A personal financial plan or budget can be defined as the process of monitoring personal and family resources, such as spending, saving, protection, and investment in these financial resources.
The reason most people fail to develop a successful financial plan is a lack of awareness.
Although people put a lot of effort into managing their finances, they often overlook important areas.
Startuptalky website, which specializes in entrepreneurship, published an article by Sheikha Tyagi on regulating personal finance, in which she mentioned that there are 3 main elements of personal finance that you must know well before setting a budget or financial plan for yourself, namely:
saving
"Don't save what's left after spending, but spend what's left after saving," said Warren Buffett, the biggest investor in US financial markets.
According to experts, your optimal savings should be equal to your expenses in 6 months.
investment
As Benjamin Graham, the author of numerous investment writings, said, “Successful investing is about managing risk, not avoiding it.”
Many people confuse saving with investment, thinking that the two are the same thing, but they are not.
While investing, you are actually using your money to make more money.
There are a lot of investment options available in the market such as mutual funds, real estate, stock market, etc.
To choose the right investment, organize your options into short, long and medium-term goals, and choose the one that best suits your goals and time frame.
Warren Buffett said, "Don't save what's left after spending, but spend what's left after saving."
retirement plan
Retirement planning is not something we can put off until a later date. You should start planning for retirement now, because you never know when you will stop working.
After you have studied the previous three elements, you can now start learning the main steps of creating your own financial budget.
And Farm Bureau Financial Services, an American company that specializes in providing financial advice, published a report outlining the most important tips to help you organize your personal finance.
start early
It's best not to wait for the money to arrive to start planning, as starting early helps you make the right decisions.
Plan your budget
Living within your means is important.
Plan your expenses and savings, and review your income and previous year's expenses to make the right decisions.
Define your financial goals, then determine your cash flow accordingly.
And if you receive a good reward, try to pay off your loans in advance, even partially, as our income and aspirations play a major role in determining our financial plan.
This will help you determine your spending, and enable you to strike the right balance between spending and saving.
Try analyzing and comparing the current month's budget with the previous month's budget, it will help you become a smart spender.
Create an emergency fund
This is the fund that will help you take on unexpected expenses.
Typically, financial experts advise keeping 20% of each salary in this fund.
You can create an emergency fund by following a few steps, which are:
Setting a specific date to start saving in the fund, and setting a monthly commitment to inject more money into it.
It is preferable to create a separate bank account for this fund, and transfer the additional income to it.
Successful investing is about managing risk, not avoiding it (Getty Images)
Review your investment portfolio
It is always a good idea to constantly review your investment portfolio, and track the performance of your current assets in the market to understand how they are changing, for example every month.
Adjusting your investment strategy is important, especially if you have faced any major changes in your life.
For example, if you are about to retire, you may want to invest in a good retirement plan, so assess your needs and invest accordingly.
Plan to spend your annual bonus
If you've received an annual bonus, don't waste money, plan your spending well.
For example, if you have a loan, you can pay it partially or fully in advance.
pay off your debts
Nobody wants to stay in debt, and there are certain strategies to control your debt repayment, including:
Pay your credit card balance in full every month.
Focus on your needs, not your desires.
Plan your budget according to your goals and financial requirements.
Determine how many cards you have.
Keep a master sheet to keep track of your expenses.
Monitor your credit score.
Keep financial records
It is always important to keep your financial records organized, as this will help you keep track of any discrepancies in later stages.
There are currently a number of apps available on phones to keep track of your money, and these online services help you separate old bills and receipts from new ones, and keep track of your expenses well.