How to make a personal financial plan?

Each of us wishes for ourselves and our loved ones prosperity and well-being. Money helps us gain freedom of choice, gives us the opportunity to do what we love, no matter how profitable it is in terms of income, or makes it possible to fulfill our cherished desires and satisfy our urgent needs. But how do you achieve financial independence? How to effectively manage personal finances? Start by making a personal financial plan.

A personal financial plan is a document that reflects the current state of your affairs, your personal financial goals, as well as a realistic plan for achieving them, that is, saving and investing funds. “This is, first of all, a document," says Vladimir Savenok, director of the Personal Capital consulting group. – It must be transferred to paper. If a personal financial plan exists only in your head, then it will not be implemented. The average period for which a personal financial plan is drawn up is 10 years.

1 Formulate personal financial goals

The first and most important, which is the basis of a personal financial plan, is your desires and aspirations. "What do you want?" – This is a very simple question, but, oddly enough, it is very difficult to answer it. Because “I want to achieve financial freedom” and “I want to be rich” are the wrong answers. They are not specific, and answering this way, you run the risk of being in the same place in 10 years, where you are now. “Imagine the following scene. At the traffic police checkpoint, a police officer stops the car and, checking the documents, asks the driver: “Where are you going?”, – says the creator of the Dostatok.ru project Vladimir Avdenin. – And the driver answers him: "I'm going wherever my eyes look." It seems incredible, but a similar situation can be observed in life every day. Every day people earn and spend money, that is, they are in continuous financial movement. But ask any person what financial goal in life he is striving for, and he is unlikely to be able to give you a clear answer. Most people move in a circle "earned – by the end of the month spent everything that I earned." That is, at the end of each month, a person is in the same place where he was. Imagine that you drove about 100 km along the Moscow Ring Road, spent time and burned gasoline, but at the end of the trip ended up in the same place where you started from. What is the point of such a trip?

“Compiling a financial plan begins with understanding the needs of each specific client,” says Mikhail Levin, investment consultant at AllianzRosno Asset Management.. – For example, someone wants to retire at 40 and go to live in a house in the village, and someone wants to have a fortune of $ 1 million and a decent pension by the age of 50, a package of securities, reliable investments in real estate, an account in a reliable bank for current expenses, etc. Everything is very individual, so an investment consultant, firstly, must know and understand your financial condition, your income and expenses, the state of your business, the composition of your family, etc. For example, someone is quite satisfied with his life, receives a good salary and bonus, has a good business, but never thought about educating his children. After all, the time will come and you will have to pay for both the services of tutors and tuition at the university, and this is currently several tens of thousands of dollars, and prices are only rising. After 10 years, this is a significant amount if paid at a time, and with a competent approach to drawing up a financial plan, in 10 years you can get quite a decent passive income, i.e. income that does not require additional efforts from the client. How? This question must be answered by a competent investment consultant.” “Most people cannot formulate what they want in the future,” says Vladimir Savenok, “that's why we ask leading questions and help set priorities. For example, it might look like this: in ten years I want to retire, in three years I want to change a car, in five years I want to buy a house, in seven years I want to pay for my child's education. It is necessary that a person knows the terms and amounts, understands how much it costs what he wants. income that does not require additional efforts from the client. How? This question must be answered by a competent investment consultant.” “Most people cannot formulate what they want in the future,” says Vladimir Savenok, “that's why we ask leading questions and help set priorities. For example, it might look like this: in ten years I want to retire, in three years I want to change a car, in five years I want to buy a house, in seven years I want to pay for my child's education. It is necessary that a person knows the terms and amounts, understands how much it costs what he wants. income that does not require additional efforts from the client. How? This question must be answered by a competent investment consultant.” “Most people cannot formulate what they want in the future,” says Vladimir Savenok, “that's why we ask leading questions and help set priorities. For example, it might look like this: in ten years I want to retire, in three years I want to change a car, in five years I want to buy a house, in seven years I want to pay for my child's education. It is necessary that a person knows the terms and amounts, understands how much it costs what he wants. it might look like this: in ten years I want to retire, in three years I want to change a car, in five years I want to buy a house, in seven years I want to pay for my child's education. It is necessary that a person knows the terms and amounts, understands how much it costs what he wants. it might look like this: in ten years I want to retire, in three years I want to change a car, in five years I want to buy a house, in seven years I want to pay for my child's education. It is necessary that a person knows the terms and amounts, understands how much it costs what he wants.

