July 3, 2020

Managing and controlling personal finances can be an easy task if you find the right tools. 

This article aims to devise and develop a plan for individual or family fortune creation. However, it does not intend to create a debate around accounting, finance or investment strategies. We’ll share a series of basic guidelines to lay down a solid foundation for successful financial planning.

Now, in order to evaluate our personal financial situation, we must include a thorough review of our income, expenses, debts, investments, etc. However, there aren’t any indicators to tell us whether we are doing a good job or not at it to adjust our personal plan accordingly. 

Managing and controlling personal finances can be an easy task if you find the right tools to help you maintain economical and financial stability on your home or your business.

It is mistakenly believed that in order to manage our personal finances we have to be financial experts; when the truth is that it’s completely achievable by simply following your plan.

Follow these simple recommendations to manage your finances

  • Income and expenses control The first step to boost your personal finances is to establish priority expenses, such as rent, services, food, among others. These should be reflected as “fixed expenses” in your monthly budget under the premise “do not spend more than what you earn.”
  • Create an emergency fund: It is important to create a plan based on your monthly income to meet financial goals, usually between a 5% to 8%. This allows you to face unforeseeable emergencies, for instance, a month where you 

receive no income.

  • Debt under control: Prioritize debt above all else, to reduce time and interests acquired. As a general rule, avoid getting into debts that your income won’t be able to cover.
  • Investing: Invest any spare capital in assets to make it grow. There are plenty of financial instruments available to get a good return on your investments, such as stocks, bonds or demands deposits.
  • Avoid “ant” expenses: These expenses are usually small, like a small coffee after lunch. These are tiny individually but in the long term, they snowball into an important chunk of your monthly budget. Therefore, it is highly recommended to reduce them to a minimum to keep your expenses and personal finances on track.
  • Create a Retirement Fund: Understanding the magic of compound interest and long-term investments is vital. Put aside a part of your income to create a retirement fund that will help you retire in your own terms. You will be able to comfortably cover your expenses and maintain your quality of life when you reach a non-productive stage (past 65-70 years).

Following your financial plan using these basic principles can help you reach your goals even in a volatile environment. What’s more, it can allow you to harness and control the natural economical and financial cycles we go through in our lives.

I now invite you to reflect on these basic principles. It will take some discipline and effort, for sure, but the payoff in the long-term will be worth it. Your financial freedom depends on it.

Alejandro Vargas, Financial Analyst with a corporate finance diploma. By Val-U 

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