Small practical guide to personal finance (I)

(Part 1 of 2)

In the last columns we talked a lot about our relationship with money and we raised several reflections which are without a doubt the starting point to change our reality. Today, however, I want to talk about something more practical and tangible.

Many people think personal finances are complicated, but that statement is far from reality. In fact, as we have shown over and over in this space, the concepts are very simple.

In fact, there are four fundamental pillars of personal finance:

1. Be clear about our priorities and goals.

2. Take control of our money. This means allocating our income to what is most important to us (including setting aside a portion of what we earn for those purposes).

Invest these savings, in a diversified manner, according to the term of those objectives (investment horizon) and taking into account our risk tolerance.

4. Protect what we build, as unexpected things happen in life that can destroy everything.

We can apply it all in a very simple way – or we can make it complicated. For example, if we want to save for our retirement, we can simply choose to save voluntarily in the Aphores. Nothing more. We do not have to know too much about investing and we do not have to worry about managing our money. Advance is highly regulated and long-term voluntary savings or supplementary contributions for retirement are invested precisely in a diversified, managed investment portfolio, suitable for that investment horizon. On top of that, with a cost that is much lower than in other types of financial products (remember, cost and commission are very important in this investment horizon).

Of course: we can also try to actively manage our own portfolio, or appoint various retirement plans if we fully understand the costs and conditions thereof. The most important thing is that there are simple options, or complicated options. We need to find what works for us.

Now, when we talk about taking control of our money, there are unfortunately many articles, advice and even books with complex methodologies that simply do not work for most people. It’s not about putting on a straitjacket, nor about making estimates of our income, when the savings fund is going to pay us or anything like that. That’s why I’m talking about making a spending plan, which is simple to assign a job to every peso we earn. In other words, every time we receive an income, we have to ask ourselves a simple question: What should I do this money for myself, before I get paid again?

But in addition, the spending plan is a living and flexible tool that is used to make decisions and that can be changed or adjusted at any time, because life never happens exactly as planned. Many people make their budget but never look at it. Record your expenses in some application and in the end you end up frustrated because it could not be “adjusted” to the budget. It’s clear why this does not work. We will continue to talk about this in the next episode.

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