Before you make your own financial plan, you must give clear answers to the following questions:

• At what age do you plan to leave work?
• What monthly payments would you like to have?
• What tasks would you like to solve in the next 10-20 years?

2 Analyze your current financial situation

So, desires are formulated, financial goals are outlined. Now it is important to correctly assess the current state of your financial affairs. Planning begins with an analysis of what you have today. The procedure is in many ways similar to setting up accounting in a small company. This is an analysis of your assets / liabilities, income / expenses. Unfortunately, difficulties often arise at this stage of drawing up a personal financial plan. Not everyone can name the exact amount for each item of expenditure. How much are your monthly transport costs? How much do you spend on groceries? Based on their own practice, financial consultants note that often people spend as much as they earn. And among their clients such people are in the majority. “Among my clients, most of all are people with an average income level, those who have good earnings, but do not have significant savings, – says Vladimir Savenok. – Such people most often do not know what to do with free money, they do not trust either banks or companies. Therefore, they often simply spend free funds. Those who have expenses equal to income are the majority. And sometimes expenses exceed income, that is, people take loans.”

Special tables of expenses help to clarify the situation, including, among others, such items as lunches at work, entertainment, hobbies, medicines, etc. Expenses can also include, for example, interest payments on loans. And in the course of filling in the tables, it is not uncommon for people to find that some items of expenditure actually turn out to be several times more than they imagined.

Estimated assets are divided into income-generating (bank accounts, rental real estate, securities, shares of mutual funds, business, etc.) and non-income-producing (apartment, car, etc.). However, as practice shows, it also happens that people cannot correctly evaluate their own assets the first time. “I had a client who forgot that she had two garages in another city,” says Vladimir Savenok. – In one of them was a car that no one used. That is, in this case, it was money that lay and gradually decreased. When evaluating assets, we ask clients if they really need this garage or this lot. Sometimes it is more expedient to sell an asset and invest the released funds elsewhere, where they will give a certain income.”

Work on creating a personal financial plan begins with an analysis of the current situation. Record the following information in your plan:

• The amount of monthly income (indicate the source and date of receipt of funds);
• Amount of monthly expenses (indicate items of expenses);
• Income-generating assets;
• Assets that do not generate income;
• Liabilities;
• Assess how well you are using your capital and make adjustments as needed.

3 Take care of protection

None of us knows what tomorrow holds. Therefore, financial consultants recommend that before you start saving and multiplying, insure yourself and your loved ones against possible risks. The first prerequisite is insurance. “Imagine a situation where a person became disabled due to a tragic accident,” says Vladimir Avdenin. – He lost his ability to work, he needs money for life, but he cannot earn it. He sinks to the level of poverty. In order to prevent this from happening, insurance is bought, and if such an event happens, the insurance company pays out a very solid compensation, which can either be put in the bank to live on interest, or buy several apartments that will provide an income.

The second precondition is the creation of a cash reserve sufficient for 3-6 months of comfortable existence of the family. It is necessary in order to avoid a liquidity crisis and feel confident in any life situation. Such, for example, as the loss of a job or the need to urgently leave it in order to care for a close relative. “If such an unpleasant situation arises, and the investor does not have such a cash reserve,” says Vladimir Avdenin, “this may lead to the fact that he will have to urgently sell his existing assets, although the market may not be at all favorable for this. In this case, he will simply lose money.

