Financial Wellness • CENFENG

What Aspects Should Your Personal Financial Plan Include?

3-min read

It’s important to make a personal financial plan as part of your life project. Knowing what is truly important to you, what you want to achieve and where you are from, is fundamental.

A good financial plan should include the following aspects:

1. Define your financial goals.

This means: deciding what you want to achieve in your life. What is most important to you? This is fundamental since in reality the rest of your financial plan is simply deciding how you are going to achieve that which you have proposed.

For example, do you want to get out of debt? That can be a great first goal and an indispensable requirement to achieve others. At what age do you want to retire? Do you have a child that requires special attention?

Now, you have to quantify your goals. In what term do you want to reach them? How much do you need to save for each of them? 

Of course, it is essential to keep your goals in a realistic, achievable context, according to your standard of living.

2. Know your current financial situation.

It is knowing your starting point, because it is not the same to start with savings than to do it with a large debt on top. Doing it is simple. Simply list all your assets on one side (the balance of your checking and investment accounts) and on the other all your liabilities (what you owe). It is worthwhile to order both columns according to the term or liquidity they require (first put investments or short-term credits, then long-term ones). The difference between what you have and what you owe is your assets.

3. Make an expense plan.

This means telling your money what you want it to do for you. What are you going to spend it on, how are you going to do it? This implies prioritizing, because you want to allocate the necessary amount first to reach your goals (because as you defined, this is the most important thing for you).

This is the saving: pay yourself first, put first the money that will be to fulfill your dreams, your life goals. You can spend the rest of the money freely, it does not really matter that much. Obviously, you have to also cover your fixed expenses and then the variables, which in certain cases you could try to reduce.

Do not forget to contemplate those expenses that do not happen every month, like the payment of the property or things like the return to classes, so that when they show up, you have enough money to pay them and you do not have to get into debt, distracting yourself from what is more important. Remember that you are the one who gives the orders to your money. If you do not take control, it will go anywhere.

Also, do not forget that a spending plan is a decision-making tool. It is not written in stone. If the receipt of the light reaches you for more money than you had contemplated, make adjustments at that time. You will have to reduce another item so as not to overspend. Do not be afraid of it.

4. Get out of debt, in case you have some.

Debts are payment commitments. If you have them, that leaves you with money available for other things that are more important. They are an impediment, they subtract cash flow and also have a high cost (you pay interest). That is why it is important to try to get out of them as soon as possible.

5. Decide how you are going to invest the money you save for your goals.

Some, like retirement, will be very long term. Others will have a greater horizon. Always remember to think about building a diversified portfolio (or several) that are in accordance with that investment horizon, but also take into account your risk tolerance. It’s about making our money grow, but also about sleeping peacefully at night.

6. Protect what you have.

In life, there are always unforeseen events and sometimes it rains in the wet. The car requires a major repair and there is also a humidity at home that we must attend. Suddenly the child gets sick and you have to take it to the doctor and buy medicine. All these things happen and that is why it is so important to have a good fund for emergencies.

But in life, there are also more serious things that can happen, such as an earthquake that destroys our home, or even a death that leaves your family without a significant income, or your children without both parents. You have to think about everything and prepare, this is done through insurance and a testament.

Of course, there are many other considerations that could be made in a good financial plan, such as a fiscal strategy (imposed by our investments, for example). But this can be inserted in the other analyzed items that constitute the essential thing that every financial plan must contain.


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The views of the author of this article do not necessarily represent the views of Gradifi. We make no claims, promises or guarantees about the accuracy, completeness, or adequacy of the information contained here. Readers should consult their own attorneys or other tax or financial advisors to understand the tax, financial and legal consequences of any strategies mentioned in this article.