Private financial planning – how to achieve your individual goals

Reading Time: 11 minutes

Everyone has dreams and wishes. Whether it’s their own house, private retirement provision or a trip around the world. For this purpose, it is necessary to save money so that dreams can become reality. Aimless saving leads to rash actions. The consequence of this is that wishes do not come true.

Is it possible to achieve one’s goals safely and quickly with well thought-out private financial planning? Yes, it is – in the following article we offer you some assistance in this regard.

The most important things at a glance

• Any private financial planning is based on one’s own situation, desires and ideas and requires perseverance and conviction.
• By answering specific questions and making concrete plans, financial planning can take shape.
• In the article, we offer guidance in the form of a sample calculation and planning – it can help as a guideline in your elaboration.

All the following questions should be answered honestly and self-critically. As a result, you will receive a useful framework for your personal financial planning at the end of the guide.

Definition – what does private financial planning mean?

The starting point for sound financial planning is to determine your current situation. You should take stock of all available factors. These include:

• Income
• Expenses
• Assets
• Debts

which you carefully determine in order to obtain a realistic basis for your private financial planning.

Income

Income includes the current salary per month. If financial planning is carried out for the family, the income of all members also counts. Other sources of income include rental income, interest, dividends, other income and income from self-employment.

Reading-Tip: Investment Strategy in Focus: The Power of Income Strategy

Expenses

The largest item in expenses is fixed costs for rent and living expenses. You can find these expenses from the budget. Other expenses include costs for motor vehicles in the household and for insurance and loans.

Assets

Part of assets are real estate, investments, savings, and balances in life insurance or regular savings plans.

Debts

This is where you need to determine the current balance of loans for real estate and personal loans for purchases.

It is best to create a template or Excel spreadsheet to record all this information.

What are the goals of private financial planning?

It is important to have a clearly stated goal in mind with private financial planning. It is irrelevant whether the desired goal lies far in the future or is already achievable in the medium term. What is decisive is the strategy that is worked out to achieve the desired goal. Here are some examples of short- or medium-term and long-term planning goals:

Short- and medium-term goals

• Building up a reserve as a contingency fund
• Purchasing a car or home furnishings
• Planning a trip around the world
• Extension of the existing real estate
• Wedding of the children
• Early loan repayment

Long-term goals

• Capital accumulation to purchase a property
• Family planning for children’s education
• Building up private pension provision
• Capital accumulation in order to retire earlier
• Establishment of an own company

Private financial planning is the central element in bringing the desired goal into focus. Now it is a matter of recording income and expenses so that the targeted plan can be realistically achieved. With the help of good detailed planning, it can be checked whether suitable savings measures are helpful. In many cases, the desired goal can be achieved more quickly.

What is the starting position for your own financial planning?

The basis for forward-looking life planning is a critical examination of the current situation. To do this, you need to take stock of your finances and ask yourself the following questions:

• What salary is being earned?
• Is there any other income?
• What assets exist?
• What expenses are burdening my budget?
• Are there debts and in what amount?
• Is an inheritance to be expected?
• What assets do I need for retirement?

What salary will be earned?

On the income side of the budget planning is the monthly salary for dependent employees. The advantage over self-employed / freelancers is that this item is easy to determine based on the payroll. In many cases, the monthly salary hardly changes.

Is there any other income?

When determining further income, only secure values should be included in the financial planning. This includes rental income and interest from financial investments. Irregular income from sideline activities or dividends, which could also fail one day, should be assessed with caution.

What assets exist?

The easiest way is to assess credit balances at banks and cash investments as of the respective reporting date. Savings plans and life insurance policies communicate the asset value or surrender value of the insurance on a regular basis. The assessment of the value of real estate is more difficult. The values here should be set rather conservatively. Reserves for uncertain times as financial investments also belong to the assets.

What expenses burden my budget?

On the expenditure side, private households have to bear the costs of rent, living expenses, motor vehicle costs, insurance and old-age provision. There should be enough wiggle room in your expense approach to plan for leisure activities and vacations. Otherwise, financial planning will become a nightmare for the family later on.

Are there debts and in what amount?

You can use confirmations from the banks to determine the amount of the remaining debt as of the balance sheet date.

Is an inheritance to be expected?

Extraordinary income is helpful to reach goals faster.

What assets do I need for retirement?