The third precondition is the launch of our own pension program. Because everyone will inevitably have to solve this problem for themselves. But the later you take care of solving the problem, the more difficult it will be to implement your plan. Non-state pension funds are not the most convenient tool now, since contributions are taxed twice due to imperfect legislation. At the same time, this is not the only possible way to solve the problem – you can save for retirement in a bank account or use the possibilities of accumulative insurance.

Before you invest, there are three prerequisites:

• Insure life and work capacity;
• Create a cash reserve sufficient for a comfortable existence for 3-6 months;
• Start your own retirement program.

4 Decide how much you are willing to allocate to invest

Vladimir Avdenin claims that each of us is a potential millionaire, and each day lost for investing costs us $200 (calculations can be found on his resource Dostatok.ru). But where to start if expenses are equal to income and there is no free money? Where to get funds for investment?

Vladimir Savenok said that in his practice there was a case when a client whose income was 10 thousand per month not only did not have free funds, but was also bound by loan obligations. “Someone finds it easier to reduce certain items of expenditure if the completed table shows that they are unreasonably large,” says Savenok. – And someone is not ready to adjust their expenses, but can determine the amount that he will monthly allocate for investment. For example, he does not want to delve into the details of which of the items of expenditure to cut, the cost of using a mobile phone or the cost of a car, but he is ready to allocate $1,000.” His colleague, Vladimir Avdenin, suggests following the “pay yourself first” rule: “Many people make the following mistake – they pay all current expenses first, and what remains by the end of the month, and this, as a rule, very little, trying to save for the future and invest. The “pay yourself first” rule implies that part of the money for investments is allocated immediately after income is received and before expenses are paid. You can determine that you will always allocate a certain part (for example, 10%) of any income for investment.

• Analyze your current financial situation and determine how much you are willing to allocate for investment;
• Use the “pay yourself first” rule;
• Make it a rule to allocate 10% of any income received for investment.

5 Define strategy and select tools

The initial accumulation of capital begins with the bank. The choice of a deposit is determined by two main criteria – attractive conditions and reliability. But with what amount can you start investing? “$200-300 is probably the minimum amount you can invest with. – Funds can be invested in mutual funds. But the effect of such investments in comparison, for example, with a bank deposit, will be practically not noticeable. The economic gain will be negligible.” 

When the initial amount is collected, you can distribute it to other instruments. “For those who want to save money and cover inflation, we offer foreign instruments,” says Vladimir Savenok. – If we talk about recently, then there are not so many tools. These are primarily banks and mutual funds. For those who want to work with stocks, we help to open an account with a broker, but we do not give recommendations ourselves. We do not consider Forex as an investment tool. It is almost impossible to guess the exchange rate, it is like playing in a casino. Personally, I do not know successful players, and there are too many negative examples when people lost their capital. In fact, those who bring new customers earn on Forex.

“Depending on where you turned for advice,” says Vladimir Melnikov, “you may be offered different tools. If you have applied to a bank or other financial institution, you will most likely be offered mutual funds or OFBUs. Or individual trust management in the stock market. Some organizations may offer options for investing in real estate through their own closed mutual funds.

It should be emphasized that the choice of tools is largely due to your personal preferences. One of the important questions you should ask yourself when putting together a financial plan is are you willing to take the risk? And if so, to what extent?

“There are three strategies,” says Vladimir Savenok, “conservative, moderate and aggressive. The conservative one provides for work with banks, foreign investments. Moderate – work with banks and mutual funds, which demonstrate low, but stable returns. An aggressive strategy involves working with hedge funds, investing in stocks.” “The choice of strategy always depends on the client,” says Mikhail Levin. – Some prefer riskier strategies and are willing to invest most of their wealth in risky instruments such as stocks. History shows that over a long period of time (5-10) years, such investments justify themselves, since historically investments in shares are more profitable than bank deposits. Other clients, on the contrary, prefer investments in the most reliable instruments: bank deposits, bonds, conservative real estate mutual funds. It is important for them to preserve capital, to protect it from inflation. I can say that an experienced investment consultant can help a client understand whether he is an aggressive or conservative investor and, based on this, form an investment strategy and an individual financial plan.”

