Educational Content Only — Not Financial Advice.
Information provided is general and for educational purposes only. Markets, products, and regulations vary by country and may change over time. Always do your own research and consult a licensed professional before making any investment decisions.
Introduction: Why Plan Before You Invest?
In a world where inflation is accelerating and investing is a hot topic, many people fall into the trap of investing randomly without a clear personal investment plan. Investing without prior planning is like traveling without a map—you may reach a destination, but it’s likely not the one you intended.
Successful investing isn’t just about buying stocks or funds. It’s a deliberate process that starts with understanding your current financial situation and defining your future goals. According to Thameen, the success of any investment depends on three pillars: when to invest, where to invest, and how to invest.
Steps to Build a Solid Personal Investment Plan
Step 1: Analyze Your Income and Current Financial Position
Before you begin your investment journey, you need a precise starting point. This analysis includes several key aspects:
Calculate your net worth: Add up your total assets (bank accounts, real estate, cars) and subtract total liabilities (loans, credit cards, other debts). The result is your current net worth.
Track income and expenses: Monitor your monthly income from all sources for at least three months. At the same time, record all monthly expenses categorized by housing, food, transportation, and entertainment. This tracking reveals your true spending patterns.
Identify your cash surplus: The surplus is what remains after covering all essential expenses. That amount is what you can safely direct into investing.
Step 2: Define Clear Financial Goals
Goal setting is not just listing what you want; it’s a methodical process. As Thameen notes, goals should align with the SMART framework:
- Specific: Instead of “I want to save for retirement,” write “I want to save 1,000,000 SAR for retirement.”
- Measurable: Specify the exact amount in SAR.
- Achievable: Ensure the goal is realistic based on your income.
- Relevant: The goal must matter to you personally.
- Time-bound: Set a specific target date.
Classify goals by time horizon:
- Short term (1–3 years): Emergency fund, car purchase, home renovation
- Medium term (3–7 years): Down payment on a home, children’s education, starting a business
- Long term (7+ years): Retirement, financial independence
Step 3: Choose the Right Investment Time Horizon
Time horizon is the most important factor in determining suitable investments. The longer the horizon, the more market fluctuations you can handle—and the better your potential returns.
Short term (under 3 years): Focus on lower-risk options like bank deposits or money market funds.
Medium term (3–7 years): Consider a mix of stocks and bonds or balanced funds.
Long term (7+ years): You can allocate more to equities to target higher growth.
Step 4: Assess Risk and Your Ability to Bear It
Risk is assessed on two levels (per Thameen):
Risk appetite: Your psychological willingness to accept losses—shaped by experience, beliefs, and temperament.
Risk capacity: Your objective ability to withstand losses without harming your lifestyle—dependent on income and financial obligations.
Main investment risks:
- Market risk: Volatility driven by economic or political factors
- Inflation risk: Reduced purchasing power of returns
- Liquidity risk: Difficulty converting an investment to cash quickly
- Concentration risk: Putting all your money into a single investment
- Default risk: The issuer’s inability to meet obligations
Step 5: Select Suitable Investment Vehicles
Based on your goals and risk profile, choose instruments carefully. According to the First Bank guide, here are beginner-friendly options:
Stocks: Ownership in a company—split into growth stocks (long-term growth) and dividend stocks (regular income).
Mutual funds: Professionally managed portfolios offering diversification and expert oversight.
Exchange-traded funds (ETFs): Track a market index with lower fees and broad diversification.
Real-World Examples of Investment Plans
Plan with a Monthly Income of 3,000 SAR
Example: Salem, 28, government employee, single, earns 3,000 SAR/month.
Financial analysis:
- Monthly income: 3,000 SAR
- Essential expenses: 2,000 SAR (67%)
- Surplus available for investing: 1,000 SAR (33%)
Investment plan:
- Emergency fund: 500 SAR/month for 12 months (total 6,000 SAR)
- Monthly investing: 500 SAR split as:
- 300 SAR in a balanced mutual fund
- 200 SAR in a Saudi market index fund
Goals:
- Short term: 6,000 SAR emergency fund within 12 months
- Medium term: 30,000 SAR down payment for an apartment in 5 years
- Long term: 500,000 SAR retirement portfolio in 25 years
Plan with a Monthly Income of 5,000 SAR
Example: Fatimah, 32, accountant, married, earns 5,000 SAR/month.
