Personal financial planning is drafting of the financial plan for one man or family, where current financial status, personal financial goals and ways of their achievement are reflected.

Set goals for the personal financial planning

What does the private financial plan mean? Everybody strives to save some money to buy a car or an apartment, or even more in terms of giving their children good education or just saving for a comfortable retirement. However it often happens that money is not enough to satisfy all needs. Thus if you don’t plan your budget, you will be constantly coming across the problem of money shortage. It goes without saying your goal should be reasonable, which means it should meet your income. Otherwise you will not succeed. It is appropriate to draught your private financial plan when you set reasonable goals for yourself.

So, you answered the questions "WHEN and WHAT I want to attain?", and defined the number of the personal financial aims and desired temporal frames of their realization for this purpose. Your manager will help you to answer the question "HOW to obtain realization of these goals?".

Estimate the current financial status

If with the goals of the financial planning it is more or less clear, let us understand with the determination of your current financial position. The construction of the personal financial plan begins with the determination what facilities you dispose at the current period of time. It is necessary to define on this stage what an asset is that brings profits, and what a liabilities is that, respectively, makes your charges. Difference between incomes and charges within the certain period of time – is savings that can be invested in various financial instruments. The situation, when charges exceed incomes, says about the wrong application of money and implies taking measures for reduction of charges or increase of incomes. Difficulty of current financial status estimation consists is that a man is not always able to name the exact sum of charges. As a rule, we daily spend money lightly, and forget that considerable part of our incomes falls on different trifles. So, at drafting of monthly plan of incomes and charges, it is necessary to take into account the experience of previous periods, and thus consider not only the most large and meaningful expenses.

Another difficulty lies in estimation of existent assets that are divided by those that bring profit (shares of mutual funds, securities, bank investments) and by those that do not (private car, apartment, summer house). Thus, it is very important to be aware that success of money planning lies in the accurate and correct estimation of current financial status.

Start the financial planning

Since the goals are defined and the financial state is estimated, it is possible to pass to drafting of the personal financial plan. Your manager will help to define, what expenditures of charges can be minimized and, the most important, to choose optimal strategy of facilities investment. However, you shouldn’t consider that your personal preferences will not be taken into account here. Strategy determination and choice of instruments is in the great deal conditioned by the degree of risk you are ready to take

Profitability depends on the degree of risk, because these values are interrelated on the market. The higher risk, the higher can be the potential profit, and vice versa – the less you risk, the lower of possible income. Assuming these criteria, it is possible to select three strategies of means management – conservative, moderate and aggressive. The conservative strategy supposes the means investment into bank deposits, bonds. The moderate approach is based on the use of mixed mutual funds or mutual funds of stocks, bank-managed mutual fund (mutual fund analogue, these funds are organized by banks), individual trust management, mutual funds if it goes about investments into foreign assets. The aggressive strategy implies work with
hedge-funds, independent investing with the use of credit resources and investments into low liquid stocks.

Investment products are effective combination of bonds and options for stocks, indices, oil, gold, currencies etc. They allow taking advantage of the best qualities of such, unlike at first sight, assets – bonds and options for various assets. Bonds are instruments with a small profitability, but a low risk also. Investing into options for stocks, commodities, currencies etc. – enable to gain the unlimited profit at the strictly limited risks. It is a very interesting instrument, allowing to earn at the growth of some assets, not investing all facilities, but only a very small stake of them, and to receive herein the greater part from a price change for an asset. Bonds allow to compensate whether all or a part of losses that an investor can sustain in that part of capital that was invested into options, if a forecast did not verify and options did not bring incomes. Thus, these investment products eliminate the risk of investment errors of a manager, because he does no undertake actions after the purchase of options and bonds. Besides, investments in such heterogeneous assets, as stock indices, oil, gold, currencies etc. allow to obtain a very wide diversification that reduces risks and improves the final result.

So, the best method to attain financial prosperity is to compel your money to work for you and obtain the increase of the personal welfare in the end.
The professional approach to the financial planning of your facilities is the way to your financial welfare and prosperity.

Let’s consider the example of financial plan drafting.
Given data:
The initial sum of investments of equivalent is $20 000. An investor chooses the moderate strategy with the middle potential profitability 30% per annum. The account will be refilled at $10 000 annually.
Goals:
An investor plans to retire within 12 years, and would like to save no less than $1 mln by this term.

Year Planned profitability, % Planned result
2007 Investment 20000 dollars
2008 30.00 36 000
2009 30.00 56 800
2010 30.00 83 840
2011 30.00 118 992
2012 30.00 164 690
2013 30.00 224 096
2014 30.00 301 325
2015 30.00 401 723
2016 30.00 532 240
2017 30.00 701 912
2018 30.00 922 486
2019 30.00 1 199 231

Thus, the set goal is attained

Conclusion

At the current moment, the consumer loans entered our life very stable, allowing getting the desired product or service right here and right now, not shelving or indulging oneself anything. However, behind all attractiveness of similar loans there is the other side of the coin – the danger of getting to the debt pit, repaying different loans for years, and sometimes for decades. Personal financial planning and facilities investment into different investment instruments will allow to obtain not only the financial goal you set without running into debts, but will also provide you financial independence and will allow to find the source of well-to-do existence for years.