It’s good to have simple rules and principles, but it’s worth noting that your personal circumstances will dictate how relevant they are.

Your earnings power will change over time – so don’t worry if you find it hard to save in the beginning, especially early in your career. Your ability to save will typically increase with time and peak just before retirement. And the basic rules of budgeting will not make sense in retirement, when you no longer make an income.

Similarly, your life stage has a significant impact on how you spend, save, and invest. For example, you’re more likely to save when you don’t have kids. When children come into the picture, your wealth might come under pressure: new expenses and financial goals will likely emerge, so it’s important to reassess your budget as things change.

Luke Hadzima, Head of Financial Planning at Citi Private Bank, recommends six key steps to build a good financial plan:

1. Set goals

Your first step is to figure out what you’re working towards. Goals should ideally be SMART: specific, measurable, attainable, relevant, and time-based. In retirement planning, for example, think about when you anticipate retiring and work out your target annual net income from there. Review your goals frequently: they’ll dictate how you manage your finances. 

2. Quantify your income and expenses

It’s budget time. Once you’ve set goals, your next step is to examine your income and your expenses. Is your income stream relatively predictable? If not, you might need more flexibility to trim your costs as needed. To keep your expenses on track, make sure to discern between your wants and your needs. Wants are discretionary costs – like dinner out, a new outfit, or the latest tech gadget. Needs, on the other hand, are fixed costs that are absolutely necessary – like food, rent, and utilities. Once you’ve figured out what your wants are, you might be able to reduce what you spend on them.

3. Minimize debt

There are two kinds of debt: good debt and bad debt. Good debt covers things like mortgages or student loans – these build value, may offer tax benefits, and typically have a lower interest rate. An unpaid credit card balance – as mentioned earlier – is an example of bad debt: it doesn’t add value and typically has a higher interest rate. Generally speaking, it’s better to take on debt to invest in things that may gain value over time, where the potential rate of appreciation is more than the cost of the debt.

4. Save and invest

Once you’ve decided how much of your income to save, you’ll need to think about how much to invest. It’s good to keep some cash on hand for emergencies, but you’ll probably want to invest the rest to help generate returns. Your ability to take on investing risk will be dependent on your life stage: the younger you are, the longer your investment outlook and the more risk you can afford. Make sure to align your investment objectives with your goals and invest in a tax-efficient way.

5. Use credit to your advantage

Whether to pay cash or credit is dependent on a number of things – like inflation, your interest rate, and the item you’re buying. While credit card debt is generally seen as "bad”, it can help build your credit score – so long as you manage it properly. And your credit score plays a key role in taking out future debt: a good score will help you to get loans and mortgages at competitive interest rates. You can improve this by paying your bills on time consistently and lowering your credit utilization.

6. Consider protection

The last part of a good financial plan is a contingency one. Insurance is important to help mitigate the effects of unforeseen circumstances. You should think about the different types of coverage: health, income replacement, home, auto, life, disability, long-term care, and more. It’s a good idea to take stock of your assets and know what qualifies as loan collateral, should any unforeseen liquidity needs arise. And don’t forget wealth planning: after building and protecting your wealth, you’ll need to figure out how to transition it. That means wills, trusts, and lasting power of attorneys, among other things.