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A personal financial plan is your path to prosperity. How to compose and implement.


“Planning is boring, but as Warren Buffett says, today someone is resting in the shade of a sprawling tree because someone else did the boring job many decades ago, planted a seedling and cared for it." Warren Buffett

Why make a personal financial plan.

Financial planning is the process of defining, planning, achieving and redefining your life goals through the proper management of your finances.

Why make a plan on paper, because everyone has their own ready-made and always working plan in their head?

But in practice, the majority prefers to live here and now, not thinking about the future, because “we live once”. As a result, we make chaotic purchases and then go into austerity mode. Moreover, the category of impulsive purchases includes not only clothes and other luxury items, but also apartments and cars.

When I start telling people about financial planning, all the comments come down to one thing: trying to plan your life in our country is hopeless. The basic request I get is somewhat reminiscent of going to traumatology after a broken arm: “Just tell me what to do. Should I buy dollars or euros??))”

The point of financial planning is not to create a false sense of certainty that someone knows what will happen in thirty or forty years. Life circumstances and plans change. We all remember the words of John Lennon that life is what happens to us while we are making plans.

Financial planning is an important life skill that helps you plan for your future and better control your financial goals. Nowadays, it is important not only how much you earn, but also how competently you manage this income.

Sounds difficult? But it’s not! By following the steps in this article, you can create a basic financial plan yourself.

Key steps in creating a personal financial plan

Step 1 Assess your current financial situation

The first step – assessing the current financial situation is very important. By understanding where you are now, you can make a plan to move towards your goal.

It is necessary to clearly define your current positions – to take a sober look at the current financial situation. It is important to control here so that the “avoidance mode” does not turn on, when you try not to notice financial holes, so as not to admit your mistakes. It could be utility bills that have not been paid for a long time or a purchase that is too expensive for you to maintain. Be honest with yourself, probably, here the help of a financial psychologist will be needed by many.

First, determine what you own and how much you owe (assets/liabilities). Just take a blank sheet of paper, cut it in half. On the left side, write all your assets (bank accounts, real estate), defining a valuation for each item, on the right – all your liabilities (credits, loans, debts).

A personal financial plan is your path to prosperity. How to compose and implement.

Secondly, analyze monthly financial receipts and expenses, identify possible growth points. If it is difficult to do this right away, then try to keep a budget of income and expenses for several months. After a few months, you will definitely understand if you need to change something in your financial behavior.


When budgeting for a month, stick to the 50/30/20 principle: send 50% of the amount you spend on necessary expenses (rent or mortgage, transport, groceries, utilities, etc.), 30% on entertainment: (shopping, restaurants, personal care and more), 20% should go to savings or paying off debts, if any.

Step 2 Define your financial goals

Based on a proper understanding of your financial situation, you will be able to determine your short, medium and long term financial goals.

You need to go through a three-step process of financially evaluating your goals.

  • What is your goal?
  • When do you want to implement it?
  • How much is it

Just a goal in the spirit of “I want a house by the sea” does not work.


The main rule of wealth is very simple: earn more than you spend, and invest the rest.

Investment – ​​the sooner the better!

The magic of compound interest

The sooner you start saving and investing, the more you will experience compound interest.
The magic of compound interest is this: the longer the term of investment of your funds and the more stable you replenish your account, the more impressively your funds grow. The interest you earn increases at a staggering rate every year.
If just 120 c.u. put aside in the piggy bank every day for 17 years, then you will accumulate 734 thousand USD, you will agree that this is 1 million conventional units less than investing. We have calculated the price of a smart investment – this is +1 million USD. But an even more impressive result awaits you if you plan to retire in 35 years and decide to save 120 "coffee conventional units" per day. In this case, your pension account will have8.5 million c.u.

Agree that few of the current pensioners would refuse 8.5 million USD. On account.
Now, drinking a cup of coffee, you know its price – 1,700,000 conventional units for 17 years or 8,500,000 conventional units for retirement)))

Just try to understand that you have the ability to set aside 120 conventional units daily and place them wisely, then you are already a millionaire.

