Financial Planning for 2019: Everything You Need to Know
At every end of the year, it is common to start thinking about things we would like to do in the next 12 months. During this time, it is also common to take stock of the last year. It often gives that pride because we can achieve what we would like , but it is not always that way. To achieve goals, whether professional or personal, planning is necessary .
An annual financial planning is ideal because you already start the year conscious of which months will have more expenses , those who have less and which time is best suited to invest in more expensive goods .
In this article you will discover the advantages of doing an annual financial planning and the step by step to do your own annual planning . Follow us!
What is financial planning?
Financial planning is nothing more than a strategy that uses control tools that make it easier to make decisions and achieve goals. In practice, it is a prior guide of what your income and expenses will be over a given period. Thus, it generates information so that people can make the best decisions .
This type of planning can be more or less flexible and needs to be adapted to each person’s style – not just the planning itself but the tools used. What works for one person does not necessarily work for another.
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Financial planning can also be of different types: own management of your business, personal, family, monthly, annual, etc. The whole planning process is also a preview of how you want to be in the future – and that goes for both individuals and businesses.
Financial planning is only part of healthy behavior with money. If you have bad habits, like spending more than you can, it’s no good planning. Planning on paper only works if you follow it .
Changing these habits becomes easier with a good financial education. In Brazil, the number of defaulters exceeds 63 million people. Not to enter (or escape) these statistics, some tips are basic:
know all your fixed expenses;
stipulate a limit for those who are variables – which include leisure;
save a part.
This reserve can be made up of investments for various purposes such as value for emergencies and other for achieving a goal such as buying a car or a holiday trip.
Why do annual financial planning?
The advantage of doing annual financial planning is that you get an overview of your year and avoid surprises when the months turn around. While you do the planning, you can distribute the accounts for the months and register those with defined dates. This way, you can evaluate in which month the money will be shorter .
January, for example, is a month with higher bills , such as IPTU and IPVA. As early as April, it is time to pay the Income Tax.
What are the benefits of doing an annual financial planning?
The best advantage of doing an annual financial planning , and not just monthly, is the viability of your goals . As we have seen above, year overview lets you know how your months will be financially . Thus, it is possible to wisely choose the right time to make an account, such as financing.
With careful planning, it is also possible to know for sure when it will be possible to make a purchase . So you escape from always falling in that chat of: “This month can not. Maybe next time. ” All this helps you avoid debt and make decisions under pressure .
How to prepare a family financial plan for 2019?
If in the personal life the financial organization is already important , when we talk about family planning is even more important. After all, children are completely dependent on adults. Any financial imprudence can destabilize the family structure – which is fundamental for the good development of children.
Here’s how to do annual family planning .
1. Set goals for the year
One of the main financial education tips to save is to raise money for some purpose , a reason. So set goals.
Setting a goal is a task that must be as accurate as possible . If you want to do a remodeling in the house, you must stipulate how much you want to put together and in how much time. It is different to register “Add money to remodel the house” and “Add R $ 25 thousand until December 2019 to begin the remodeling of the house”. Therefore, a financial goal has a value and a deadline .
If you want to make a trip, for example, set a value that you want to join until a certain time of the year and add that commitment to your annual financial planning .
This step is also important so that when it comes to restraining your spending, you can stay disciplined – just remember that there is a bigger goal behind .
2. Make a statement of the expenses
Once you have set well the goals you want, make a survey of all current fixed expenses and a forecast of their size over the next few months , considering the characteristic of each month. The light bill usually gets louder in the summer, for example, and fall considerably in the winter. Note the values from the last year and record an approximate value .
Knowing where your money is going is essential to financial stability . In addition to the fixed expenses, which should not exceed one-third of the family’s income , there are variable expenses, which should not exceed one third. Included in this category are day-to-day and leisure expenses. If fixed or variable expenses are more than two-thirds of the income, review their composition .
If you exceed these two-thirds, the amount allocated to emergency reserves and goal achievement will be affected. Therefore, it is important to be strict about meeting these limits .
