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How to create a personal financial plan. Step-by-step instruction

How to create a personal financial plan

The first step to economic literacy is a personal financial plan. We have prepared detailed instructions for its preparation.

Knowing how to handle money is an important skill. Financially literate people know how to increase income without austerity and loans. They achieve goals for which people with a similar income “do not have the means.”

What are your plans for the future? Travel? Go to college? Buying a house or a vehicle? To get there, you need to chart a route — even more so when it comes to money. To achieve your goal, a very important item on this path is to make personal financial planning.

Many do not know how to handle their own money, which can cause debts to mount. The financial organization must be part of the routine, it is something simple and starts with small actions that, over time, become a very effective organizational habit.

Financial education teaches you how to spend money consciously. Knowing where it goes, it’s easier to have control over our expenses, and that’s where personal financial planning comes in. Let’s see what a plan is and how it works so that you can get where you want to go.

How to create a personal financial plan

Stage 1. Turning dreams into goals

A well-defined goal is half the battle. Instead of the abstract “I want more money” – the specific one: “I want to receive 100,000 Dollars of passive income per month in 10 years.” This wording is understandable and calculable, and you can choose financial instruments for it.

Your financial goals are likely to be several. For each, you need to evaluate:

  • Time – when you plan to achieve the goal. This can be a specific date (buy a car in 2 years) or an extended period (20 years to receive an increase in pension).
  • Money – determine how much you need. If you plan to buy something specific, check the chart of price growth in the market and include this amount in the cost of the goal. If the goal is extended in time (for example, a retirement period), determine the target income per month.

Divide the formulated big goal into small ones: calculate how much you need to save monthly.

For example, your financial goal is to buy a certain model car in 2 years. Now it costs 600,000 dollars, the forecast for price growth in the car market is 10%. Thus, in 2 years, 726,000 dollars will be needed for the purchase. Divide by 24 months (the deadline for achieving a big goal) – we get that you need to save 30,250 dollar per month. It remains to soberly assess how acceptable it is for you. It may be necessary to find an additional source of income, reduce costs or reconsider the timing of its implementation in order to achieve the goal.

Remember that buying a car is buying a liability. Household appliances, a new iPhone, the apartment you live in are also liabilities. They will not bring income, but on the contrary, they will become cheaper and require maintenance costs. Think about it: maybe instead of liabilities, you should buy assets: securities, an apartment for rent, invest money in a bank deposit – so that they work and make a profit.

“I usually suggest to my clients that they do two things: state their financial goals in terms of specific amounts, and evaluate how achievable they are. To measure your goals, rely on numbers and not be led by your momentary “wants” is an adult position in relation to money. If we really understand and feel that this goal is achievable, that this is exactly what we want, this understanding will give strength and motivation. And it will be much easier for us not to exchange our dreams for petty expenses.

How to auction finance property and what are the advantages?

Stage 2. Consider your income

Total income is made up of three components:

1. Income from labor – wages

How to increase

Discuss with your superiors a raise, change your permanent job or find an additional part-time job.

2. Income from the state


Benefits, benefits, tax deductions.

How to enlarge

Study the legislation. You may not be using the benefits you are entitled to. For example, if in the current year you were treated in a paid clinic, you can return up to 13% of its cost.


If you open an IIA (individual investment account), then in addition to investment income, you can receive a tax deduction – 13% of the amount deposited in IIA during the year.

3. Income from assets

This money does not come from direct labor, but from literate capital investments. This includes income from securities, deposits, real estate, business, etc.

How to increase

Invest your funds wisely. The more profitable assets, the greater the inflow of money in addition to labor income. Of course, compiling a portfolio, choosing a strategy, analyzing the market will also require effort. You can minimize them by choosing a ready-made investment strategy.

There is an opinion that the only way to increase income is to find a job with a higher salary. As you can see, this is not only not the only, but also not the most attractive method.

Stage 3. We consider expenses

Expenses are also divided into several categories:

1. Current expenses

Meals, rent, transportation, medical treatment, recreation… Everything you need to maintain your usual standard of living.

How to reduce

“We have many goals, internal values, according to which we decide how we spend money. Therefore, it is very important to negotiate with yourself: prioritize and find a compromise. If you just go into austerity mode and start limiting yourself in everything, a breakdown is inevitable. It is important to see your needs behind unwanted spending and think about how else you can satisfy them. Often this can be done for free. For example, to hear yourself: “I work too much, I get tired” – and instead of going to an expensive spa treatment, reduce the workload. –Elena Stankovskaya

2. Asset expenses

We pay them to earn money. Maintaining a bank account, brokerage services, business expenses, repairing a rental apartment, and others. You can save money on some points: for example, for many brokers, the registration and maintenance of a brokerage account is free.

How to reduce

These expenses eventually bring money, so you should not completely abandon them. But there is an exception – if the cost of maintaining an asset constantly exceeds the income it brings, it is better to sell it. An example is a property that has been idle for a long time without a tenant, but requires constant expenses for repairs, utility bills and taxes.

3. Social spending

Everything we owe the state: taxes and fines.

How to reduce

Again, study the legislation: maybe you will find a more profitable taxation scheme for yourself. For example, a patent allows some individual entrepreneurs to pay less taxes compared to the simplified tax system.