Step 3 Develop a basic personal financial plan

The basic financial plan must be developed in the following areas:

Expenses for financial purposes include life events such as further education, marriage, buying property, having children, supporting parents, changing careers, starting a business, or retiring.

Insurance. Unexpected situations in life, such as accidents and illnesses, can drain your savings considerably. Having adequate insurance coverage for these cases should be a key component of your financial planning. At a minimum, consider critical accident and disability insurance. You should also consider setting up a reserve fund to cover three to six months of living expenses.

Succession planning. Preparing for the worst can be frustrating, but it’s an integral part of your long-term financial plan. In the event of a serious illness, disability or death, it is important that your finances are in order so that your family is better prepared to deal with life’s challenges and emergencies.

Retirement planning will help you determine how much money you will need after retirement and help you manage your finances to cover expenses in later years.

Credit planning. Personal loans and mortgages can help you reach your financial goals; but over-indebtedness can jeopardize your life plan. The main thing is to make sure you are in control of the credit and not the other way around.

Determine your risk appetite

Investing plays an important role in financial planning as it can help you reach your financial goals. If you just save money in a safe, then they only depreciate from inflation, you need to make an investment portfolio that is consistent in terms and amounts of investment with your goals

First you need to determine the acceptable level of risk for yourself when investing. Typically, the types of investors and the corresponding investment tools are divided into 3 categories: conservative, moderate and aggressive.

Choose an asset class and investment instruments

After determining your risk profile, you can start building an investment portfolio. Here, it is important to correctly distribute the shares between conservative and aggressive instruments. The longer you plan to invest, the greater the share you can invest in aggressive instruments. Therefore, you need to start investing at a young age, you can invest most of your savings in aggressive instruments.

Then proceed directly to financial calculations. It is not difficult to make the calculations themselves if the goals, initial data and the amount of regular investments are known. Here you will need basic knowledge of excel or google spreadsheets. I advise you to start with simple calculations without taking inflation into account to see if your goals are being realized in today’s conditions.

How to make a personal financial plan.

You can draw up a personal financial plan both on your own and by contacting professionals. Using spreadsheet tools, you will be able to make a long-term plan and analyze your current financial situation.

Why do I still recommend turning to professionals if you can make a financial plan yourself?

By making your plan on your own, you will be influenced by your own past experiences (good and bad). Therefore, often you simply simply do not see new and obvious solutions. To entrust the drawing up of a plan to another means to see your own financial situation from the outside, without prejudice. Believe me, clients almost always turn to me for a financial plan, they are surprised that they did not notice such simple solutions. And it’s not because I know more than you about investments and finances, it’s just that I’m not you.

Step 4 Stick to your plan

Many, having drawn up a personal financial plan, calm down on this, but it is important to start gradually implementing everything planned.

Only self-discipline and steady adherence to the plan, the key to success in achieving their financial goals. I have not seen those people who have achieved financial well-being without a clear plan of action, but there are enough of those who have not achieved anything, just because they could not get together in time and implement their plan.

Step 5 Return to the plan regularly

In a personal financial plan, it is impossible to take into account all the changing circumstances of life. Life is changing. There is no need to be afraid of this. It is important that the plan drawn up takes into account the current situation and takes into account future prospects.

It is necessary to return to the plan every six months, see what has changed, and make adjustments. The current plan will be necessary to start moving, to take the first steps.

To achieve your financial goals, it is recommended that you regularly review the performance of your portfolio and rebalance your investments if necessary. This can help you avoid keeping a portfolio that may be overly focused on certain asset classes.

Financial planning is a dynamic and continuous process. You must adjust your plan when there are significant changes in market conditions or when you enter a different life stage. You must make adjustments according to your resources, needs, and situations to ensure that your plan is in line with your financial goals.

Post source: zen.yandex.ru

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