How can I manage my finances

Financial planning: Manage private finances sensibly

The same game every month: At the end of the money there is still too much month left. But what can you do to get out of this situation? Instead of dealing with financial planning in order to sensibly manage private finances, look for many other options.

While some are trying to do more and more work, others take the path of hope that luck will be with them and try games of chance or the like. But mostly neither one nor the other leads to the desired success. The sensible management of private finances turns out to be a challenge for many.

With a little know-how and the right steps, it is possible to build up a good financial basis in order to be able to meet your personal wishes and needs. Here we show you ways to get the most out of your personal financial situation and to manage your finances in a meaningful way for you in the future.

the essentials in brief

  • Good financial planning is characterized by a comprehensive recording and analysis of all income and expenses. By defining a desired target state, you can coordinate your individual planning to achieve the goal.
  • Financial planning gives you the security to act within your financial possibilities. You can face unforeseen expenses much better and more relaxed without getting into extreme financial difficulties.
  • Since the investment options are possible at many different conditions, a broad and differentiated management of your private finances is sensible and advisable. Different terms, securities and returns must be taken into account here.

What does financial planning mean?

As financial planning, you can primarily describe the precise planning and systematic control of all income and expenses.

In the private sector in particular, good financial planning gives you a good and meaningful basis for future financial decisions. This gives you an overview of your finances to shape your standard of living and, in addition to providing for financial security in later life.

Background: What you should know about financial planning

Good financial planning encompasses several aspects and does not focus on just one area of ​​financial investment or investment. With a little know-how, this is much easier than it might seem at the beginning. We would like to summarize a few basics for you so that you can get started with your individual financial planning as easy as possible.

What is the goal of financial planning?

The goal of financial planning is to achieve financial equilibrium. This means: through the financial planning and structuring of income and expenses, constant personal solvency is ensured.

Where does financial planning begin?

In order to start your financial planning, the first step is to record your personal current situation. By recording the current situation, you get a general overview of the current financial situation.

When analyzing the current situation, it pays off for you if you invest a little time and effort here. The more precise and detailed you work here, the easier and easier it will be for you to continue planning. You can also track down so-called hidden financial holes here.

Often there are many financial expenses and costs hidden in every household, which, due to the small sum, are usually ignored or hardly taken into account.

Since these types of expenses accumulate and overall result in a significantly higher sum than thought or assumed, these costs are immensely important when recording the current situation. You can only plan optimally in order to achieve your desired goals if you know your situation and starting point as precisely as possible.

Analyzing the current situation means recording all income and expenses.
Experience has shown that a table can be of great help here. For example, a table could look like this:

revenue expenditure
Salary: 2145 € Rent: 567 €
Part-time job: € 345 Additional costs: 123 €
Other income: ... Insurance: € 75
Other editions: ...
Sum of all income: € 2,490 Total of all expenses: 765 €

After the successful recording and analysis of your current state, you determine your personal target state. The target state is the realistic goal of your financial situation that you want and strive for.

When determining the target state, you should set your goals according to the SMART principle:

Letter Goal setting
S.specific What should be achieved? Which condition?
M.edible How much does this represent in specific numbers?
A.ction-oriented What steps are necessary? Where can I get support or information?
R.ealistic Is the goal feasible or achievable for me personally?
Terminated In what period of time should the target status be achieved?

If you take this principle into account when answering the questions honestly and realistically, it will be easier for you to formulate and focus on a goal that is good for you.

If you compare your current situation with your desired target situation, you will receive the financial forecast. This forecast allows you to focus your financial planning on the achievement of the goal. Based on the difference between the target and the actual situation, you can see what action is required for further planning.

This is the basis for taking the necessary steps to achieve your personal goals. Important measures can be savings on the one hand and increased revenue on the other. The examination of possible forms of investment or investments are also included in the planning.

What are the consequences of not doing financial planning?

The consequences of a lack of financial planning can be serious. Without adequate financial planning, there is a risk of losing track of your personal income and, above all, your expenses very quickly.

Especially when it comes to expenses, the smaller amounts are often overlooked, which in total can, however, grow into a larger sum. Depending on the margin between income and expenditure, this can have more or less serious consequences. Likewise, so-called financial holes usually go unnoticed for a long time if there is no financial planning. As a result, in this case, unnecessary cash is wasted pointlessly.

If there is no ongoing control of one's financial situation, the knowledge usually comes very late and the risk of over-indebtedness is very high. The way out of such massive financial difficulties is difficult and long-term. With timely financial planning, this can be successfully prevented from the outset or at least significantly reduced.

