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HOW TO MANAGE YOUR SAVINGS & FOLLOW A HEALTHY PERSONAL
FINANCIAL PLAN
DEYAN VASSILEV / Chairman, Finzoom
www.finzoom.ro
THIS PRESENTATION IS 15 % SOLUTION
• It says nothing new and original;• It explains basic and simple principles of
financeBUT…..• Sometimes it requires a lot of patience, focus
and discipline to succeed;• "85% of your financial success is due to your
personality and ability to communicate, negotiate and lead. Shockingly, only 15% is due to technical knowledge.” Carnegie
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ABOUT FINZOOM.RO
• FinZoom’s mission is to empower millions of consumers to make well-informed decisions about their personal finances.
• 10 years of information and education to consumers of financial products and services in Romania.
• FinZoom.ro compares all financial products in Romania (loans, credit cards, deposits, accounts, leasing, investment funds and pension RCA).
• Articles, Analyses, Consumer Advices
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FINANCIAL PLANNING
A comprehensive evaluation of current and future financial state by using known inputs to project future cash-flows, asset values and withdrawal plans.•Your Budgeting•Your Net worth•Setting of your financial goals (really, life goals)•Adjustments to achieve your goals•Measure your progress and update plan
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FINANCIAL GOALS
• Saving for retirement• Saving for children’s education• Buying and apartment (downpayment)• Buying a car• Saving for a vacation• Having an emergency fund
Goals should be clear, compatible and achievable / realistic.
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PERSONAL BUDGET
REVENUES EXPENSESACTIVE INCOME Food and clothing• Salary from labor contract Home• Free-lance contract Utility bills• Bonuses Transportation • Commissions Credits (loans, credit cards)PASSIVE INCOME Health • Rent Holidays and travel• Interest Insurances (life, car, home)• Capital gains / Dividend Education• Royalties Hobbies / Sports / Vices /• Pensions Charity / Other
NET WORTH STATEMENT
ASSETS LIABILITIESMoney and equivalents Personal loansCash, bank accounts, deposits, money funds
Credit cards balances
Life insurance value Mortgages and personal loansFinancial instruments LeasingShares, bonds, ETFs, Funds Other payables and obligationsRetirement accountsPersonal Assets NET WORTHReal estate – aparts, land Total Assets – Total LiabilitiesVehicles, Appliances, GadgetJewelry, Art, Precious metals
SOUND FINANCIAL PLAN STEPS
• Step 0: Track that each month you spend less than you earn;• Step 1: Secure your basic needs: food, clothing, place to live.• Step 2: Insure yourself against the basic risks – your home, health, car• Step 3: Build your emergency, “rainy day” fund• Step 4: Pay off the expensive consumer loans and credit cards ASAP
(excluding mortgage)• Step 5: Increase your emergency fund to cover 6 to 10 months of
expenses• Step 6: Start saving up to 10 % of your income for your retirement (see
calculator)• Step 7: Save for your other financial goals (education of children,
downpayment for your home, repairs, new car, holiday fund, etc)• Step 8: Pay off your mortgage loan early but not before the steps before• Step 9: Keep saving and investing wisely, don’t expect miracles• Step 10: Continue educating yourself, express your values with your
money
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3 BASIC PRINCIPLES OF SAVING
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1) START EARLY! Use the power of compounding of interest. The sooner you start the better!
2) Try to set aside 10 % or more of your current income to have a chance to meet your financial goals;
3) Save / Invest in a diversified portfolio, at least some portion should be in shares (the long-term saving part) and depending on your attitude toward risk/return
START EARLY - RETIREMENT
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Profile WomanMan Msn3
Born 1984 1984 1970Retiring 2047 2049 2035Accumulated 4 000 RON 4 000 RON 4 000 RONGross Salary 2 400 2 400 2 400Contribution 5.1% 122.40 122.40 122.40Expected return 4 % 4 % 4 %Total accumulated 101 455 112 867 49 198Monthly pension 423 RON 470 RON 205 RON
• Obligatory Pensions Calculator: http://www.finzoom.ro/Calculatoare/calculator-de-pensii
START EARLY - RETIREMENT
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“Power of compounding! The 8th wonder of the world! He who understands it – earns it, he who doesn’t – pays it!” Albert Einstein
Person 1: Saves 100 RON per month for 10 years between 25 35 and then letting the saved amount accumulate interest over 30 more years.
