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Creating Your Personal Financial Plan

Planning is bringing the future into the present, so that we can do something about it NOW Alan Lakein

Are you living without a financial life plan? Without a personalised financial plan, you are like spectators in what is supposed to be a game about your own life; an onlooker watching as the drama of your life unfolds.

Are you are just living to pay bills? Are you just coasting along, reacting to events as the present themselves? You may manage a holiday or two a year; afford presents at birthdays and anniversaries but is there a ‘well-thought-out’ plan about what your finances would look life 2, 5 or 10 years down the line?

You have dreams quite alright!  You may even have big aspirations for your future but dreams can’t fly without a plan!  Is there a plan on how to afford your dream home? How do you plan to fund that Ivy-League education you want for your children?

I know you have ‘investments!’, may be even a pension plan through your employer but how do they fit into the big puzzle of your life? Did you buy the investment based on the promise of mouth-watering returns by financial professional combined with a desperate attempt to look sophisticated rather than based on your own plan?

So what is financial planning?

It is about deciding the things that are important to you in life, quantifying how much money you need to achieve them and managing your money in a way that enables you to achive the things you set out to achieve; buying/building your dream home, saving for your children’s education, having enough money to last you your lifetime or giving to make a difference in the lives of others, whatever you consider important to you!

It is about being INTENTIONAL with your money; being an ‘The Actor’ in your own drama, the ‘Star’ of your own movie!

It also involves choosing financial products such as investment and insurance products carefully and wisely based on your own financial goals.

In addition, a good financial plan accounts for things that can derail your plan and helps you prepared for the worse.

So let’s take a look at 5 stage process in establishing a financial plan;

  • 1: Establish your financial goals

This is simply about writing down the things you want to achieve in life, working out how much money you need to achieve them and by when.

We encourage you to set short, medium & longer term goals. In our coaching programes, we use the SMARTER Financial Goal Model with our clients. This model empowers you, not only to set goals that are specific, measurable and realistic but also review your goals regularly, giving you a greater chance of achieving them.

  • 2: Examine your current financial position

What is your current reality? What is your current income and expenses? Do you have any surplus income that you could put towards your goals? What debts do you currently have and how do you plan pay them? What existing savings, investments and other assets do you have and where do they fit in your overall plan?

These are the questions you need to answer at this stage and completing a Financial Networth, which is simply a list of your assets and liabilities, can be very useful here.

  •  3: Establish a Gameplan

This involves  laying out a plan of how to use your existing resource and expected future income to achieve your goals.

There are key areas of your finances, where you need to have clear specific plan. Check  out  the ‘Wheel of Wealth‘ the process we use with our clients.

You are likely to also have several financial goals demanding your attention and you will also need to decide in what order to approach them. Oftentimes we do not make financial progress, no matter how hard we work at it because we are trying to do too many things at the same time. The approach we use with our client is to encourage the to take ‘Baby Steps’. This amplifies your progress because you focus your attention, energy and resources on doing one thing at a time.

You also need to work out how much you can afford to set aside each money to achieve your goal and amy even need to work out new source of income.

 

 

 

 

 

 

 

 

 

 

 

 

  • 4: Stress- test your plan

I hate to be the one to break it to you but ‘stuff happens.’ Whether you like it or not, there is a risk that the unexpected and the unpleasant will happen in your lifetime; a job loss, health problems and God-forbid, death!

A good financial plan helps you prepared for the worse. Having an adequate emergency fund in place is very important as well as the appropriate insurance policies.

Think about this;what if…  …you die, who is going to look after your family? What if… you loose your job, or you are unable to work due to accident or illness?

What ‘Emergency Fund’ do you have? We recommend having 3 to 6 times your monthly expenses in an easy-access account, just as your emergency fund.

You also need to review insurance policies you have. What do they cover you for? Do you need them? Are they adequate?

  • 5: Regular  Review  & Stay Informed

It is also very important that you constantly review your goal. Depending on wether they are short, medium or long term, you may need to review them monthly, half-yearly or annually.

Finally, stay informed with happenings in the financial sectors; new products, changes in tax regimes, etc. I can assure you things might have changed between when you started reading this and when you finish; the government seem to be changing the rules them every week now (just kidding, it’s not that frequent). So you need to keep yourself updated with useful financial information as this may affect you plan.

DIY or Professional?

Wether you need the help of a financial professional depends on how complkcated your finances are and how  good you are on doing your own research and making decision on financial matters.

Personally, I think most people will need some sort of help but then again, what do you expect me to say? Frankly though, while it is possible and crucial that you stay in control of your finance and have a good level of financial awareness, there is huge advantage in talking to a financial planner. They are trained  to ask structure questions and spot what most people tent to ignore.  Choosing suitable investment and insurance product is very complicated and  will almost certainly require some professional help.

If you want to speak to a financial coach to help you started with your financial plan for 2012. Get in touch with us

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