional health. For this reason, the habit of preparing a personal financial plan annually is of great value in achieving the necessary balance and having sufficient resources for investments .

To achieve this, it is essential to obtain the minimum financial education necessary to carry out good and efficient planning. At the same time, organizing your accounts and being able to see the reality in detail will make it much easier to achieve your goals.

Continue reading and discover 7 tips for creating your personal financial plan!

1. Define your financial goals

Initially, consider that you must set objectives so that you can outline your financial goals, that is, where you want to get to and when. To do this, separate two groups: short-term and long-term. Short-term goals are those that you can achieve within 1 year. Long-term goals, on the other hand, are those that take more than 1 year to achieve.

Family members are almost always involved, meaning that family members are often part of the projects, goals and objectives. When this is the case, family members should participate, even the youngest ones, so that they realize the importance of financial planning in their lives. After all, if there are initial sacrifices, everyone will have their share.

2. Invest in financial education

As mentioned in the previous item, financial education should be part of everyone’s education. Therefore, invest in this knowledge. Today, learning only depends on each person’s interest, since the means are available to anyone at any time.

In this sense, it is even better, since it is possible to take good courses completely free of charge. There are several tools for this purpose: articles, videos, courses, books, spreadsheets and applications. Just dedicate some time to this purpose and you will be ready to organize your accounts. This is the next topic.

3. Organize your accounts

Once you have acquired a basic understanding of financial planning, it is time to organize your personal accounts. In fact, this is the first effective step, which allows you to have a broad view of your financial situation.

So, in addition to knowing how much you earn (income) and what your expenses are (expenses), at this point, it is important to observe the entire situation. This means gathering all available information about your current financial situation.

It is essential that the information is correct and accurate. To do this, you should use bank account statements, payment statements, loans, credit cards, as well as fixed family expenses, such as rent, school, property taxes and property tax, among others.

4. Put everything in a spreadsheet

Enter the data collected — income and expenses — into a spreadsheet, specifying each one. To help, you can find endless spreadsheets available for download: choose the one that best suits your goals.

With the spreadsheet in place, it is much easier to get a real picture of your current financial situation. From there, you can identify your existing debts and define a strategy to get rid of them.

At the same time, you can review your current expenses and make new predictions about how much you can spend in a period defined by your goal, that is, in the time needed to achieve it. Finally, with the spreadsheet ready, you can start taking action towards making your dreams come true.

5. Make a spending forecast

Expenses are an essential part of planning, as they determine whether revenues will be sufficient to achieve a balance or not. Therefore, the breakdown of the items that make up expenses must be very precise, as this is crucial to successful planning.

Remember to include even those seemingly small expenses, such as snack stops or a haircut. Remember that most of the differences that never balance out in your personal budget come from small expenses, which are almost always the result of immediate desires and emotions.

Now, you need to set a ceiling, that is, a limit value for the expenses raised. Then, identify the expenses that can be cut and eliminated from the budget.

This means a list of things that will no longer be spent on. The goal is to reach a condition where, no matter how small the difference, expenses need to be less than total income.

6. Divide the salary into percentages

There is a rule of thumb that can be adopted in financial planning to define the distribution of resources (income), once essential demands (expenses) have been established. It is known as 50-35-15 and determines where and how much of your money should be allocated.

Considering income from salaries, earnings and any other gains, the rule works as follows:

• 50% is allocated to essential expenses, which cannot be missed or delayed, such as fuel , condominium fees, electricity, water, etc.;
• 35% should be used for leisure, for example, outings, trips , gym, courses;
• 15% need to pay off debts — once paid off, this amount goes into a financial reserve .

This is a basic rule, to which you can make small adjustments to suit your reality. But always consider the aspects of essential expenses, leisure and debts. They form the basis of financial planning to achieve goals.

Speaking of goals, your objectives will be the main guide in the adjustments you make to the percentages of this rule. Therefore, focus on where you want to get to.

7. Get out of debt

As mentioned in the previous rule, getting rid of debt is essential and indispensable in any financial planning. For many people, this is the goal. Once this is achieved, new planning is carried out with other objectives.

In general, the best way to get out of debt is to identify the easiest ones and focus on those first. Then, focus on paying them off in full and then move on to the next one. That way, you can save the big debts for last.

The advantage of this method is the stimulus you get as each debt is paid off, strengthening you for the next endeavor. In any case, always negotiate and try to reduce the amount agreed upon in the agreements you make to pay off your debts as much as possible. It will certainly be worth it!