Raising current expenses, aside from future planning, also serves for you to have a real sense of your consumption patterns and living expenses . Do you know that feeling of not knowing where your money is going? As you record your fixed expenses and especially the variables, you can observe the “drains”.
In the case of families, this awareness is fundamental to check which members have more expenses.
3. Educate yourself financially
Financial education is needed primarily to cause a change of mentality and offer some tools. On the internet, it is easy to find content with good tips, like videos and articles. Before beginning to apply some of the principles of financial education, it is important to focus on developing two characteristics: organization and discipline .
The organization is critical to putting into practice all these tips , such as recording expenses and monitoring paid accounts. Already the discipline serves to follow what is planned , knowing to say no to the will to buy something unnecessary.
One tip to avoid spending on impulse is to let go a few days after the urge to buy comes up . If you still want that, buy it. Another way to keep discipline is to think about the long-term benefits that come when we can raise money.
Financial education is also key to learning how to invest well , with that one-third remaining income. There are several types of investments, and they should serve different purposes. Later on we will explain what is the minimum that must be done to start investing.
4. Learn to set priorities
When we list our goals, we do not always have a clear sense of which are the most important. Reforming the house can be a goal as well as changing the car, but what really is your priority? After listing the year’s goals, separate which are the urgent ones . It is not always easy to have this clear in the head, but some exercises can help.
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Choose one of them and imagine your family with this good. Will your quality of life improve considerably ? If it is an investment in education, such as an extra course or a graduate, how will this improve one’s professional life? After this exercise, compare which scenarios generate the most benefits .
5. Make investments
Failure to make investments is a mistake that may not seem so serious. Sometimes we focus more on cutting expenses, controlling expenses and booking a part for the savings account. The problem of not creating a portfolio of investments is that your money fails to yield all that it could .
You already know that a third of the family income should go into the category “Reserve / investments / goals”, right? Do you know how to distribute this money? It all depends on your profile , the knowledge you have about investments and the time you intend to leave the money invested.
In simple terms, we can divide the investments basically between fixed income and variable income . In the case of fixed income, there is a fixed rate of how much return the investment will generate. In variable income there is even a projection, but the values can be quite different.
To start investing, it is worth knowing the fixed income options, such as Treasury Direct and CDB . Does it look Greek? Calm! An investment is actually a loan that you make to an institution and earn interest for it, but a little different from that personal loan that helps in emergencies. In general, the return interest is greater depending on the time you leave the amount applied.
In the case of Treasury Direct , you buy federal government bonds and then sell them back. CDBs are Bank Deposit Certificates , securities offered by banks. In practice, you lend money to banks .
You can learn more about types of investments as you study investments within financial education , but what you should know is: there are adequate investments for emergency stocks , those that are ideal for buying a good in the medium term and others suitable for retirement.
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The difference between them is the bond maturity time or liquidity . High liquidity investments can be redeemed into your checking account in no time . Those with low liquidity are late or can not be redeemed until maturity . For an emergency reserve, it is worth looking for investments with daily liquidity. For a trip in one year, there are good options with maturity of 12 months. For retirement, there are options that expire after 5 years.
These investment options form what is commonly called the investment portfolio, and each has its own characteristic and serves a financial purpose .
To figure out how much you need to put together to have a good emergency reserve, find out what your family’s spending is for 6 months . This is an average time to return to work in the event of unemployment, for example, and enough to reorganize .
If your family costs per month is 4 thousand reais, a good emergency reserve should be $ 24 thousand. Reaching this value until the end of the year is an example of a goal that can be on your list .
6. Reduce costs that are unnecessary
Once you know your fixed and variable expenses , it’s time to analyze which ones really should be kept. As we have seen above, these expenses should not exceed two-thirds of your income . If they are in that limit, cut some.
You do not necessarily have to give up some service you use, but try to negotiate prices with telecommunications companies and signatures , for example. Evaluate if you need to use landline, if all the services in your bankroll are essential, if you can not combine rides with work colleagues etc.
Spending on food away from home can also be costly . This, however, does not mean that you should stop hanging out to have fun with your family. Try going to parks, doing outdoor activities, and going to social gatherings at friends’ houses. All of these programs come out cheaper than going out to eat at the mall, for example.