Financial analysis:
- Monthly income: 5,000 SAR
- Essential expenses: 3,000 SAR (60%)
- Surplus available for investing: 2,000 SAR (40%)
Investment plan:
- Emergency fund: 800 SAR/month for 15 months (total 12,000 SAR)
- Monthly investing: 1,200 SAR split as:
- 600 SAR in local equity funds
- 400 SAR in global equity funds
- 200 SAR in fixed-income funds
Goals:
- Short term: 12,000 SAR emergency fund within 15 months
- Medium term: 100,000 SAR for children’s education within 10 years
- Long term: 800,000 SAR retirement portfolio within 23 years
Plan with a Monthly Income of 10,000 SAR
Example: Ahmed, 35, sales manager, married with two children, earns 10,000 SAR/month.
Financial analysis:
- Monthly income: 10,000 SAR
- Essential expenses: 6,000 SAR (60%)
- Surplus available for investing: 4,000 SAR (40%)
Investment plan:
- Emergency fund: 1,500 SAR/month for 20 months (total 30,000 SAR)
- Monthly investing: 2,500 SAR split as:
- 1,000 SAR in local equity funds
- 800 SAR in global equity funds
- 400 SAR in fixed-income funds
- 300 SAR in REITs
Goals:
- Short term: 30,000 SAR emergency fund within 20 months
- Medium term: 200,000 SAR for a home purchase within 7 years
- Long term: 1,500,000 SAR retirement portfolio within 20 years
How to Measure and Adjust Your Plan
Key Performance Indicators (KPIs)
To evaluate the success of your personal investment plan, track specific indicators. As FasterCapital highlights, the main KPIs include:
Return on Investment (ROI): Net profit divided by initial cost. For example, if you invest 10,000 SAR and earn 1,500 SAR, ROI is 15%.
Benchmark comparison: Compare your portfolio’s performance to relevant market indices (e.g., the Saudi market index or similar fund benchmarks).
Goal tracking: Review your progress monthly to ensure you’re on schedule.
Review and Adjustment Schedule
Monthly: Track investment performance and any changes in income or expenses. Quarterly: Evaluate total portfolio performance against time-based goals. Annually: Conduct a full review:
- Update financial goals
- Reassess risk tolerance
- Rebalance asset allocation if needed
- Revise the plan based on life changes
Signals That Your Plan Needs Adjusting
- A major change in income (±20% or more)
- Life events (marriage, divorce, childbirth)
- Changes in your financial goals
- Shift in risk tolerance
- New opportunities or deteriorating economic conditions
Frequently Asked Questions (FAQ)
How much of my salary should I save for investing?
A common rule is to save 20% of your monthly income—10% toward investing and 10% toward your emergency fund. Adjust based on your personal situation.
Should I pay off all my debts before investing?
Yes—pay high-interest debt first (like credit cards). Interest costs often exceed expected investment returns.
What’s the best age to start investing?
The sooner the better. Even small amounts benefit from the power of compound growth over time.
How do I avoid losing my entire investment?
Diversify—don’t put all your money into one asset. Invest only in instruments you understand, and avoid using funds needed in the short term.
When should I change my investment plan?
When your personal or financial circumstances change significantly, when your goals change, or when results consistently fall short over a long period.
Conclusion: Begin Your Journey to Financial Independence
Building a personal investment plan isn’t just technical—it’s a personal journey toward stability and independence. The first step is the hardest, but once you start and stay disciplined, it gets easier over time.
You don’t need to be a financial expert—just patient, consistent, and willing to learn. Start small, increase your contributions as your income and knowledge grow, and let time do its work.
Your financial future is in your hands, and your plan is the map. Start now, stick to it, and you’ll see results gradually.