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Personal financial plan


If you want to effectively manage your finances and regularly increase your income, make serious purchases and not save every cu later to pay off your debts, you need a personal financial plan (PFP). We tell you what this tool is and how successful people use it.

Personal financial plan

Concept of personal financial plan

Most often, financial problems arise from the inability to plan and control money, that is, when they appear, a person spends everything without a trace and again experiences a shortage of funds. Needless to say, in such a situation, he does not feel financially secure, since most often he does not have a financial cushion in case he suddenly loses his source of income or if he urgently needs money for treatment, for example.

A well- designed personal financial plan helps to solve such problems once and for all. In fact, it is a document that characterizes your current situation (expenses, income) and displays your financial goals, as well as the ways in which you want to achieve them.

We pay attention to important points.

  • This document is compiled individually. It is not recommended to take an example of a personal financial plan online or from friends and substitute your numbers into it, because everyone’s goals are different, as is the financial situation. However, you can spy on how the document is drawn up, be inspired by what other people are striving for.
  • The plan can be long-term (for several years or for life) or short-term (for a month, for a year). The main thing is to periodically review it and adjust it if the financial situation and goals change.
  • It is necessary to look into the plan before making any big purchase in order to understand how the upcoming spending will affect your financial situation, and once again answer the question of whether it is really necessary.

Finally, it is necessary to draw up a plan on paper, and not in your head, otherwise it will not be possible to implement it.

Personal financial plan

Tool Objectives

Understanding why you need a personal financial plan is easy if you draw it up at least once. The document helps:

  • Objectively assess your financial situation and understand what assets and liabilities you have, how effectively you manage them.
  • Understand whether you can achieve your goals with such initial data, and if not, what needs to be done to change the situation.
  • See the real cost-to-income ratio. Interestingly, in business, a project can be a failure, because the owner simply pays his bills, but does not calculate the percentage of expenses and receipts, does not track the dynamics. As a result, there seems to be income, but it is not enough to achieve some grandiose goals.
  • Set priorities and properly manage money. Thus, financial planning helps the owner of a company not only to maintain its smooth functioning, but also to develop, expand, and scale.
  • Gain confidence in the future. LFP helps to find money to form a financial cushion and, finally, to form it.
  • Realize everything you have planned. Often people believe that someday their life will change and they will become successful, wealthy, will have everything they wanted. But the problem is that if the difference between what you have now and what you want to achieve is enormous, dreams can remain dreams if you do not engage in financial planning.

Personal financial plan

How to make a personal financial plan

There are no standards for the development of LFP, however, when preparing a document, it is better to include several basic sections in it. These should be: income and expenses (it is better to single them out line by line), assets and liabilities, financial goals, calculations for the entire period, and finally, risk protection (how you can protect yourself in case of loss of work or health).

They give experts and practical recommendations on how to draw up a personal financial plan.

  1. Setting a Specific Financial Goal

The goal not only makes it possible to translate what was conceived into reality, but also motivates and helps to fulfill one of the main tasks of the plan – to improve one’s current situation. The goal can be a specific amount of savings, a serious purchase (real estate, a car), a planned large expenditure in the future (for a wedding, for studying abroad, for retirement, etc.).

The main thing is that the specific desired amount and the time period for which you want to achieve it are prescribed. Based on the timing later, it will be possible to make calculations and plan your steps.

2 Determination of current financial position

Here you need to paint your income and expenses by item, as well as analyze assets and liabilities.

An asset is something that brings income, an economic benefit, a liability is something that takes it away.

To understand how this looks in practice, see one of the examples of filling out a personal financial plan.

Please note that there are different approaches to the distribution of assets and liabilities in the table. So, some people think that owned real estate will be an asset if it rents out and brings you money, just like a car. Others are sure that you can classify an apartment as an asset just because you have this apartment and you can sell it at any time and get money.

3 Optimization of assets and liabilities

This is one of the most important steps in making a personal financial plan, especially for those whose average annual liability expenses exceed their asset income. To improve your situation, you need to think about how to balance the situation.