Depending on the age of the children, they can also help with the household services – which can dispense with the need for maids . Thus, an occasional day laborer may be a cheaper option.
Spending time without buying clothes and shoes can also help save a good value if that is one of the common expenses of the house. Often dyeing or repairing a part can make it look new.
7. Make the Financial Worksheet for the Year
There are many types of financial control tools – from paper and pen to applications that link your cards and your checking account. Financial spreadsheets are also good options, from the simplest to the most complex.
For an annual financial planning , you do not need so many resources. The important thing is to get an overview of the months and have the revenues and expenses well detailed.
To make your own spreadsheet , you can use a program like Excel or online tools such as Google Docs. Make a table where the rows contain the expense categories and the columns have the information you find convenient, such as a space for forecasting expenses, and another for what the value really was – in addition to dividing the months.
A common mistake in categorizing expenses is to create a field for credit card spending. Purchases made on the card should be placed in the spreadsheet within the respective modalities , such as clothing, food and entertainment.
Talking about credit card, it can be a pitfall or a good way to shop – it all depends on how you use it. The credit card is worth it in situations where you can not get a cash discount and the installments are really interest-free.
To circumvent the consumer, the stores say that the installments are interest free, but increase the total amount if the payment option is the credit card. So stay tuned. If you have the cash to pay cash but can not get discount, buy in installments on the card and invest that amount .
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Another tip for dealing well with credit card purchases is to buy just fine durable ones . Also look for options where you do not have to pay annuity fees.
In your annual financial planning , it is also important to record flexible spending. Unlike the fixed – which are foreseen -, the flexible ones change from month to month. Then, the record is made after the expense has been spent. Some types of flexible spending can be seen as fixed. This is a tip for you to always reserve the money for this expense. Be aware only of the limit of fixed expenses .
In the spreadsheets you can also easily calculate the percentage of each mode of family spending within the income and see if in practice the priorities are actually being followed. In addition, it is also necessary to look at the evolution over the months .
If you want a change of buying habit , for example, just follow how much that has represented in your spending during the months. To get the right conclusions, you need to have all the expenses recorded .
How to put your personal goals within financial planning?
In addition to setting the priority of each goal , as we have seen above, you must separate them by categories: those that you want to accomplish in the short, medium and long term. To enter your financial planning accomplishment, you need to have clarified to yourself how you want to make the payment.
Take for example the exchange of furniture in the children’s room. Do you plan to raise money and make payment in cash or will you pay in installments? As it is important to value the habit of saving , it is worth thinking about achieving the goal as a consequence of good habits.
In addition to defining the form of payment , check how much of that one-third remaining budget you can commit to make your purchase in cash. If this one third of the family income is 3,000 reais, for example, make a subdivision. One part should go to the emergency reserve , another to the objectives and another to the investments. If you save 1,500 for goals but you are already saving 1,000 for a new car, the other 500 can be destined for new furniture.
With this monthly amount in mind you can calculate which month you can afford new furniture . Money does not necessarily have to reach full value, but if you get close enough it helps a lot in achieving the goal.
If you’re on a budget , you can go the other way. Instead of checking how much of the family income you can commit, choose a month in which you want to accomplish the goal and divide the amount by the months that are missing by then . This form is a bit riskier, but you can guarantee your goals a little more quickly.
So far, we’ve covered the benefits of annual planning , why do it, and we go through the basics when it comes to setting it up. It all starts with knowing the current financial situation , with a good diagnosis of family expenses.
To do this, calculate your spending in details . Also, learn to prioritize and make investments. You should know that your money can yield much more if you take it out of the savings account . Study and assemble a portfolio with different liquidity options.
To achieve even more financial comfort and to achieve your goals without making sacrifices on a day to day basis, cut spending on unnecessary things . For this, it pays to evaluate all your accounts, try to negotiate cheaper service packages and ask yourself if everything you have is really necessary .
Also do not forget the rule of thirds . Ideally, one-third of your income goes to fixed expenses, another one-third is spent on variable expenses and the other third is saved or invested. With this tip, you hardly get into debt – as long as you keep discipline !