Four personal finance tips for your life

In difficult economic times, many of us worry about what the future holds and how it will affect our financial situation. For this reason, it is more important than ever that you map out a long-term strategy for your money and the security of your savings.

Although it may seem a bit overwhelming, we are here to give you a hand: there are many tips and tricks that can help you break financial planning into small steps to make the process easier for you . Next, we explain how to make a savings plan that will help you achieve your goals during the different stages of your life.

First things first: let’s start with the basics. What exactly does personal finance mean?

• It is a comprehensive plan that looks several years into the future.

• It is not only intended for those who have a lot of money.

• With a financial plan, you will stop worrying about those unexpected surprises in life.

• It includes details about your income, savings, investments, expenses, debts, and insurance.

• It helps you pay off debt and save for a mortgage, an emergency fund, and your retirement.

Creating a financial plan takes time, but it’s worth it. Here is a step-by-step guide:

The first step in creating your personal financial plan can be the most difficult. It requires you to ask yourself the most important questions, like where do you see yourself in five, ten, and thirty years. It requires you to consider what you give more importance to in life. One of the best ways to approach these big questions is to ask yourself what kind of life you would like to live in the future, without dwelling too much on specific details.

Perhaps you’re thinking about buying a home, having children, paying for college, and ultimately retiring without financial worries. Or maybe you prefer to focus on getting rid of debt, not having children, and retiring early. Whichever lifestyle appeals to you the most will influence your personal finance plan, as its goal is to help you achieve your goals.

As a general rule, based on the 50/30/20 rule, you have to save 20% of your income after taxes. But when you have multiple long-term goals, it can be tricky to know how to split this number. Should you put 15% into your retirement fund and 5% into your emergency fund? Or better save for each goal systematically? The trick is to prioritize your goals, and this brings us to the next step.

Now that you have an idea of ​​the kind of life you want to build over the next thirty years, it’s important to prioritize your savings goals to fit the different stages of your life. If we take as an example saving for a future with a mortgage, children, and retirement, your priorities may be:

1. Save for a down payment on a home
2. Save to finance the life of your children
3. save for retirement

Of course, some of these priorities may overlap. You can set aside money for your retirement while saving for your children’s trust funds, but since financing the life of your children will surely be prior to your retirement, it must be prioritized. However, if we take getting rid of debt and retiring early as an example, your personal finances will look like this:

• Save to pay off debts
• Start saving for early retirement
• Save to travel around the world

Because saving for early retirement requires a lot of money, it’s best to start saving as early as possible. In this example, as soon as you have paid off your debts, you can start saving for your early retirement. But when you’ve amassed a sizable amount in your pension fund, even if you’re still contributing recurring amounts, you can start saving for world travel you’ll enjoy in retirement.

If you’re not sure whether you should start saving for retirement in your 20s or 30s, consider the following. Let’s say you are 30 years old and earn 40,000 euros per year before taxes. If you set aside 8% of your income for your pension plan over the next 35 years, when you turn 65 you will have a pension fund of around €157,000. This figure takes into account the maintenance fee, a 2% inflation rate, and a fund yield of 6%.

Once you’ve decided where your life is headed, it’s important to take a hard look at your current financial situation. Planning your personal finances requires you to create a budget based on all your income and expenses to assess the need for your fixed expenses. We explain how to create a budget:

• Write down all your income and expenses for a period of 30 days.
• Divide your expenses into a variable and fixed. Fixed expenses are invariable expenses, such as rent, car insurance or electricity, and gas bills. Variable expenses are your flexible expenses, for example, the money you spend at the supermarket, on a night out, and at the hairdresser.
• Evaluate your variable expenses and think about how you can reduce them. Consider using a personal finance app to make this process easier.
• Set a certain amount of your variable expenses that you can set aside and allocate it to your savings fund each month. Sticking to an approach like the 50/30/20 rule can help. The idea is to allocate 50% of your income to your fixed expenses, 30% to your variable expenses, and 20% to your savings fund.
• Review your budget every month and adjust it when necessary. Surely, the amount you can afford to save each month changes. Instead of getting discouraged by missing your budget goals for a short time, accept these ups and downs as part of the financial planning process.

An emergency fund serves to protect you against those unexpected events in life. An emergency fund is like a financial safety net that cushions you from getting sidetracked from your savings goals. It should be used when a crisis occurs, such as:

• Losing your job and therefore your main source of income
• Having to relocate to care for a sick relative
• A sudden global recession or crisis

Ideally, it should include between three and six months of fixed expenses (rent, electricity and water, car insurance), but you can also include your variable expenses (supermarket, leisure, gym). Keep in mind that if you are self-employed or live in a single-person household, your financial situation may be more vulnerable than someone who has a regular job or someone who shares the costs of living with someone else. Therefore, it would be a good idea to save six months instead of three to ensure that you have a good mattress that will help you support yourself.