Retirement planning is an important part of financial planning. The cost of assisted living or a place in a elderly home, in particular, has become a considerable expense. After all, you want to be independent in retirement and enjoy time with your partner or family, old-age poverty affects about 20% of people in Switzerland.

Read also:

• Vested benefits principle for occupational retirement provision
• 3-pillar principle for pension provision in Switzerland

What are the risks and how can you cover them?

The value of one’s own health is an important asset. An accident at work can happen on any day. The Corona pandemic of the past two years has caused health problems in many families. Usually, these are unexpected events that strike like a bolt from the blue. In the case of prolonged illness, sources of income are at risk.

Sickness benefits in Switzerland amount to about 80 percent of previous pay for a period of two years.

But how can health risks be hedged?

When there are declines in income in private households, the entire finances often get into trouble. Costs remain the same, and further expenses are often required for rehabilitation and the restoration of health. The healthcare system in Switzerland is exemplary. However, it does not cover all services. Especially for hospitalization and dental treatment, it is a good idea to take out supplementary insurance. With occupational disability insurance, the package of preventive measures is complete.

The world of work has been changing rapidly since the turn of the millennium. Jobs that were considered crisis-proof for decades are being displaced by new technologies. The digital age has changed jobs in many industries. Employees have lost their jobs or had to look for new fields of employment. Economic crises have led to short-time work, which means loss of income.

You should have a financial reserve for these cases. This is absolutely a part of your private financial planning. For this emergency, it makes sense to create reserves in the amount of at least three net monthly incomes.

When building up private assets, investments should be put to the test in times of crisis. When investing in shares, safety instruments such as stop loss should be discussed with the investment advisor. It is crucial that you are always in control of the situation and remain capable of acting. It is better to forego a promising business than to take too great a risk.

What ideas and values influence your own private financial planning?

A few years ago, the focus in private financial planning was on maximizing returns with manageable risks. This view has since changed. The low-interest phase on the global financial markets, which has been going on for years, is only giving investors low returns in the interest area. Such investments are hardly worthwhile any more. Other values are coming to the fore and investors are paying more and more attention to them.

Climate change is increasingly focusing attention on environmental issues in the financial sector. In investment consulting, experts are paying attention to sustainability and judging companies not only by their business success. They question how the results are achieved and whether ethical principles of occupational health and safety and human rights play a role.

Corporations that produce armaments are judged cautiously. The same applies to companies that have products manufactured under inhumane conditions in low-wage countries. Investors scrutinize these issues carefully before committing to investments in shares or financial market products. In the end, it is up to the individual investor to decide the extent to which moral principles are incorporated into the investments to be made.

When it comes to financial market instruments, stocks and ETFs are at the forefront of investment advice. Depending on the time horizon and risk tolerance, there is a wide choice. In the annual reports, brochures and on the Internet you have the possibility to inform yourself about ethical and moral principles regarding the individual companies. In addition, there are also ETFs that focus entirely on sustainability, but the definition of sustainability is not always the same.

Which way is the best? – Knowledge, procedure and advice

Private financial planning is an important part of life planning. It is significant if you include all family members in the first step. You lay the foundation by recording:

• Income
• Expenses
• Assets
• Debts

are determined. It is not necessary to consult an advisor for this.

The next step is to determine the investment horizon for achieving the goal. In this context, it is necessary to consider how you can most safely achieve the investment goal with the available funds. Here, the selection of financial instruments is already a more challenging task. Not every person is a financial expert and knows all the advantages and disadvantages of each investment.

Simple financial investments such as:

• Time deposit
• Term deposit
• Savings bond
• Fixed-interest securities

are easy to understand and can be concluded after a short consultation.

As investment products become more complex, it is better to seek advice from an experienced investment advisor. For financial planning investments in:

• ETFs
• Fund investments
• Shares
• Derivatives (e.g. options)
• Commodities / precious metals
• Real estate

you should seek the advice of an experienced expert.

It is not enough to understand what riskier forms of investment are all about. It is important to know exactly all the risks and what impact this could have on your private financial planning. In any case, you should follow the principle of risk diversification and never invest all your money in one type of investment.

Choosing the right investment advisor is a matter of trust. If you have a long-standing relationship with your bank, your first point of contact will certainly be there. In any case, your investment expert should have sufficient expertise and prepare serious proposals. You should avoid self-appointed experts who sell financial market products and make extraordinary promises of returns. Those who think they can increase their assets in a short time usually end up with a nasty surprise. Long-term investments are usually the better choice.

