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Personal Finance Planning: 11 Best Tips

Finance Planning

Finance Planning: If you managed to introduce tips on the competent management of your personal budget into your life and you are good at taking into account income / expenses, then it’s time to go further – to realize more “expensive” needs, and maybe even dreams. To do this, you will need to plan personal finances and draw up a Personal Financial Plan.

Contents

What is LFP

Personal Financial Plan (LFP) – a document that cannot be drawn up without knowing your balance sheet, budget and future plans. One of his main tasks is to answer the question “How much money do you need for happiness?”.

What do you usually do when money appears in your pocket? Spend everything without a trace right away? It is in such situations that awareness helps, which is exactly what personal finance planning gives. When you do not have a clear financial goal written on paper, you do not have a law by which your money should live. And they should serve you, protect you, and not leave you faster than the speed of light. Money under control, under control is another function of the Plan.

And finally, the risks. Tell me, do you now feel financially secure? What will you live on if you suddenly lose your source of income, or in the country there will be another economic upheaval, or your health will fail? Of course, I don’t want to think about it. But even an American entrepreneur, investor, millionaire Robert Kiyosaki in his book “Conspiracy of the rich” wrote: “Get ready for bad times and you will only experience good ones.” In other words, in the absence of personal finance planning, if not now, then in the future you will still encounter money problems.

Why is LFP needed? It helps to find free money and invest it in such a way as to save, increase and achieve your financial goals in the time you need.

11 tips for making PFP

So, we found out that the Personal Financial Plan is your program of actions with money for the N-th number of years before reaching your financial goals. And so that it will surely come true, follow the tips described in this article.

1. The Personal Financial Plan must be written on paper (or printed on a computer). When it is “in the head,” in most cases it is forgotten, constantly changing, and therefore not fulfilled.
2.Do not take another person with similar financial indicators as the basis for PFP. The fact is that the Plan is a very individual document. You definitely need to consider your age, gender, city of residence, lifestyle. Even if you take some ready-made template, it can change beyond recognition.
3.Your Personal Financial Plan should change over time, just as the world around you will change. Let’s imagine something positive … Income may increase – for example, you will be promoted, or you will change your job, or your business turnover will increase, or some asset will show greater profitability than you expected … Replenishment in the family is also a positive change , which must be included in the Personal Financial Plan and, in accordance with this, correct it.
4.Start making PFP as quickly as possible. The sooner you do this, the more you earn, save, accumulate and increase.
5.Set your financial goals correctly. They must be very specific and answer the questions “what, when, how much does it cost?”. If it is difficult for you to decide, then try to answer 15 questions that will help you find a goal in life . Also think about SMART Goals , an effective method that can inspire you great.
6.Decide when you will retire. Moreover, the word “pension” is not considered here as a certain age of fifty, but as an opportunity to live on passive income. Vladimir Savenok, a well-known financial consultant and author of many books on this topic, believes that you must first ask yourself the question “at what age will I stop working?”. That is, you can “retire” at thirty, if by this moment you will be satisfied with the income from the assets.
7.Analyze your financial report, that is, income, expenses and free money. Estimate how realistic your goals are if you build on the current financial situation. Calculate the constant amount that you are willing to save monthly for the implementation of the plan.
8.Decide on a strategy, in other words, a way to manage risk. Choose an acceptable level of risk for your plan. The distribution of free money for various instruments and assets will depend on this. There are three risk groups: conservative, moderate and risky or aggressive. Their choice depends on the time for which your plan is designed, financial condition and your nature. For example, there is an unwritten formula for calculating the share of conservative assets. She is very simple. 
The percentage of conservative instruments is your age. For example, if you are thirty, then your portfolio may contain approximately 30% of such assets. By the way, you can increase the share of risk if you have other sources of income that are not related to investments or work, but not at the expense of conservative investments!
9.Before you start investing, create a “safety cushion” – these are savings that allow you to live 3–9 months without a primary source of income, without changing the standard of living.
10.Do not depart from the intended Plan under any circumstances. Regularly invest available funds depending on the chosen strategy.
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Read the book by Vladimir Savenok “How to Draw Up a Personal Financial Plan”.

Types of LFP

There are three main types of Personal Financial Plans. Each of them can be included in one way or another in yours, but at the same time it cannot be realized earlier than the other. These are “security” (the so-called minimum program), “comfort” and “wealth” (maximum program).

1. Security

Tell me, how much can you survive if right now (God forbid, of course) you lose your permanent income, lose your ability to work, or a natural disaster occurs? What will you feed on in old age? A financial security plan is your strong foundation, your minimum program. These include:

– insurance of all types of property, including accumulative life insurance instruments;

– creating your own “airbag”, the size of which should provide you for at least six months;

– Pension program – a long-term deposit that allows you to feel protected when you can no longer work actively.

2. Comfort

This is a well-known program “car, cottage, apartment, vacation with the whole family once a year.” Here, too, money is needed and it is better to save it in advance. For example, you decided to change the car in five years. So during this time it is necessary to collect such an amount that the cost of the old car and your savings are the price of a new one. Another important point here is the education of children.

Everyone wants to provide their offspring with the best training, and besides this, their own roof over their heads … You need to think about it now. Especially if you dream that your child will study at a prestigious university, or even abroad. Here it is necessary to calculate by what date and how much money will be needed.

3. Wealth

This type of financial plan involves the creation of passive cash flow, investment assets, own business and the acquisition of real estate.