4. Loan repayments

How to reduce

Refinance a loan at a lower rate, use unprofitable assets to pay off debt or increase the loan period. So you will reduce the monthly payment, but the total overpayment will increase.

More about goals

Calculate the actual difference between the “plus” and “minus” budget. After that, compare with the monthly cost of all financial goals: is there enough for everything? If not, the plan needs to be revised.

Write down the goals in order of priority: can you temporarily abandon those at the bottom of the list? You can always return to them. For example, if income increases or when the first goal in the list is completed.

If all financial goals are vital, then it is worth considering credit instruments. But think carefully and count. When loan payments are more than 30% of income, this is a very high credit burden, dangerous for the implementation of the financial plan.

“Loans can introduce unnecessary risk into our lives, so careful use of this financial instrument is an important part of taking care of yourself. Loans give the illusion of great opportunities, but in reality they jeopardize opportunities. A person becomes dependent, it is more difficult for him to make decisions (for example, about changing jobs, getting an education). In addition, a lot of money is spent not on achieving goals, but on paying off debt.

With loans, it is more difficult to assess the real financial situation. How much money do I have – 200 thousand $? And the bank writes that I have 80 thousand on a credit card. This is perceived as a “lifeline”, which in reality may turn out to be unreasonably expensive”

In some cases, lending, on the contrary, maybe more profitable than self-saving. For example, you want to buy a thing in 2 years, the prices of which are growing very quickly  by 20% per year. If you are given a loan at 15% for 2 years , it will be cheaper to take a loan from a bank and buy a thing now than to save up for it on your own for 2 years.

Stage 4. Protecting the financial plan

Life is unpredictable. Unforeseen expenses, divorce, illness, economic crisis all these unpleasant events put your well-being at risk. And along with it, the financial plan is shaken.
How to protect yourself from risks
  • Solve problems in advance. Think about what could happen and how these events will affect your financial goals, how you can reduce their negative impact.
  • If you do not have a financial cushion, its formation should be included in the list of priority financial goals. You should accumulate at least three monthly incomes and invest them in conservative financial instruments. For example, to divide between a deposit in a bank with the possibility of partial withdrawal and investments in OFZ. Government bonds can be with different maturity and interest (coupon) payment frequency: you can choose the one that suits you, depending on when you want to return the investment.
  • It is worth thinking about buying insurance programs for different types of risk and include this in the costs.
  • If you have unprofitable assets (for example, a stagnating business) , you can sell them, and put the proceeds into a reserve fund or for insurance costs.
So now you:
  • clarified all goals: general and monthly;
  • analyzed income and expenses and decided how to optimize them;
  • take into account the costs of protection against risks;
  • are willing to spend money on the desired goals.
It remains to decide which financial instruments to choose for this.

Stage 5. Where to invest?

It is important not to keep all your savings in an envelope/in a safe/under your pillow. There they will just lie, not work  and gradually depreciate due to inflation. There are more attractive ways.
conservative instruments

Investments in them are considered low-risk. They give almost 100% guarantee of the safety of your capital, plus a percentage of income. Conservative investments include bank deposits, insurance savings programs, pension capital accumulation products, government bonds, real estate, ETFs.

The downside of conservative investing is low returns.

Aggressive Tools

If you want to bring the achievement of the goal closer, and the potential profitability of conservative instruments is not enough for you, you can add aggressive instruments to your portfolio. With such a strategy, the risks are higher, but the profitability, as a rule, is higher.

Such instruments include stocks, corporate bonds, investments in startups, currency trading, futures and options, mutual funds.

Stage 6. We carry out the financial plan

So, the financial plan is drawn up, and all goals are achievable. But the work continues: after the calculation and refinement of the plan, it must be successfully completed.

How to do it? We use a modern version of the five-envelope method. We use investment products instead of paper envelopes.

  1. Having received a monthly income, we immediately set aside the required amount for fincels. And not in the nightstand, but in previously selected financial instruments, so as not to immediately pick them up from there.
  2. The reserve fund, that is, the financial pillow, must include at least 3 of your monthly income. If the reserve is empty, set aside 1/12 of the total amount of the pillow every month. For example, 25,000 dollars with a salary of 100,000 dollar per month. So you accumulate a reserve in 12 months. If your monthly premium is high, consider lowering it, but remember: this is a priority goal. It is better to set aside a reserve on a deposit and in OFZs with a maturity of several years, so as not to get it at the first desire.
  3. Set aside money for annual expenses (hull, vacation, child’s school fees, etc.) – again deposit 1/12 of the required amount every month.
  4. Set aside the required amount for monthly expenses – but only after the first three “envelopes”. Current expenses should not threaten your financial goals.
  5. Send the rest of the money to the motivational fund. From here you will take funds to reward yourself for moving towards your goal: entertainment, new clothes, weekend trips, etc. A small promotion every month or a big one every six months – you choose.
With this approach, the increase in wealth will be quite comfortable, and there will be no need for a austerity regime.


  • Every person needs a personal financial plan, regardless of their income.
  • Financial goals should be reasonable, clearly defined and achievable.
  • Goals can be achieved earlier by increasing revenues and reducing expenses.
  • The financial plan must be protected by insurance or the creation of a reserve fund.
  • Savings should be invested in financial instruments in accordance with your investment strategy.



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