What does an example of successful private financial planning look like?

1. the initial situation

Personal key data

• Mr. Planer, family man 32 years old
• married, 2 children
• Working as an employee
• Own house as a goal of financial planning

Financial key data:

• Family income: 5’000 CHF per month
• Sum of all expenses: 4’000 CHF per month
• Surplus for private financial planning: 1’000 CHF
• Assets: 15’000 CHF
• Debts: none

To simplify the example, we have already included in the financial key data in the expenses costs for retirement, professional security and leisure activities of the family. Thus, the complete monthly surplus of 1’000 CHF is available for asset accumulation in the private financial planning.

2. determination of the goal and the appropriate measures

Goal: Purchase own house

Investment horizon: 8 years

• A) Build up financial reserve
• B) Investment of 50 percent of the surplus in safe financial investments
• C) Investment of 40 percent of the surplus in forms of investment with yield opportunities
• D) Maximum 10 percent of the surplus as investment in risky financial assets

3. allocation of surplus for financial planning

A) Building up financial reserve

The financial reserve should be available at all times to avert harm to the family in case of emergency. Three monthly salaries are planned for this purpose. This is an amount of CHF 15,000, which is taken from the existing assets of CHF 15,000 and invested in a separate time deposit or call money account.

B) Investment of 50 percent of the surplus in safe financial investments

Safe investments include fixed-term deposits, installment savings plans, fixed-income securities and investments in funds with a focus on real estate and fixed-income securities. CHF 500 per month is invested in this segment.

Result after 8 years

• Capital: 500 CHF per month saved over 96 months = 48,000 CHF
• Return: estimated 1.5 percent return per year during the term = 3’529 CHF
• Result of the investment: 51’529 CHF

C) Investment of 40 percent of the surplus in forms of investment with yield opportunities

ETFs, fund investments in shares and share purchases belong to the somewhat riskier financial investments with return opportunities. CHF 400 per month is invested in this segment.

Result after 8 years

• Capital: 400 CHF per month saved over 96 months = 38’400 CHF
• Return: estimated 5.0 percent return per year during the term = 9’292 CHF
• Result of the investment: 47’692 CHF

D) Maximum 10 percent of the surplus as an investment in high-risk financial assets

High risk investments are made in warrants, derivatives or commodities and precious metals. In our example, a maximum of 100 CHF per month is invested in this segment.

Result after 8 years

• Capital: 100 CHF per month saved over 96 months = 9’600 CHF
• Return: estimated 10.0 percent return per year during the term = 5’240 CHF
• Result of the investment: 14’840 CHF

It is essential to have an experienced and serious financial advisor at your side when investing in forms of investment with potential returns and when investing in high-risk financial assets.

4. result of private financial planning

Total result after 8 years of financial planning

• Building block A: 15’000 CHF
• Building block B: 51’529 CHF
• Building block C: 47’692 CHF
• Building block D: 14’840 CHF

Investment result: 129’061 CHF

With the investment result of 114,061 CHF (component A is a liquidity reserve and is not touched), 20 percent equity can be provided for the purchase of a single-family home worth just under 570,000 CHF. The remaining just under CHF 456,000 is to be financed by a loan. With a monthly surplus of CHF 1,000, the annuity for the loan can be paid.

FAQ about financial planning

What is private financial planning?

This tool makes it possible to achieve individual goals and dreams based on the current situation. A well-designed financial plan is helpful in achieving a targeted financial goal with a high probability of success.

Why is it important to create a private financial plan?

With the help of planning, a thoughtful approach to investments is put in place. With discipline and perseverance, intermediate goals can be reviewed. A good plan facilitates the achievement of the desired goal.

Is a financial planning guidebook significant?

Absolutely! An expert in the financial industry can tell if private financial planning is realistic and all factors have been considered. The financial expert’s advice is especially important if riskier financial investment products are used as part of the planning process.

How is financial planning arranged in a relationship/ marriage?

Trust and transparency are important in private financial planning in the relationship / marriage. Which account model the partners decide on in the end is up to each person.

In what form should financial planning be made?

Tools include app, Excel spreadsheet or a simple sheet of paper. Especially for recording the current situation and formulating the goals, no special form is needed. It is then more challenging to simulate various possible scenarios in the area of financial investment and to include complexities such as savings plans.