Financial planning is an in-person thought that includes a variety of life goals, including starting a business, getting married, buying a home or investing, and taking children to school, to name a few.
We all have these life objectives and can develop a financial strategy to achieve them. It is a mid holiday and you probably are thinking about the new year resolutions to achieve one, two, or three… of your goals.
This is your personal financing plan that will take you to the peak of your goals. However, money problems are inevitable to the extent of ruining such a plan.
The good news is that there are strategies you can pick up to shield your plan from such setbacks and be able to finance your goals. Continue reading for insights about a personal financing plan and the tips you can employ to take it to the next level.
In one way or the other, you have some knowledge on this topic. According to Investopedia, Personal finance refers to the management of your personal income (money), expenditure, assets, liabilities, savings, and investment.
Through personal financing, you can meet your goals in life. And to be able to manage your finances, you need a Personal Financing Plan.
Therefore, a personal financing plan is the analysis of your personal finances to determine their feasibility to your life goals and understand the steps you need, to achieve them.
It examines your existing financial situation, goals and highlights the best strategy to achieve them. A personal financing plan also prepares you for unanticipated financial problems by drawing a clear line between emergency savings and savings based on your goals.
Personal financing in Kenya comes from income (salaries, wages, bonuses, dividends, commission, etc), loans, savings, and investments. Kenyans are hardworking individuals and making money isn’t an issue. But setting up and managing a personal financing plan can be a bit challenging. Here is how you can come up with a good personal financing plan to manage your finances.
I know you may be thinking about your profession here. But coming up with a personal financing plan does not require you to be an accountant, economist, or have a financial background.
Most importantly, you have your goals set and a budget to achieve. Here are the steps you can use to set up the best personal financing plan;
These can be short-term, monthly, quarterly, or long-term – like yearly or more than a year. Make sure that the goals are specific, measurable, attainable, relevant, and time-bound – SMART. For instance, if your long-term goal is to save at least Ksh20,000 by the end of next year, your short-term goal should be to save Ksh1000 by next month.
This is the most significant part of your plan. Clear goals give you direction in financial decision-making and take your plan to the next level.
Come up with a monthly cash flow plan; showing how much you will save, invest or spend each month. The budget gives you an insight into your spending power and guides you in the right direction to take your money. It helps you to evaluate your daily spending and highlight areas where you need to make changes. For instance, cutting on unnecessary spending and utilizing pocket change after meeting all expenses.
You have your goals in place and a budget on cash flow. The next step to take is to develop emergency savings. This will help shield your plan from uncertainties that can lead to loss of income – like diseases and pandemics, loss of a job, or unexpected bills.
Make sure your emergency savings covers up to 50 percent of your expenses. An emergency fund is a significant component of a successful personal financing plan.
Personal debt is the last thing everyone wants to live with, but it is an issue you cannot ignore if you want to grow financially stable. A personal financing plan cannot work if you don’t feature in how you will pay for your debts.
Include a procedure for reducing debts incurred from personal expenses with high-interest rates and costs. For instance, go for a personal loan with affordable interest and payment terms. Your plan should include action towards living a debt-free life.
Here, you should come up with ideas that will make your money work for you. This is an investment plan and making it clear enables your personal financing plan easier to execute.
Set up your long term goals to achieve here – like in the next six years I need to have saved over Ksh500,000, I need a plot/land.
Your investment plan can include common forms like real estate, stock market, bonds, mutual funds, private companies, commodities, insurance among others.
Now, the personal financing plan is ready and the next step you need is to implement it. This is where problems arise. To ensure that your plan is fully implemented and smoothly working, you need the following strategies to take it atop your life goals;
Review your financial goals and budget regularly to understand your current situation and ability to move forward. This can be done monthly or after a few months to avoid irregularities in spending.
Keeping track of the plan will enable you to accommodate significant events in your life like getting married, having a child, or taking care of a relative.
To keep your plan flowing, increase the amount of money you are saving or investing. Make sure you do not have excess cash. Having much cash at hand will lead you to irregular spending. If you have excess money left after budgeted expenditure, put it back into your savings account or emergency savings.
In case you earn bonuses or commission, increase your savings budget to meet your financial goals.
Identify expenditure that increases your debt-to-income ratio and avoid it. These can be expenses arising from an increase in your salary. For instance, at your first job earning you stayed in a single room, when your pay increases you move to a one-bedroom house –meaning your expense on lifestyle has increased.
One way to avoid lifestyle inflation is to stick to your personal financing plan. When your salary increases, increase your savings and investment amount.
Retirement can be early or late. You do not have to work until the normal retirement age and enjoy full retirement benefits. Retiring early can give some benefits like achieving a lifestyle dream you ever had. However, this can be achieved best on a personal financing plan you have now.
Set aside some money for your future; determine how much you will need when you retire –annual expenditure. Determine the amount in assets that will be able to finance your retirement life and include it in your plan.
A good retirement plan increases the ability to tackle the future and be able to finance and achieve life goals.
Regardless of your financial situation, a personal financing plan can help you achieve all of your life goals. Having a personal financing plan and following it to the latter is one key step to achieving your goals in life.
These recommendations will help you take your personal financing to the next level and realize your goals, whether you want to establish a business, build a house, purchase a car, get married, further your education, or a variety of other goals.