Especially with larger planned investments, such as B. the purchase of a property, financial planning is crucial so that you have a meaningful basis for making this investment decision. Long-term investments require appropriate planning so that your solvency can be maintained over the entire term.

Why is a financial plan important?

The financial plan is ideal for successfully carrying out financial planning. The financial plan is the planning tool for financial planning.

The financial plan gives you a quick and comprehensive overview of the upcoming investments or income over a longer period of time. With the help of the financial plan, the individual steps required to achieve your desired target state are specifically formulated or recorded in figures and measures.

With the help of your financial plan, you can determine your progress towards achieving your goals at any time and, if necessary, react in good time if irregularities or unforeseen occur.

If possible, a long-term financial plan contains all the costs that will likely be incurred during this period. Thus, these costs are included in the planning and this protects you from unforeseen immense costs and expenses. In the area of ​​buying a house, this can be, for. B. a new house painting after a few years or a major repair after several tens of thousands of kilometers on a car.

A financial plan provides for the possible occurrence of these costs right from the start and has included an individually defined amount as a reserve for this. Or if the costs are higher, the financing of the measure is included.

If unforeseen costs arise, thanks to your financial plan you have quick and precise information about the amount and type of costs that can be financed.

What to do for financial planning: Keep a budget

So that financial planning in the private sector can be carried out successfully, it is advisable to keep a budget. Since there are very often low expenses, especially in the domestic area, they are not consciously perceived as an expense. A budget gives you clarity here. In addition, you become much more aware of the expenses that affect the budget and the management of the budget gives you the opportunity to restructure and optimize your budget.

How does a financial plan work?

The principle of a financial plan is simple and effective. A financial plan is based on existing empirical values ​​and the actual values. In addition, a forward-looking cost requirement planning is included in the planning. Furthermore, any financial expectations can be included with reservations.

With the help of this clear list, it will be easier for you to make financial decisions about expenses and investments. The following steps should offer you support in drawing up your personal financial plan:

Step 1: plan the budget in the budget

You surely know the situation: you just had 50 € in your wallet and the next time you look, there is almost nothing left of that 50 €. And yet you “didn't buy anything”. The money just goes there. Many of us feel like this or similar.

Often we spend money on a lot of small things and we are not even aware of what this adds up to. In doing so, we quickly lose track of what things we are spending money on. Often it is unnecessary little things that reduce the total available budget immensely.

So that you have your expenses and finances under control, it is important to know where every euro goes. This way you avoid undiscovered financial gaps and unnecessary expenses.
A budget plan is necessary for detailed planning. This is the only way to get an overview of your income and expenses.

When running the budget, it is not absolutely necessary to list everything down to the individual cent. You can round something up or down. It is crucially important to realistically record all of your costs in order to create the basis for further optimal planning.

Depending on what is best for you personally, you can use different aids, digital or traditionally using a household book. It should be easy for you to integrate into your daily routine and the time required to manage the budget should be limited so that you can and will manage it in the long term.

With the help of the budget, you will reconsider your behavior and determine what you are unnecessarily spending money on and what you can or would like to do without in the future. And it's worth it for you, because you can now invest this sum elsewhere in things that make more sense for you. Thus it helps you to be able to realize your individual wishes, goals and needs more easily.

Step 2: Acquire overnight money reserve

Despite all the good planning, it can happen from time to time that you need money at short notice. Well-known examples are the broken car or a defective household appliance. In order to be able to cope with such unforeseen expenses quickly and easily, a financial reserve is necessary.

When investing an emergency reserve, there is little point in investing the money over the long term, as these types of expenses are usually unpredictable. The reserve must be readily available quickly and at short notice. A classic call money account offers you uncomplicated room for maneuver, as your reserves are immediately available in full.

The amount of your personal reserves depends on your individual life situation. As a guideline, a level of around 3 to 6 months' salary is a good guide.

Singles in a small rented apartment need less high reserves for the unforeseen than a family with their own house and garden. It is advisable to regularly check the amount of your emergency reserve and, if necessary, to adjust it to changed life situations.

It is also important to consider your planned future investments. An investment in equity funds or securities on the stock exchange is ideally not tied to certain scheduled expenses, as this form of investment is subject to financial fluctuations again and again.

If you have current loans to repay, the repayment of these should also take priority over the creation of an emergency reserve.

Step 3: plan financial needs

In order to have a good financial basis for your personal wishes and goals in the future, you should include them in your planning. The sooner the better. Life always surprises with changes and you should be prepared for them.

In addition, you can achieve various goals much more easily with a corresponding financial background. And to build that background, you often need some long-term planning.