How to create a financial plan?

Main stages and principles

Financial planning is a long-term process, oriented to the results after a few years or even decades. Specialists recommend having a financial plan that covers at least 10 years, and it would be even better to have a financial plan before and after retirement.

We introduce the main stages of financial planning and their principles.

Stage 1

Determining of the current situation and financial goals

The goal: to know how much obligations, income, and expense you have, and what your plans are, especially regarding big purchases.

Relevant period: at least 10 years, it is recommended before and after retirement age.

What it is necessary to evaluate:

The income you have: how long it is long-term, whether it is permanent, or perhaps you are remunerated on a project basis and there may be periods of “downtime”.

Typical monthly necessary costs for: food, utilities, travel to work or education institutions, clothing, and so on.

Assumed obligations and their duration, how much and how often a certain amount it is necessary to be given for them.

What amount of “financial cushion” you need, it should be a financial reserve of at least 3-6 months of income for the family.

Whether there are dependent persons in the family, if so, it is necessary to take care that in the case of emergency, if they were left without responsible person, a reserve of funds would be accumulated for them. This function is usually performed by life insurance.

Short-term and long-term financial goals related to expenses or investments, such as the purchase of a new dwelling, a car, children’s education, pension accumulation.

Stage 2

Management of obligations and expenses

The goal: to know where the money “disappears” and manage the assumed obligations.

Relevant period: the duration of short-term and long-term obligations, if any, should be assessed when you plan to assume them.

What it is necessary to do:

To review your credit history.

To calculate your net financial assets, you will find out it by deducting all your obligations (loans, credit cards, etc.) from the value of your assets (real estate, movable property, investments, savings).

To review your daily expenses and ways to reduce them. Periodically to review regular payments for utilities and other services, maybe the situation in the market has changed and you can get the same service cheaper? To review if you can avoid some of the expenses in the future if you invest in a decisive change, for example, replacing windows can significantly reduce the cost of heating your apartment or house.

To anticipate how your daily expenses depend on seasonality, as well as whether there may be unexpected expenses, which could be covered if you had accumulated a financial reserve.

To self-assess the existing obligations and the interest paid on them, first, you need to return the ones for which you pay the highest interest.

To evaluate the income you receive and its possible increase or decrease, and how it will affect the satisfaction of your needs.

Considering the present obligations, to create a calendar of financial payments.

It is crucial to prepare for a “what if” scenario if events turn in an unfavourable direction. For example, if you have a mortgage with a variable interest rate, evaluate what will happen if the market situation changes and interest rates rise. It should be evaluated either what happens to obligations in the event of sudden loss of employment, total or permanent and temporary disability or death. Typically, credit institutions offer additional insurance coverage that is worth considering so that the credit you have later does not become a burden.

To prepare to assume obligations. If you plan to assume financial obligations in the future, be prepared to assume them. The Regulations on Responsible Lending of the Bank of Latvia stipulate that the ratio of the loan amount to the value of the pledged property must not exceed 85%, i. e. at least 15% you must have accumulated own funds from the value of the dwelling. No matter how many obligations you have, start saving.

Stage 3


The goal: To accumulate funds for your own purposes.

Relevant period: 1 – 3 years.

What it is necessary to do:

To assess your current needs and income. Maybe there are opportunities not to buy something and allocate more for savings? Sometimes simple everyday stuff can save you a considerable funds in the long period that you can spend on investing or accumulating for a pension. To assess the financial goals for the short-term period (up to 3 years), when you may need liquidity for your expenses, do not forget to assess the required financial cushion for the amount of 3 – 6 months of your expenses.

To take an interest in the savings products in the market, self-assess whether these products are supported by the state, and make sure they are not investment products sold as savings products (e.g., equity-linked deposits).

To assess whether you are really saving only the amount of funds you will need in the near future and invest the remaining amount. Savings products (deposits in current accounts, savings and fixed-term deposits) are usually used to accumulate a financial cushion and manage current cash flows, the interest earned on them is low, they do not cover inflation over time, so it is very important to choose investment financial products for long-term purposes.

Stage 4

Accumulation and investment

The goal: to increase the present assets in the long period.

Relevant period: 5 – 50 years.

What it is necessary to do:

To assess your medium and long-term investment goals (starting with the purchase of a car, dwelling and ending with savings for pension): their duration, the amount you want to accumulate and the acceptable riskiness of the investment.

Assessing the country’s demographic situation, one of the long-term financial goals should be to accumulate funds for pension. This can be done by accumulating in pension funds. It is recommended that the pension benefit would be 70-80 % of a person’s income, such amounts can be expected by accumulating in second and third pillar pension funds. You can get advice from a professional financial adviser on how much you should save in each individual case, you just need to register for the iFuture Investments consultation in all Lithuanian cities by clicking this link.

To assess the amount of funds which can be allocated for investment, or to calculate it according to your medium and long-term financial goals. To evaluate the possibility of accumulating funds for the future using various financial products, before choosing them, you should evaluate their rules, i. e. applicable taxes and other terms and conditions, such as the possibility of withdrawals and a long history of returns, in addition to the extent to which the use of these products is encouraged by the state, such as whether they are eligible for personal income tax relief. When assessing the purchase of dwelling, it is worth considering the cost of this purchase, whether it is more worthwhile to pay rent or a credit.

When choosing individual investment or savings products, you should also assess what investment risks you tolerate, as well as your age and what financial instruments are best suited to achieve your short-term and long-term goals.

When you start investing, it is important to do it regularly. Periodic replenishment of the portfolio ensures that investments will be made not only during the “hot” period, but also when investment prices fall, which allows to expect that market fluctuations will not worsen the quality of life, but it will maintain the opportunity to earn. To take an interest in the trends of the investment markets and, in consultation with the financial adviser, select the priority investment directions into which the present funds for investment would be allocated. Periodically to review present investments and consult with a consultant if you have any questions.

Stage 5

Emergency protection

The goal: to protect your own and your family’s income in the event of emergency.

Relevant period: 1 – 50 years.

What it is necessary to do:

to assess your family’s long-term financial obligations, their size and duration. In the event of your loss in the insurable event, it is recommended to have protection equal to the amount of financial obligations that would accrue to your family members.

If you are actively travelling or exercising, additional accident injury insurance will help you in case if you break your arm, leg or otherwise get injured. Insurance coverage is valid worldwide 24 hours a day. In the event of an injury in an insurable event, you will receive a benefit that will enable you to pay for medical, rehabilitation services or compensate for part of the loss of income due to your incapacity for work.

Critical illness insurance helps protect your own and your close relatives’ stability. By diagnosing one critical illness from the provided list, you will be able to cover the financial commitments which you may experience as a result of a serious illness and you will be able to cover them with the insurance benefit you receive and maintain the stability of your family income.

Attention! iFuture Investments states that the premiums and deductions are fixed, and the rates do not change throughout the term of the contract.

Important to know

The information provided in this text should not be construed as a recommendation, offer or solicitation to invest in investment funds or other financial instruments.

Financial advisers point out that investment instruments must be selected on the basis of their tolerable degree of risk, expected return, investment term and financial situation, considering the fees charged for these instruments and diversifying the invested funds.”