When drawing up a plan and choosing tools, it is also necessary to take into account the risks from which no one is immune. Even those who choose a conservative strategy. “As a rule, our clients are ready to keep less than 50% of their funds in USD,” says Vladimir Savenok, “If we talk about currency, we look at world inflation rates. If the US dollar inflation is 3%, then we take this figure into account in our calculations.” “When drawing up a plan, it is necessary to take into account political or country risks,” says Vladimir Melnikov, “the risk of changes in interest rates, currency risk and other fundamental, ordinary economic risks.” But, unfortunately, it is impossible to foresee everything. “We can only take into account what we know today,” says Vladimir Avdenin, “Nobody knows the future.”

Thus, taking into account the wishes, the available starting conditions and the willingness to take risks, possible options for achieving the goals are calculated. However, without being a professional in the financial field, it is problematic to draw up a competent and realistic financial plan. But to find those who can help with this, it turned out, alas, not easy.

• Determine the amount that will be your "starting capital";
• Choose a bank for the accumulation of "seed capital", based on the criteria of reliability and attractive conditions;
• If you are not ready to take risks, a conservative strategy is preferable for you, and you can use bank deposits, bonds and foreign investments as instruments;
• If you are willing to take risks, use hedge funds as instruments and invest in stocks;
• If you choose a moderate strategy, the best instruments for you are bank deposits and mutual funds;
• When calculating financial results, take into account possible economic risks.

Where do you go if you can't make a plan on your own?

Unfortunately, it is not always possible to develop a personal financial plan on your own. Turning to specialists has its pros and cons, which are better to know in advance. “Firstly, a financial plan should be drawn up by a professional who can take into account all the nuances, who has more than one year of work in financial organizations behind him,” says Mikhail Levin. – Secondly, in order to follow the financial plan, you need to have good internal discipline and organization. Imagine, now the client is 30 years old, he is a middle manager in one of the many companies, he makes good money, but for some reason there is always no money, but the goal appears: by the age of 50, earn $1 million and quietly retire and enjoy life. To achieve this goal, you need to observe discipline, make periodic payments to the bank, management company, NPF.

There are specialists who specialize in personal finance, make personal financial plans and work with clients with different levels of income, but they are very few. We managed to find only two – Vladimir Savenok and Vladimir Avdenin. The company FCP – Financial Management was also mentioned .

If we talk about financial institutions, then advice can also be obtained from banks, investment, management and insurance companies. But you need to be aware that in this case they will be able to advise you only on the services provided by the financial institution you applied to.

In addition, you can count on individual personal finance management services, on private banking, if you have an amount of $100,000 or more, and in some companies you will be provided with similar services if you are the owner of a capital of $500,000. it is not profitable to work with clients with smaller amounts, because there is nothing to plan there. The effect will be negligible, the client will not feel it,” says Vladimir Melnikov. Mikhail Levin disagrees with this point of view: “Since we are talking about financial planning, it is mostly cash flow management. If a client is seriously interested in creating a personal investment plan and has $20,000 today, this does not mean that you should not work with such clients. With the right approach to creating a plan,

If you nevertheless decide to turn to financial consultants when developing a personal financial plan, the cost of the service will be $300-600. “It all depends on the complexity of the work,” says Vladimir Savenok. – Practice shows that it usually takes 8-12 hours to develop a plan. An hour of consultant's work costs $50. On average, creating a personal financial plan, recommendations and launch costs our clients $500.” Vladimir Avdenin says the development of the plan costs about $300. Vladimir Melnikov says that you can get advice from financial institutions, and in this case we will talk about hourly payment: “Prices will be comparable to the cost of services of lawyers and tax consultants. It all depends on who exactly will advise you. If it is a senior partner, then an hour of work can cost $200. Consultations for a junior employee can cost $30-50 per hour. And, of course, the final price will depend on how complex and confusing the person's situation is."

