Financial Planning: how to organize personal finances

Learn how to organize your finances in a practical way, setting goals, controlling spending and creating an efficient budget to achieve financial stability and security.

Summary:

Reviewing the previous step

If you're just arriving here, it's worth checking out our previous article on Financial Education. In it, we covered essential concepts that will help you understand the world of finance, in other words, your first step towards monetary independence. Now, let's get down to business!

What is financial planning?

Financial planning is the art of understanding where you are with your finances, where you want to be and how you're going to get there. It involves a set of decisions about how to manage income, expenses, investments and even debts. The main objective? To avoid surprises and ensure that you are prepared for the future.

Income: This is where all the money you receive comes in. Salary, extra income, profits from investments, etc.

Expenses: These are your expenses for the month. Housing, food, transport, leisure... everything that comes out of your pocket.

Investments: The money you put into financial products (shares, funds, bonds, etc.) with the idea that it will grow over time.

Financial Protection: The reserve for unforeseen situations, such as a medical emergency or job loss.

Practical example: Imagine you earn $2,500 a month and have the following expenses:

Rent: $800
Transportation: $ 200
Supermarket: $ 600
Leisure: $ 300
Debts: $ 200

So, to make learning more intuitive, here are 5 steps you can take to create an effective financial plan:

Debts and Loans: If there are any, write down all your financial commitments.

When you do the math, you discover that you have $500 left over. This amount can be invested, saved for the future or even used in emergencies.

1. Know your current financial situation

Before you start making any changes, it's important to know your starting point. Many people get lost in their finances because they don't know how much they actually earn and spend. When you understand your cash flow (how much comes in and how much goes out), it's much easier to make the right decisions.

Practical example: Looking at your finances, you realize that, in addition to your fixed expenses, you have spending on leisure ($500) and clothes ($200). This means that if you don't review these expenses, the amount left over at the end of the month may not be enough to achieve your goals, such as buying a new car or investing in an emergency fund.

The key here is to categorize your expenses: essential (housing, food, etc.) and non-essential (leisure, clothes, gadgets). This will help you see where you can cut costs without sacrificing quality of life.

2. Set clear financial goals;

There's no point in starting to plan your finances without knowing where you're going. Financial planning is most effective when you set clear goals. These goals should be specific and have a deadline for achievement.

Exemplo prático:

Meta de curto prazo: Guardar R$ 1.500 para uma viagem em 6 meses. Para isso, você vai economizar R$ 250 por mês.
Meta de médio prazo: Juntar R$ 10.000 em 1 ano para dar entrada em um imóvel. Aqui, a economia mensal precisa ser mais agressiva, R$ 800 por mês.
Meta de longo prazo: Poupar R$ 50.000 para a aposentadoria em 10 anos. Você pode colocar essa grana em um fundo de previdência privada ou em investimentos de longo prazo.
Practical example:
Short-term goal: Save $1,500 for a trip in 6 months. To do this, you will save $250 a month.
Medium-term goal: Save $10,000 in 1 year to put a down payment on a property. Here, the monthly savings need to be more aggressive, $ 800 per month.
Long-term goal: Save $50,000 for retirement in 10 years. You can put this money into a private pension fund or long-term investments.

Set your goals so that you can measure progress and adjust as necessary.

SMART goals are an excellent way of defining objectives.

S (Specific): The goal needs to be well defined. Example: “I want to save $10,000 to travel”.
M (Measurable): You need to be able to measure your progress.
A (Attainable): The goal needs to be realistic, considering your current financial capacity.
R (Relevant): The goal must be aligned with your values and needs.
T (Time-bound): It must have a set deadline for achievement.

Practical example: “I want to save $10,000 for a trip by December 2025” is a SMART goal. It is specific, has a clear value, is achievable (depending on your finances) and has a deadline.

3. Make an efficient budget

Now that you know your financial situation and have set your goals, it's time to draw up a budget. The budget is the map that guides you to the financial future you want.

Practical example: Suppose your monthly income is $3,000. When you make a budget, you discover that you have fixed expenses of $ 2,200 (rent, groceries, transportation) and an amount set aside for investments and savings of $ 500. The rest, $ 300, can be used for variable expenses and leisure.

With this budget, it's clear where you can adjust. Perhaps you can reduce the amount spent on leisure in order to increase the amount dedicated to investments. This is an example of financial flexibility: adjusting your choices according to your objectives.

Extra tip: Use financial control apps or spreadsheets to keep track of all your expenses quickly and easily, such as Mint, YNAB, PocketGuard, EveryDollar and Personal Capital.

Which finance app to choose?

There are many apps out there, each with its own characteristics. The important thing is to choose one that is easy to use and has the features you need. Some of the most popular are:

Mint: A complete overview of all your accounts in one place.
YNAB: Teaches you how to budget every penny and achieve your goals.
PocketGuard: Ideal for those who want to quickly keep track of their day-to-day spending.
EveryDollar: Divides your money into categories for better control.
Personal Capital: For those looking for complete financial planning, including investments.

Which one to choose? It depends on what you need:

Easy to use: Mint and PocketGuard are great options.
Detailed budgeting: YNAB and EveryDollar are perfect.
Long-term planning: Personal Capital is ideal.

Tip: Try the free versions to see which one you like best!

Remember: The important thing is to find an app that helps you organize your money and achieve your goals.

4. Control spending: avoid going overboard;

Now that you have a budget, the next step is to avoid impulsive spending. The temptation to buy on impulse is an enemy of personal finance. This could be an expensive coffee, an outfit that wasn't in the plans or an unnecessary streaming subscription.

Practical example: You go to the mall with your friends and see a pair of Nike sneakers for $400. Without thinking too much, you buy them. When you get home, you realize that you already have 3 sneakers in your closet, and what you really needed was a new cell phone. This kind of spending can have an impact on your budget.

One way to avoid these expenses is to ask yourself before any purchase: “Do I really need this now?” This helps keep your finances on track.

5. Building an emergency reserve

The emergency reserve is one of the pillars of financial planning. It is used to cover unforeseen events such as accidents, unemployment or any other expense that wasn't in the budget.

Practical example: You should have at least 3 to 6 months' expenses saved for emergencies. If you spend $2,500 a month, the ideal is to have between $7,500 and $15,000 saved in a separate, easily accessible account.

These funds are crucial to prevent you from having to take out loans or go into debt when something unexpected happens.

Continue with your financial planning

With these strategies, you have the tools you need to organize your personal finances efficiently. Remember that financial planning is an ongoing process that requires adjustments as life changes.

Now that you know how to organize your finances and set your goals, it's time to explore the next topic: Money Psychology. How do your beliefs and habits influence your relationship with money? Don't miss out, let's understand how to change to achieve your goals faster!

If you have any questions or would like to know more about any of the concepts mentioned, please leave a comment below.

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