  • Selling or renting what you don’t need. For example, if the property has real estate, residential or non-residential, which does not bring money, but only takes away (to pay bills), or there is transport that is expensive to maintain, but is not used to make money, etc.
  • Increasing return on assets. In a rental apartment, you can make repairs in order to rent it out more expensive. The proceeds can be sent to a deposit, and this will also affect the value of assets.

Finally, the repayment of debt on loans to optimize liabilities, but more on that.

4 Covering debts

Every personal financial plan guide has a section on the importance of paying off debt. Debts are liabilities that you can’t save if you don’t pay them off.

The fastest thing to do is to seek to close debts to microfinance organizations, to a bank on a credit card (there, as a rule, the highest interest for using money and the largest overpayment). Thinking over an action plan, you can even consider the option of obtaining a consumer loan with an optimal interest rate in order to pay off existing debts. If you have a mortgage, you should try to pay it off ahead of schedule, reducing the loan term.

By the way, to help borrowers for such purposes, banks have developed effective tools:

  • Refinancing. This is a re-financing to cover debts. That is, the borrower is given a new loan so that he can pay off the old ones with this money.
  • Restructuring. Change in credit conditions. For example, banks can revise the interest rate, the loan repayment term, change the amount of the mandatory payment.

Regardless of which tool you choose, remember that you can’t get out of debt. The money still has to be paid.

Personal financial plan

5 Savings

If you don’t already have a financial cushion, it’s time to think about it. Ideally, its size should reach the amount of 6-9 average monthly salaries (as a rule, this period is enough to find a new source of income in case of loss of the old one or pay for treatment, if necessary). You can save in different ways: transfer the entire balance of income after paying all expenses to the reserve, or systematically transfer 10% of any cash receipts to your savings fund.

Important! To protect themselves from difficult situations, for example, the loss of the only breadwinner, some people insure health or life.

Personal financial plan

6 Determining the ways and methods of fulfilling the financial plan

This is the final stage of drawing up a personal financial plan. To implement it, you need to see where you are (what is your current financial condition) and where do you want to go (what is the goal and for how long). Based on this data, think about what you can do. Examples:

  • increase income per month by such and such an amount (find a part-time job, master a passive way of earning, save more for a deposit, invest, etc.).
  • reduce spending, especially if you buy luxury items or things you can do without;
  • optimize assets and liabilities, etc.

Personal financial plan

Tips for making a personal financial plan

To ensure that you achieve your desired financial goals, follow these simple guidelines and:

  • Write down the amounts that you can actually save for the selected period. Of course, they can be slightly overestimated, this will only awaken the excitement of looking for additional opportunities for earning. The main thing is not to overdo it. The more you tighten your belts and cut the amount of monthly spending on the necessary things, the faster you risk abandoning the venture.
  • Debts, if any, try to pay off ahead of schedule, allocating 20-30% of your income for this.
  • Use the “pay yourself first" rule and make paying for your “goal” a must.
  • Set aside at least 10% of your income to build an airbag.
  • Think about how to create passive income. It is desirable to gradually increase it.
  • Diversify your investments to protect yourself from inflation and minimize financial risks. So, you can keep money on deposit, as well as investing in stocks, bonds.

Personal financial plan

How and where to keep records

You can draw up your personal financial plan in tables in Microsoft Excel (there are samples online) or in a Google Docs text editor. To simplify calculations, you can use functions and formulas.

In addition, there are always services and applications for accounting for finances, which can also be used to maintain PFP. In extreme cases, you can enter the numbers in a notebook and then analyze.

Common Planning Mistakes

There are several reasons why people fail to use this tool effectively. Often this is due to:

  • Lack of discipline. Not everyone manages to regularly fill out the table, revise the numbers, stick to the plan.
  • Wrong choice of methods for performing LFP.
  • Neglect of the rules of its compilation.
  • Lack of motivating goals, incorrect goal setting. By the way, to avoid mistakes at this stage, use SMART technology (smart goal setting).

Personal financial plan


LFP is an effective tool for people who want to set goals and achieve them. However, it must be used correctly, that is, you need to know where to start drawing up a personal financial plan, and this is goal setting, what points to take into account (assets, liabilities, expenses, incomes). Finally, it is necessary to choose the right methods to achieve the goal, and then follow it without going astray.

Post source: zen.yandex.ru

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