We have to admit that the choice of those who want to resort to the help of specialists in financial matters is not great. Financial consultants themselves note that interest in their services is gradually growing. While experts in the field of private banking note that they have few clients. But despite this, financiers look at business consultants with skepticism. “We still do not have such a high level, on the one hand, of financial literacy and, on the other hand, of trust,” believes Vladimir Melnikov. -Working with a consultant, the client must reveal his ins and outs, disclose information about the most intimate – about money, about sources of income, about expenses. There is a very high reputational risk.” “It can be said that in the current market there is practically no such service as personal financial consulting for individuals,” says Mikhail Levin, – since this service, firstly, is not yet in great demand, many simply do not understand the importance of financial planning. And secondly, we can state the fact that recently there are few professionals who can draw up a good long-term financial plan.”

Financial consultants themselves speak of the market with great optimism, but do not deny the existence of problems. “The mentality of a modern current person does not have to think about his financial future, which will come in 10-20-30 years,” says Vladimir Avdenin. – This is understandable, because in the recent past we experienced political and financial upheavals. When a person has a certain amount of money in his hands, he seeks to spend it faster, because it is better than if tomorrow they are destroyed due to another cataclysm. But life is gradually changing for the better. Previously, people did not have much choice, but now there is a moment when many begin to think about what the future holds for them. People's interest in financial services is growing. Of course, we would like to have more clients. But there are already positive dynamics, the number of people who want to put their personal finances in order is noticeably increasing.” “In the West, financial consulting services are more developed,” says Vladimir Savenok. – There are special educational institutions where specialists are trained and certified. Financial consultants help clients of various levels to plan the budget, plan investments. And we have this niche is not yet occupied. People with average incomes, with proper planning, quickly create capital. And if this capital was created with your participation, then it is highly likely that the client will continue to use your advice.” – says Vladimir Savenok. – There are special educational institutions where specialists are trained and certified. Financial consultants help clients of various levels to plan the budget, plan investments. And we have this niche is not yet occupied. People with average incomes, with proper planning, quickly create capital. And if this capital was created with your participation, then it is highly likely that the client will continue to use your advice.” – says Vladimir Savenok. – There are special educational institutions where specialists are trained and certified. Financial consultants help clients of various levels to plan the budget, plan investments. And we have this niche is not yet occupied. People with average incomes, with proper planning, quickly create capital. And if this capital was created with your participation, then it is highly likely that the client will continue to use your advice.”

Here you should make a small digression and talk about exactly what financial consultants make money on. First of all, this is the development of a personal financial plan and additional counseling. However, in addition to this, they receive a commission from their partners – the financial institutions to which they refer their clients. “Independence of a consultant is a tricky question,” says Vladimir Melnikov. – I don't want to say anything bad about financial consultants, but it turns out that even if they are independent, they still promote someone’s products, that is, to some extent they play the role of sales agents. Sophisticated clients understand this and therefore ask the question: “If consultants receive a commission, then why should we pay for a consultation?”

“Undoubtedly, it is more profitable for us to send clients to our partners,” answers Vladimir Savenok. – But it's a matter of how much you value your reputation and your customers. There are many proposals, and the consultant's task is to choose such a partner for himself, so that later he would not be ashamed. This is painstaking work, because you can only offer the client what you are really sure of. “Perhaps, among financial consultants there are people who are not entirely honest,” says Vladimir Avdenin. – Probably, each of us should be a little bit of a psychologist and look with whom he is dealing, whether this person can be trusted. Unfortunately, there is no way to be 100% risk-free. But you can always ask a financial advisor for advice. If he does his job well, there will be people who are satisfied with his work and are ready to talk about it.

Financial consultants cannot yet boast examples of successfully implemented personal financial plans, either for clients or for themselves. The reason is that most of them were compiled 1-2 years ago, this is too short a period. Time is of the essence in this business.

Should I make a long-term plan, not living in the most stable country? Perhaps in some of the undertakings you will fail, but hardly in all. Perhaps your plans will not be fully realized. But if you do not have a goal, there will hardly be a result.