How to Make a Realistic Financial Plan

 

This post will guide you on how to make a realistic financial plan or simply prepare a personal budget that will give you the most control of your financial future. As the saying goes, he who fails to plan, plans to fail. If you want to learn the key steps for developing an achievable financial planning for yourself and your family or household, then this post is for you. 

Personal finance involves all aspects of your financial life, including saving, spending, banking, mortgages, investments, retirement, tax, and estate planning.

Personal financial planning enables persons and families to take better decisions on using financial resources, improve their standard of living and reduce their debts and financial stress. Steps in personal finance planning include the following.

 Step 1: Determine your current financial position

Determine your current financial position by gathering information about your assets and liabilities and evaluating your net worth.  Your financial position is explained in terms of your possession of cash at bank and in hand, and other assets that contribute to your ability to meet your short term and long term needs. And also in terms of your liabilities or what you owe to other persons, tax authorities, landlords, etc. Your net worth is the difference between your assets and your liabilities.

 Step 2: Setting financial goals.

Your financial goals can be the purchase of new motorbike, a 5G mobile phone or a house. For some people, the goal can be a travel to Mecca for Hajj, a visit to Paris for vacation, saving money for investment in stocks or for retirement, paying for school fees, etc. These goals can act as incentives, helping you to stay focused on saving the amount needed to achieve them within the specified period. In setting your financial goals ensure that they’re specific so that you know exactly what they are. Your goals should be realistic. This means they should be achievable given your financial position and life situation. Your financial goals can be divided into short-term, intermediate and long-term goals. Short-term goals can be achieved in a year or in some few months, for example, saving money for a buying a handset. Intermediate goals have a time frame from one to five years, for instance, establishing an orchard for orange trees. Long-term goals are achievable in more than five years, for example, owning a personal house before retirement.

 Step 3: Designing the financial plan

A well-designed financial plan should match your personal goals. At this stage, a personal budget is made to show the allocation of future income to spending, saving and investing. A budget puts you in control of your money. It does this by guiding you to spend more on things you like, less on unnecessary things, and nothing on things you don’t like at all. A budget can be designed based on your past income, expenses and personal debts. Other important things to consider in designing a financial plan are flexibility, liquidity and protection. Flexibility is about planning for the unexpected. Liquidity is the availability of money whenever needed while protection is about available support and measures such as having a diversified investment for addressing financial security threats. 

 Step 4: Implementing the plan

Implementing the plan means executing the provisions of your budget to achieve your financial goals. You need to be recording the actual amount of income you’ve received and the expenses you’ve incurred, and comparing them with what is in the budget. This helps you to track your performance. It will also serve as basis for evaluating the implementation of the budget and for revising it.

  Step 5: Reviewing the implementation and revising the plan

At the end of the period for which a financial plan is made, you need to review the implementation of the plan before making another one for the next month or year. You need to identify area where success in recorded and areas needing improvement.  Many things can change over a period of time, prices can go up or come down, new products and services can emerge and the production of old ones can be put on hold for one reason or another, so you need to revise your financial plan when planning for next period.

 Things to remember while creating a financial plan:

 •  Your budget is what will give you the most control of your financial future.

•  Your short and intermediate term goals should facilitate the realization of your long-term goals.

•  You need emergency fund to reduce financial stress.

• You need to be flexible when implementing the financial plan to go with time and to respond to prevailing challenges.

• Married couples can work together on the budget for having the same level of commitment towards achieving it. 

 Conclusion

The concluding remark for this post is that living without a realistic financial plan, a plan that takes your financial position and life conditions into account, can lead to mismanagement of financial resources at your disposal, hinder the setting and realizations of your financial goals, and by extension, your life ambitions.

 Please feel free to contribute to this post by responding to any of the following questions:

1.      Share Your Success Story: Have you successfully implemented a financial plan? Share your story in the comments and inspire others to take control of their finances.

2.      What Are Your Financial Goals? We all have different financial goals. Tell us about your goals and how you're working towards them. Your insights might help others set their goals too.

3.      Got Questions or Challenges? If you're facing challenges in creating a financial plan or have questions about specific aspects, ask in the comments.  Other readers may also help and provide guidance!

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