Have you ever paused to consider having a financial plan? If not, now is the time to do so. A financial plan is essential to achieving financial fitness and ultimately growing your wealth. It is a comprehensive picture of your current finances, your financial goals and the strategies you have set to achieve those goals. There are 3 essential components that I will like to emphasize. Financial goals, net worth and your budget. These 3 points must be clearly covered to ensure your financial plan is robust.
FINANCIAL GOALS
Your financial goal is what you want to achieve concerning your finances. A desired result for your finances which you INTEND and COMMIT to achieve. A good financial plan should include short, medium and long term goals.
SHORT TERM financial goals are targeted to be achieved within a relatively short period of time – within
12 months to 3years. Examples include:
· Build up your Emergency fund.
· Plan to Pay your rent, insurance premiums and professional subscriptions.
· Make a payment on your Credit card debt payments.
· Purchase Personal goods.
· Plan for a Wedding.
· Plan to make Minor repairs and improvements to your home
MEDIUM TERM financial goals are targeted to be achieved between 3 and 10 years. Examples are:
· Build up savings towards buying or building a house
· Saving enough for a down payment on a house (if considering a mortgage)
· Paying off a Cooperative loan
· Starting a business
· Starting a second career
LONG TERM financial goals are targeted to be achieved beyond 10 years:
· Building up a Retirement fund.
· Paying off a mortgage.
· Starting a business.
· Saving towards your child’s college and university education.
NET WORTH
Good financial planning should include details of your current financial circumstances as these will guide your actions. It is therefore important that your plan considers your net worth. What do you own (your assets) and what do you owe (your liabilities)? Your net worth will determine your strategy to achieve your financial goals.
BUDGET and CASH FLOW PLAN
A budget is essential for your financial plan to be useful. A budget is an estimate of your income and expenditure for a set period of time. You need this to achieve your financial goals. A budget will help you spend as planned and keep you focused on the targets set in your plan. Eg, you can allocate your expected income in a period towards the different elements of your short, medium or long term financial goals.
