7 Simple Steps For You To Make Your Personal Financial Planning
I sincerely believe that financial education can change your life.
Money (especially the lack of it) greatly affects the emotional side of people.
Problems of relationship and lower productivity at work are just two examples where financial difficulties can affect directly.
For this reason, it is essential to understand the importance of financial education, to seek financial maturity.
After this process of reflection and learning, planning your finances becomes essential. And it all starts with well thought out planning.
Planning is the art of trying to visualize the future, shape it our way, and take care that this future is not too distant from what we shape.
Knowing this, you need to do both a personal financial planning as one family financial planning.
The purpose of this article is to show in 7 simple steps how you can plan your finances. In other words, how can you make your personal financial planning .
Understand that you need to change
Understanding optimized the first step is to understand that lack of financial education may be primarily responsible for most of your financial problems and understand that you need to change this scenario.
I often say that you are not to blame for not understanding about money and wealth. It is not your fault that you have not been taught about financial education.
On the other hand, it is 100% your responsibility to learn about money and wealth and how to behave towards them.
It is possible to get out of this harmful scenario to your finances and start accumulating wealth, in the quest to realize really relevant dreams.
It is also important to understand that major changes must occur in your financial (many of them negative) habits and limiting beliefs about money.
Understand how money works
The second step is to understand how money really works.
There are four paradigms of money, and I explained each of them in this article . Briefly, these are the four paradigms of money:
- Getting money : When they want to buy something, they simply ask for a loan from the bank, make a loan or divest themselves of assets at prices well below the market to get the money right away;
- Make Money : Exchange your time and effort for money by devoting your time and effort to work and receiving money at the end of the month;
- Making money : Aside from working in a business of your own (‘spending’ time and effort on it), you also buy other people’s time, which in turn generates more money than you spend on them;
- Invest Money: (1) You use your money to acquire assets; (2) These assets are valued and often generate a monthly passive income; (3) You hardly need to spend your time and effort on these assets.
Set financial goals
Understanding the dynamics of money, we come to the point of setting financial goals. You should probably know the following adage:
If you do not know where to go, any place will do.
The message of this phrase can be used for various situations, because for whatever we think of doing in our lives, we must have goals, goals, and goals.
And with our finances it’s no different.
Defining a financial goal means determining a value and a deadline to achieve any goal. As an example, buying a car is a goal.
However, buying a car that costs $ 30,000 in the next 2 years is a financial goal.
The simple definition of term and value for each objective we have allows us to calculate exactly how much time is left to reach this goal.
In other words, it is possible to measure how close we are to reaching it.
Setting financial goals will be the main motivation for you to pursue them with discipline, because you will think twice before buying something you do not need, otherwise you will distance yourself from the really relevant goal.
Educate yourself financially
Here is my favorite step.
I am addicted to gaining knowledge because it always yields the best compound interest.
It’s not public bonds. Neither investment in stocks. Neither is a business of its own.
Knowledge is – and always will be – the most profitable investment.
If you take a quick look at the results of this research on Financial Education in Singapore , you will see how most Singaporeans do not know how to handle money.
I could spend a whole article writing just about financial education, but I’d rather recommend the three books that changed my life when I started studying about it:
- Rich Dad, Poor Dad , by Robert Kiyosaky;
- The Secrets of the Millionaire Mind , by T. Harv Eker;
- Who Thinks Enriches, by Napoleon Hill.
Learning how to save
Want to know the secret of financial success?
Spend less than you earn.
As obvious as it may seem, it is amazing how many people can not save money at the end of the month.
Or worse: they spend more than they earn, through credit tools (credit card or loans).
But what, after all, is saving?
Saving is to accumulate values in the present to use them in the future, which usually involves changing habits, as it requires a reduction in personal and family expenses.
Reducing expenses can range from simple cares to avoiding wastage to the sometimes arduous effort to contain expenses.
In addition, saving requires objective evaluation of expenditure, goal setting and, in particular, a lot of persistence, in order to keep saving for the time needed until the objectives that motivated the savings are achieved.
I often say that saving is more important than investing.
Many people spend hours and hours studying about technical analysis, fundamentalist analysis, taking courses on equity investing, and simply do not bother to identify “phantom spending” in their budgets.
This does not mean that studying before investing is not important.
Quite the opposite.
I mean that it is much easier to get a better result by investing more and with discipline than seeking the best profitability.
Learn to invest
Learn to Invest Studies show that people trying to start investing fail 90% of the time.
This is because most start investing before they even acquire knowledge and understand their investor profile.
But what is investing?
Investing means putting your money to work for you.
It’s a different way of thinking about making money.
Most people think that we can only make more money through work. And that’s exactly what most does.
There is a big problem with this: if you want more money, you have to work harder.
In Step # 2, I pointed out that there are four paradigms of money and investing is the best of them. I’ve even prepared a super complete guide for you to know where to invest your money.
It is worth reading this article, as I talk about investment strategies, which assets should compose your portfolio and even how your portfolio should be set up, according to your investment profile.
I also recommend the eBook How to Invest Money, official digital book of the blog I Want to Stay Rich.
Learning to enrich
Most people do it all wrong when it comes to getting rich.
Wealth is not related to how much you earn.
In case, you get a good monthly salary and spend it completely, you’re not getting richer. It just has a high standard of living.
How can you become rich?
Here, again, most think wrong.
Rarely is luck or inheritance, academic training or even intelligence that allows people to accumulate fortunes.
Wealth is more often the result of a hard work, perseverance, planning, and, above all, self-discipline lifestyle.
How come you’re not rich?
Many people ask themselves this question all the time. Often, they are hardworking, have a good academic background, and have a good monthly income.
Why, then, are not rich?
Despite being well paid, many of these people have small levels of accumulated wealth.
Many always live on the edge, from paycheck to paycheck, paycheck to paycheck.
I wrote a fairly complete article with 7 steps to accumulate wealth, which can be read at this link.
The truth is that the true measure of wealth is net worth and not how much you earn.
It always was and always will be.
Equity is the value of everything a person has.
To determine your equity, add up the value of all the things you own (money, stocks, bonds, real estate, your current business, your home) and then subtract everything you owe.
Equity is the ultimate measure of wealth because, if necessary, assets can be liquidated, that is, converted into cash.
I also wrote a great article on how to increase your net worth, which can be read here.
Conclusion – Recapping …
As I said at the beginning, I sincerely believe that financial education can transform your life.
And for this to happen, it is critical that you make a good personal and family financial planning.
To do so, I showed in this article the 7 steps to accomplish this goal, which are these:
- Understand that you need to change;
- Understand how money works;
- Define financial goals;
- Educate yourself financially;
- Learn to save;
- Learning on invest;
- Learn to enrich.
Follow these steps and I’m sure your financial life will move to another level.
I have a question for you …
Have you done your personal financial planning? Did you have any questions about any of these steps?
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Poh Ban Song
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