www.finzoom.ro HOW TO MANAGE YOUR SAVINGS & FOLLOW A HEALTHY PERSONAL FINANCIAL PLAN DEYAN VASSILEV / Chairman, Finzoom
THIS PRESENTATION IS 15 % SOLUTION
• It says nothing new and original; • It explains basic and simple principles of finance BUT….. • 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 www.finzoom.ro
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 www.finzoom.ro
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. www.finzoom.ro
PERSONAL BUDGET
REVENUES
EXPENSES
ACTIVE 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
LIABILITIES
Money and equivalents
Personal loans
Cash, bank accounts, deposits, money funds
Credit cards balances
Life insurance value
Mortgages and personal loans
Financial instruments
Leasing
Shares, bonds, ETFs, Funds
Other payables and obligations
Retirement accounts Personal Assets
NET WORTH
Real estate – aparts, land
Total Assets – Total Liabilities
Vehicles, Appliances, Gadget Jewelry, 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
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 www.finzoom.ro
START EARLY - RETIREMENT
• Obligatory Pensions Calculator: http://www.finzoom.ro/Calculatoare/calculator-de-p Profile Born Retiring Accumulated Gross Salary Contribution 5.1% Expected return Total accumulated Monthly pension
Woman 1984 2047 4 000 RON 2 400 122.40 4% 101 455 423 RON
Man 1984 2049 4 000 RON 2 400 122.40 4% 112 867 470 RON
Msn3 1970 2035 4 000 RON 2 400 122.40 4% 49 198 205 RON www.finzoom.ro
START EARLY - RETIREMENT 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
“Power of compounding! The 8th wonder of the world! He who understands it – earns it, he who doesn’t – pays it!” Albert Einstein
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HOW TO SAVE FOR BETTER RETURNS
How do Romanians save now?
Source: Capgemini and RBC Wealth Management, 2013 World Wealth Report. Real Estate excludes primary residence.
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TOTAL DEPOSITS OF ROMANIANS
Year
Total*
2012 2013 2014 2015 Mar 16
99 134 104 194 106 628 106 873 106 174
Term ≤1 an 90 939 93 708 93 847 91 520 90 351
Term > 1 an 8 195 10 485 12 781 15 353 15 822
*Million RON Source: National Bank of Romania
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DEPOSIT RATES IN RON AND EUR
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MONEY IN INVESTMENT FUNDS
Year
Total funds*
Domestic
Foreign
2012 2013 2014 2015 Mar 16
8 678 10 313 14 244 16 222 16 306
8 678 10 230 13 877 15 708 15 833
83 366 514 473
*Million RON Source: AAF (Asociatia Administratorilor de Fonduri din Romania)
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DEPOSITS VS MUTUAL FUNDS
Year
Total funds*
Deposits
Mar 16
16 306
106 174
Share
13 %
87 %
*Million RON Source: BNR and AAF
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(NORMAL) DISTRIBUTION OF WEALTH
54.7 %
Shares and alternative investments
BONDS
CASH AND DEPOSITS
REAL ESTATE
Source: Capgemini and RBC Wealth Management, 2013 World Wealth Report. Real Estate excludes primary residence .
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HOW TO INVEST FOR BETTER RETURNS
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 www.finzoom.ro
TYPES OF MUTUAL FUNDS
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PRINCIPLE OF INVESTING IN SHARES
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.
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RETURNS STABILIZE OVER LONG TERM
Return on S&P from 1926 - 2005
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BENEFITS OF REGULAR INVESTING Date
Date
Price
Price
Price
10
8
7 Price
5 Price
12 Investment
Unit price
#
2,500
10 250
Total 2 500
8 250
The difference is interesting
Current value
2,000
Investment
500 500 500 500 500 Общо 2 500
Ø price 7.68 Unit price
#
10 50 5 100 7 71.4 12 41.6 8 62.5 7.68 325.5
Cur Value
2,604
More for a smaller price.
This graph is only for illustrative purposes
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EXPECTED RETURNS OVER 30 years 183к
The difference would be enough to pay a pension of ~ 750 monthly for 20 years 121к
49к*
+ 100 monthly
77,6к 48,3к
5к
7,3к 5,4к
5г Historical data for S&P and bonds since 1926г
28,1к
15,6к
5,8к
6,2к
10,7к
10г
12,3к
22,9к
-4,5к
6,7к
15г
33,5к
20г
50/50 – shares/bons– 7,9% Inflation – 3% CAGR since 1926 Deposit – 1.5% With monthly instalment of 100 – 7,9%
7,2к
25г
7,8к
30г
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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
YOUR FUTURE IS DETERMINED BY WHAT YOU DO TODAY, NOT TOMORROW
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www.finzoom.ro Thank you for your attention! DEYAN VASSILEV/ Chairman FINZOOM.RO БЪЛГАРСКИЯТ ФИНАНСОВ ПЪТЕВОДИТЕЛ БУЛ. "СТЕФАН СТАМБОЛОВ" 28, ЕТ. 2. СОФИЯ Тел: +359 2 987 50 88 / Мобилен: 359 88 8351 943 e-mail: deyan@moitepari.bg