Effective management of personal finances is not only an objective necessity for every modern person but also a very tangible economic benefit. Many people face a situation when their income has been steadily rising for a long time but still no savings seem to be built up.

To make the most of your income and savings, it is important to master a financial discipline. After all, a high level of financial literacy of citizens is beneficial to the economy. These include personal financial planning and raising the general culture of personal finance. Thus, what can each of us do to become more financially literate? 

An audit of personal finances is a perfect start  

Personal financial management is a process in which an individual achieves financial goals, and it is necessary to start with the audit of personal finances. To do this, answer the key question: "Where am I in my relationship with finances?". For convenience, we offer the following zoning system. For example, in the so-called "red zone" your expenses and debts exceed the income, in the "yellow zone" the expenses are equal to the incomes, and in the "green" and "blue" - the incomes are much higher than the expenses. We propose to consider each of the above zones in more detail. 

Alarm, your finances are in a "red zone"!  

If you constantly live on credit, use credit cards, and have a habit of encroaching upon the next month's budget, then watch out as you are in a ‘’red zone’’. This kind of behavior happens unconsciously, in the paradigm of the psychology of poverty. For many centuries our ancestors faced harsh financial difficulties, and thus the generational consciousness started to perceive money as a danger.  

So, how to get out of the ‘’red zone’’?  

· Analyse the costs and revenues of past periods, see the patterns and negative financial habits.  

· Recognize and accept this situation, clearly defining the amount of debt and repayment period, the real interest rate, the amount of the monthly payment. You need to form tactics of the debt payment.  

· Stop borrowing money and increasing debt. Consider options for restructuring or refinancing loans.  

· Develop the habit of keeping regular records of your expenses and income.  

· Deal with liabilities (expenditures) and assets (incomes). Think about how to reclassify your liabilities into assets.  

The main idea is to understand that nothing happens by chance, and you are able to change your situation by mastering new management habits of all the resources available to you.  

"Yellow zone": take the chance to exit from the debt matrix and play by the new rules  

Escaping from the “red” to the “yellow zone” is a good start, but you are still guzzling away your income. At this level, still, no money-saving skill is developed. And if there are savings, then you tend to spend them and start all over again. In fact, in the "yellow zone", your income is equal to your expenses. This behavior comes from the lack of a clear planning horizon and defined financial goals.  

What shall you do?  

· Introduce new rules to improve the balance of costs, analyse the share of costs.  

· Try to live from 1 week to 1 month at a minimum.  

· Work on increasing your income, think about the financial capacity of the profession/business that you can master.  

· Start saving at least 5% of your income per month.  

· Make a family budget, where expenses and income will be planned for the year ahead to form a financial cushion of 2 months of all family expenses.  

· Consider insurance as a way to reduce costs.  

· Think about your retirement plan and what will help to improve it.  

“Green zone” is a new approach to your financial relationships  

If your income exceeds expenses and there is an understanding of personal balance and a clear structure of income/expenses, then we can already talk about financial management.  

At this level there is the skill of accumulating money on a regular basis, the ability to benefit from credit as a tool, there are clear financial goals and a certain planning horizon. So, you can start thinking about a planned investment.  

Investing: where do we start?  

Firstly, we recommend you delve into the topic of your interest and get the grip of it, and only then decide would you like to invest in this area or not. Afterward, you will need investment capital that can be accumulated, earned (in a large payment 1-2 times), received as an inheritance/gift, etc. And then choose the necessary tool (independently, with a specialist, or in a group of like-minded people), based on opportunities, planning horizon, and goals. It is important to take responsibility for your choices and be prepared to take risks because there will always be doubts. The main benefit of investing is that you save a lot of time for yourself and your family, and your investment works for you. Finally, after taking the above steps, enjoy dividends, lose sometimes, but gain invaluable experience that will make you an even more experienced investor.  

"Blue zone" is the financial intelligence in action  

When your life goals, values, priorities, including financial ones, are defined, there is family capital, there are several sources of income and investment experience - congratulations, you are in the "blue zone"! At this level, your capital grows, but there is a question of increasing the number or quality of assets. You actively use the insurance tool in the best companies, your family can solve all health issues thanks to a financial cushion and income from various sources, so at this level, there is a balance of energy, attention, and money in your life, so you feel happier.  

As you can see, the life of your finances is impossible without purpose and planning. Below we summarize the key recommendations and steps that will help you determine the horizon of personal financial planning for a specific purpose:  

Goal setting. The basis of the plan is the redistribution of funds, subject to the logic of achieving a conscious goal. Goals are easy to set using SMART technology.  

Assessment of the current financial condition. We turn to the income and expenses, assets, and liabilities, as well as the market situation, to ultimately determine the achievability of the goal in the given conditions.  

Budgeting. To achieve this goal, your next step should be budgeting. Furthermore, by keeping a budget, you will avoid unplanned expenses.  

Financial reporting. Next, you need to control the movement of money and bring the balance sheet to assess the current financial situation at a certain date. And the analysis of the received financial report will help to understand, how realistic your financial plan is.  

Thus, careful planning and control over the implementation of goals will help you become a more disciplined, responsible, and focused person. And consciously changing the rules of your financial behavior will always contribute to the transition to a higher level of financial literacy and freedom.