Quote of the Week: "Planning is bringing the future into the present so that you can do something about it now."~ Alan Lakein.
Planning is essential when you intend to make your goals and dreams a reality. We all have dreams and goals. While they are different from one person to another, there is one thing most goals and dreams have in common, money. Money is a central resource to achieving goals as it powers them. This is why we all need a financial plan! But what exactly is it? It is an evaluation and projection of your current and future financial position. There are 5 key elements of a comprehensive financial plan:-
A budget is the life-blood of personal finance. You will always need one. A budget is the only way you can tame your expenses. We could all use some extra money as the demands on it are endless. Ensure your budget is comprehensive and covers all aspects of your finances be it loan repayment or savings.
Personal finance is all about balancing income and expenses. Expenses tend to increase with time. Ideally, your income should increase at an equal or higher rate. Investing is a great way to achieve this. It can take the form of active investments (business or farming) or passive investment (investments in Unit Trusts, stocks or treasury bills and bonds) or even investing in yourself by going for further education or learning a new skill to increase your income. Hence, your financial plan must have an investment strategy.
3. Debt Management
It is no secret that debt can hold you back. However, it is sometimes unavoidable. Take up debt only when absolutely necessary, otherwise avoid accumulating it especially if it does not help you increase your wealth in the long term. Avoid credit cards and use cash every time you can. If you already have debt, create a plan to pay it up in the shortest time possible.
Any good financial plan must have a solid savings strategy. First, get an emergency fund. In addition to this, get a good and flexible savings product to finance your various goals. Set savings target and reward yourself when you meet them. It is advisable you save at least 10% of your monthly income. Ensure your savings earn you competitive interest, preferably higher than the prevailing rate of inflation.
Most people forget (or ignore) to plan for this, but doing so proves to be a very costly mistake when they eventually retire. Those who start saving for retirement early have more in the end. Take advantage of time and start today as well. You don’t need a lot of money to open a personal pension plan account and get started.
Conclusion: This is obviously not everything your financial plan needs. However, the goal is to master the basics before moving to the next level.