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Sanderson Abel
Financial planning can be defined as the process of meeting your life goals through the proper management of your finances. Alternatively, financial planning is an ongoing process to help you make sensible decisions about money that can help you achieve your goals in life. Life goals can include buying a home, saving for your child’s education or planning for retirement.By planning your finances to meet your goals you will have a much greater confidence of where you are going in life, reduce your stress levels and start to enjoy life more, and gain control and peace of mind through knowing whether you’re on track for the future you want for you and your family.
Is financial planning a process or event?
Financial planning involves a number of things including thinking about how your family will manage without your income should you fall ill or die prematurely, spending money differently, but it involves thinking about all of these things together i.e. your ‘plan’.
This implies that financial planning is a process and cannot be taken to be an event. There are a number of steps that need to be followed in financial planning.
Establish your goals in life – short, medium and long term
Work out what assets and liabilities you have – write them down
Evaluate your current financial position – how close are you to achieving your goals?
Develop your plan – create a “route map” for achieving your different goals
Implement your plan – make the changes and make it happen
Monitor and review your plan at least yearly and make adjustments when needed
What is involved in financial planning?
Set measurable financial goals – Set specific targets of what you want to achieve and when you want to achieve results. (eg Instead of saying you want to be “comfortable” when you retire or that you want your children to attend “good” schools, you need to quantify what “comfortable” and “good” mean so that you’ll know when you’ve reached your goals.)
Understand the effect of each financial decision – Each financial decision you make can affect several other areas of your life. (eg an investment decision may have tax consequences that are harmful to your estate plans). Or a decision about your child’s education may affect when and how you meet your retirement goals. Remember that all of your financial decisions are interrelated.
Re-evaluate your financial situation periodically – Financial planning is a dynamic process. Your financial goals may change over the years due to things like an inheritance, marriage, birth, house purchase or change of job status. Revisit and revise your financial plan to stay on track with your financial goals.
Start planning as soon as you can – People who save or invest small amounts of money early and often, tend to do better than those who wait until later in life. By developing good financial planning habits such as saving, budgeting, investing and regularly reviewing your finances early in life, you will be better prepared to meet life changes and handle emergencies.
Be realistic in your expectations – Financial planning won’t change your situation overnight; it is a lifelong process. Remember that events beyond your control such as inflation or changes in the stock market or interest rates will affect your financial planning results.
Realise that you are in charge – If you’re working with a financial planner, be sure you understand the financial planning process and what the planner should be doing. Provide the planner with all of the relevant information.
What factor can make your
financial planning successful?
There are several things that you can do to enhance you plans on a daily basis to increase your financial acumen:
Be as informed as you can about your finances. After all, you are the one who is going to have to live with your decisions.
Try to find a financial institution or financial advisor that is knowledgeable, that you can trust, and with whom you can work comfortably. They will not make all your decisions, but they should be able to help you put your situation into perspective and help you evaluate your options.
Try to develop good financial habits. Just paying attention to how you spend your money will probably lead to some ideas about how to save more. Over time, your savings can make a large difference in your future financial lifestyle and the success of your business.
Do the easy things first. Starting to save early for a college education, instituting a direct credit to your account for you pay cheque, and using some form of automatic saving plan will help you accumulate funds. In addition, you will know you are taking positive actions.
Try to develop a financial plan of some sort. It does not have to be complicated or extensive. In fact, you may want to tackle one part of your finances at a time, such as looking at all your insurance needs. Breaking up a financial plan into smaller, workable pieces can make it easier to create.
Research credible sources. Your personal relationship banker or financial advisor could be the great places to start.
Sanderson Abel is an Economist. He writes in his capacity as Senior Economist for the Bankers Association of Zimbabwe. For your valuable feedback and comments related to this article, he can be contacted on [email protected] or on numbers 04-744686 and 0772463008.
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