Personal finance is a very private journey as the name implies. We all have our unique perspectives on what success looks like, we have differing sources of income, disparate priorities and very individual financial goals.
As such, there is no one-size-fits-all approach to achieving financial success. But there are fundamental building blocks that transcend the very wide range of financial ambitions every person has.
To explore these building blocks, we take a look at eight questions you should ask a financial expert about your personal finances.
To start, it’s clear that you should have a financial plan that acts as the backbone of all your financial decisions.
Addressing this question helps to outline your financial priorities. It makes it easier to set attainable financial goals as per your financial capability.
Whether you're going back to school, going on holiday, planning your wedding, or planning your retirement (to name a few), no financial goal is off-limits for dialogue. The expert advice you get will guide you on what you should prioritise.
For instance, a financial expert could recommend focusing on specific high yielding investments to build up your savings fund to achieve your goal of buying a car successfully.
Prioritisation is of absolute importance if you are to stand any chance of achieving your most cherished financial goals.
“As Your Life Changes, So Should Your Questions.”
Think back and ask yourself if you can recall how many changes you’ve had to make over the years.
You probably have made countless changes to your lifestyle, goals, career as you go through different phases of your life. It is likely that some of these changes were just intuitive and straightforward to make - others, the ones you are most likely to remember, must have taken much more consideration and deliberation.
There is a reason many choose to call the process of planning your finances your ‘financial life’. This is because, at every juncture of your life, you have different financial needs, your risk tolerance changes, your knowledge levels are different and so is your income earning potential.
As such, it is incredibly important that you make the right adjustments financially as your life situation evolves.
To get you started, consider your current lifestyle and what you want to achieve, then ask yourself:-
You can explore your options here with the help of a trusted friend, spouse or a qualified financial advisor.
You’ve heard it before, and it is just as valuable to reiterate - Plan Before You Act.As such, it is in your best interest to be honest about your financial situation and what you want to accomplish.
A realistic budget is one that accurately reflects your true expected monthly income, balances out this income with total expenditure and allows for an amount of savings commensurate with your personal growth targets.
The emphasis on realistic is specifically about your budgeting matching your intended financial goals. How long before you buy that car? move houses? invest in real estate? or fill up your emergency fund?
You have already set timelines for achieving your goals - which you should then measure against your budget to see if the income unutilised by expenses (savings) can allow you to meet those targets.
By asking this question, you are able to make the necessary adjustments including but not limited to foregoing discretionary expenses, increasing your income, redirecting your savings to higher yield vehicles or doing a complete overhaul of your expenditure planning.
The impact of recent world events and the Covid 19 pandemic continues to bring about unexpected events that change how we do things.
We are living in arguably the most uncertain times in history - which reinforces the importance of emergency preparedness at the individual level. Specifically, financial emergency preparedness.
Whether it is loss of income due to a layoff, illnesses, unanticipated travel costs, or unsuccessful investment decisions, it is now important to think about how an adequate emergency fund should look like for yourself. This is as opposed to merely having a fund for emergencies.
While the rule of thumb is to keep up to six months worth of living expenses in an emergency fund, you may want to do the math to arrive at a figure that best represents your needs.
Next, you have to come up with a strategy that helps you build this fund. Do you need to take a special insurance cover? Is it absolutely necessary that you channel any additional income to this fund?
You want to have a plan to quickly but sustainably build an adequate emergency fund as soon as possible.
"I'm stuck between, I need to have money, and I only live once" – does this sound like a familiar thought you've had or have as an excuse to slack off on your finances?
Well, regarding financial investment, these are some pointers to know:-
Remember that investments experience highs and lows too. Therefore, your focus should be on identifying if your investment strategy is still viable and if it will meet your financial goals.
If an investment strategy proves to be non-viable, talk to a financial expert about practical options and strategy changes.
Have you started saving for retirement? If not, being informed about the available retirement plan options should be your first step. You will typically need to readjust your finances to allow you to save for retirement.
If you have been saving for retirement for a while now, it is time to audit the suitability of the retirement strategy in place. Are your retirement savings secure from inflation, for example? Are you getting the best interest rates on your retirement savings?
Depending on your level of knowledge, you are likely to need the advice of a financial planner well-reversed with retirement options to help you make sure your savings are in the right place and are growing at the highest rate possible in the market.
TIP: Retirement is a long-term goal that requires strategic, long-term planning. So, the sooner you stay ahead of current and possible problems, the better off you are.
If you are growth-oriented, which you should be, then by default you are always curious about new developments in financial planning and want to get ahead of the trends.
One route to succeeding at this is active self-education by subscribing to the right publications, taking short courses, participating in forums about investment and personal finance and practising the skills earned.
Another route, and typically a step two to the above, is consulting an expert in the field you are interested in. For instance, the cryptocurrency fad has been gaining a lot of traction the last few years and you may want to truly understand the risks and opportunities in this area.
To make this truly beneficial to your financial growth, it is important to set personal financial literature goals for yourself. Identify a concept/opportunity you would want to be fully knowledgeable about and create timelines.
You could then be meeting your financial advisor once every quarter to get expert recommendations on your next course of action.
In personal finance, ignorance is not blissful. It is detrimental to your finances, as well as your lifestyle goals.
First, understanding the implications of prevailing market conditions on future viability of your financial plans is an absolute necessity. You want to review changes in the market in line with your financial interests in those markets.
If you are invested in the export and import markets, the projected changes in the value of the local currency against the Shilling is of interest to you. And so are the changes in the global markets such as oil, which affect the cost of shipping and affect your profit margins.
The same goes if you have invested in the stock market which is affected by local and global changes in the industries the company you have bought shares in operates.
Second, is the regulatory regime in the industries that you are invested in. From time to time, laws may change making it either easier or harder to do business in an industry. For example, the government may impose quotas on the importation of certain products which may or may not be good for you based on what side of the divide you are in - getting ahead of this, can save you a lot of money or make you more.
It is important to be well versed with existing and changes in consumer protection laws such as deposit and policyholder compensation laws, the implications of investing in unregulated funds and so on.
"A prudent question is one-half of wise." _ Francis Bacon
Undoubtedly, you will experience ups and downs in your financial journey. So you can't afford to be ignorant about factors that may impede or accelerate your financial growth.
Work with a financial expert to verify and confirm that you have the correct information.
Keep the dialogue going.
So, if you have questions - Ask! Ask! Ask!