How to make a personal financial plan

A financial planner is someone you hire to help yourself with financial planning. He will plan for your specific goals such as retirement or investment. He will also advise you on various financial issues such as taxation, savings, and insurance. Before making complex financial decisions, it is undoubtedly wise to consult a financial planner. However, if you learn to manage your own finances, you will be able to understand and control your own financial situation, and you can save a consultation fee.

1Identify key personal goals and financial goals. Before making a reliable financial plan, you must figure out your goals. Common financial goals include preparing for retirement, paying tuition, buying a house, creating an inheritance for beneficiaries, or weaving a financial “safety net” to deal with unexpected expenses, disasters or life changes.

2The goal you want to achieve must be precise. Make sure that your goals comply with the SMART principles, which are specific, measurable, attainable, realistic and time-bound.

  • For example, you may not have a deposit at the moment, and your goal is to deposit more money. If you change this general goal to 5% of the monthly income saved, then your goal is not only specific, but also measurable (you can easily know if the goal has been achieved), and it is possible to achieve it within a reasonable time frame of.
  • Write down your goals. Doing so will not only ensure that you keep your goals in mind, but you can also hold you accountable for your goals. You should write down short-term goals, mid-term goals, and long-term goals to establish a good management system.

3Determine how much money you need to achieve your main goal. To ensure that your financial plan is effective, you must quantify your goals. In other words, set a specific goal and then convert it into RMB.

  • For example, a common financial goal is to retire before the age of 60 or 65. Although it is often said that making retirement income reach 70% to 80% of current income is a reasonable goal, it is also suggested that a more reasonable goal should be to make retirement income reach 50% to 60% of couples’ income, while singles should Set the goal to 60% to 70% of current income. 
  • If you are currently single and have an annual income of 560,000 yuan, then based on the above 50% standard, your retirement income should be planned at around 280,000 yuan per year. This example tells you how a goal (such as retirement before the age of 65) is converted into a specific amount of RMB (such as an annual income of 350,000 yuan). Once you know this amount, you can make a plan to figure out how much money you need to save and invest to make up 350,000 yuan a year with other sources of retirement income.
  • You can find relevant templates on the Internet to help you calculate the amount of money needed for retirement or other goals

Determine your current financial situation

Calculate your net worth. 
Assets subtract liabilities to get net worth, or use the money you own to subtract the money you owe others. This amount will let you know exactly your current financial situation and help you make decisions and achieve your goals. You can create a simple electronic form, or you can find templates on the Internet and use them to calculate your net worth

2List your assets. Assets refer to the property you own, including cash on hand, fixed and demand deposits, retirement funds, real estate, movable property, investments, etc.

  • List the value of the asset next to each asset. For example, if you own a house, list the value of the house. Do the same with other assets such as stock portfolios and automobiles.
  • Add the value of various personal assets together to get the total value of your assets.

3List your liabilities. Liabilities refer to all debts you owe, including loan balances, credit card debts, student loans, car loans, various personal loans, and so on.

  • Add up the number of individual liabilities to get the total amount of liabilities.

4Subtract total liabilities from total assets. The number obtained is your net worth. If you get a negative number, it means you owe more money than you have. Conversely, if you have 700,000 yuan in assets and 350,000 yuan in debt, then your net wealth is 350,000 yuan. As the financial plan continues to advance and you save more money, your assets should also increase (increased deposits), and liabilities will decrease (continuous repayment of debt).

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