As the new year comes with new surprises and excitement, it is easy to lose yourself in over-spending. This article will help you understand the need for a financial plan and ways to set one up.
We all want to have good money management skills. This includes creating and sticking to a financial plan, whether you are planning for yourself or your family.
What is a Financial Plan?
It is a comprehensive evaluation of an individual’s current finances or resources, financial goals and management tactics towards achieving those goals. Therefore, Financial Planning is the approach an individual takes in managing those resources (current and future) as he seeks to maximize his financial opportunity and mitigate losses from future unexpected events.
Steps Towards Preparing A Good Financial Plan
Set your financial goals: Clearly define the goals you would like to achieve with your current and future resources. These goals could be purchasing a new car, relocation, or retirement. It helps knowing what the target is wen trying to understand how to achieve them.
Track your money: In setting up your financial plan, you need to understand your income vs. expenditure first. This way, you can identify those unnecessary spending you need to put an end to in order to improve your position financially.
If you have a high interest debt, a budget can help you understand the need to prioritize repayment of those debt so that you can be relieved of your debts a soon as possible. Check out our article ‘What should I prioritise: Debt repayment or savings and investments?’ for more information on balancing debt repayment and savings and investments.
Select a saving and investment plan: Getting a savings plan is easier these days with the myriad of financial products available. These products can help you decide how best to save your money as it relates to how liquid you want it to be. The widely known ratio is 50/30/20; where 30% goes to your savings, 20% to expenditure on things like dinner or entertainment, and 50% on essentials like rent and paying off debts. Deciding on your savings-investment ratio may depend on the availability of financial products and access to financial expertise.
Build your emergency fund: As mysterious as life is, you would not want to be in position where you ‘lose guard’. A good financial plan would always contain contingency plans for bad days. This might mean you need to set aside some money with some level of liquidity for times of emergencies. Saving up about 3 months’ worth of expenses might be a good way to start.
Sticking to your budget: A big part of maintaining your long-term financial plan involves sticking to your short-term budget.In project planning, monitoring your progress during the execution phase is key in ensuring the project is being executed as planned or if adjustments are needed. This concept also applies in financial planning as tracking your income and spending habits to ensure they are in line with your financial goals is key. This way, you can identify those unnecessary spending you need to put an end to in order to improve your position financially.
It is easy to lose yourself and deviate from your budget but remembering what the goal is through whatever means necessary is important. You could try putting it on your Vision board or in your daily jotter putting it up as your wallpaper. This, we feel is the most important step as straying away from your budget or financial plan may be injurious to your commitment towards your goal.
We hope you have enjoyed and most importantly learnt from this article. Do have a great week ahead.
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Voigt, K. (2021, August 4). What Is a Financial Plan, and How Can I Make One? NerdWallet. https://www.nerdwallet.com/article/investing/what-is-a-financial-plan
6 Reasons Why You Need a Budget. (2021, August 27). Investopedia. https://www.investopedia.com/financial-edge/1109/6-reasons-why-you-need-a-budget.aspx
Steps for Money Management and Financial Planning. (2017, March 29). YouTube. https://www.youtube.com/watch?v=CU4l_rs50Kk&feature=youtu.be