Person 2: Starts saving 100 RON at the age of 35 till retiring at 65. (30y years saving plan)
RESULTS TOTAL DEPOSITED
TOTAL ACCUMULATED
COMPOUNDED INTEREST
Person 1 12 000 99 197 87 197
Person 2 36 000 100 959 64 959
HOW TO SAVE FOR BETTER RETURNS
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How do Romanians save now?
Source: Capgemini and RBC Wealth Management, 2013 World Wealth Report. Real Estate excludes primary residence.
TOTAL DEPOSITS OF ROMANIANS
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Year Total* Term≤1 an
Term> 1 an
2012 99 134 90 939 8 1952013 104 194 93 708 10 4852014 106 628 93 847 12 7812015 106 873 91 520 15 353
Mar 16 106 174 90 351 15 822*Million RONSource: National Bank of Romania
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DEPOSIT RATES IN RON AND EUR
MONEY IN INVESTMENT FUNDS
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*Million RONSource: AAF (Asociatia Administratorilor de Fonduri din Romania)
Year Total funds* Domestic Foreign
2012 8 678 8 678 -2013 10 313 10 230 832014 14 244 13 877 3662015 16 222 15 708 514
Mar 16 16 306 15 833 473
DEPOSITS VS MUTUAL FUNDS
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*Million RONSource: BNR and AAF
Year Total funds* Deposits
Mar 16 16 306 106 174
Share 13 % 87 %
(NORMAL) DISTRIBUTION OF WEALTH
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54.7%
Shares and alternative
investmentsBONDS CASH AND
DEPOSITSREAL
ESTATE
Source: Capgemini and RBC Wealth Management, 2013 World Wealth Report. Real Estate excludes primary residence .
HOW TO INVEST FOR BETTER RETURNS
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OK, Compounding is the 8th wonder and we are losing by not using it now…BUT, HOW TO INVEST FOR HIGHER RETURN? The answer is simple:•Use a reputable mutual fund (international or local) with solid track record.•Start with a monthly saving plan (i.e. 50 EUR / month)•Be ware of your attitude towards volatility and periods of losses.•Past performance does not guarantee future returns
TYPES OF MUTUAL FUNDS
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PRINCIPLE OF INVESTING IN SHARES
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Shares and mutual funds in shares are more risky, i.e. higher returns, but higher volatility
Such investments should be for longer time horizons – i.e. above 5 years
The regular investor cannot “time the market”, so it is better to average the cost of buying both highs and lows in a volatile market.
RETURNS STABILIZE OVER LONG TERM
www.finzoom.ro Return on S&P from 1926 - 2005
BENEFITS OF REGULAR INVESTING
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DateDate
Price 8 Price
7
Price 5
Price 12
Investment Unit price # Current value2,500 10 250
Total 2 500 8 250 2,000
Investment Unit price # Cur Value500 10 50500 5 100500 7 71.4500 12 41.6500 8 62.5
Общо 2 500 7.68 325.5 2,604
The difference is interesting
Price10
More for a smaller price.
Ø price 7.68
This graph is only for illustrative purposes
EXPECTED RETURNS OVER 30 years
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5,8к
6,7к7,2к
7,8к
5,4к
49к*
33,5к
22,9к
15,6к
10,7к
12,3к
6,2к
-4,5к
5к
5г 10г 15г 20г 25г 30г
28,1к48,3к
77,6к
121к
183к
7,3к
The difference would be enough to pay a pension of ~ 750 monthly for 20 years
+ 100 monthly
50/50 – shares/bons– 7,9%
Deposit – 1.5% CAGR since 1926
With monthly instalment of 100 – 7,9%
Inflation – 3%Historical data for S&P and bonds since 1926г
RICHES VS. WEALTH
“The wealthy buy luxuries last, while the poor and middle-class tend to buy luxuries first. Why? Emotional discipline.”
“The definition of wealth is the number of days you can survive without physically working (or anyone in your household physically working) and still maintain your standard of living.”
Robert Kiyosaki, “Rich Dad, Poor Dad”
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FINAL THOUGHT
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YOUR FUTURE IS DETERMINED BY WHAT YOU DO TODAY,
NOT TOMORROW
Thank you for your attention!
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DEYAN VASSILEV/ Chairman
FINZOOM.ROБЪЛГАРСКИЯТ ФИНАНСОВ ПЪТЕВОДИТЕЛ
БУЛ. "СТЕФАН СТАМБОЛОВ" 28, ЕТ. 2. СОФИЯ
Тел: +359 2 987 50 88 / Мобилен: 359 88 8351 943e-mail: [email protected]
