Many people these days do not see the value of financial planning and the impact it might have on their life.
Everybody has some financial goals, some dreams about the future, such as having a nice big house with an enormous garden and a swimming pool or driving a fast and luxurious car. In order to achieve this, we should have a financial plan that will guide us when we spend our money.
Financial planning is important because it gives you a clear picture of how much money you earn and on what you spend it. Many people buy a lot of small things that they do not even need and might never use, and at the end of the month they wonder where all their money went. Having a financial plan prevents you from buying useless clutter and spares you from unnecessary expenditure.
3 steps to draw up your own financial plan
You can draw up your own financial plan by completing the following three steps:
1. Understand your current financial situation
Before completing the first step, you must be acquainted with the meaning of financial planning.
Having a financial plan is like having a guide for the financial part of your life. It gives you a clear view of your financial situation and allows you to track your income and expenses. Most importantly, it helps you to achieve all your financial goals. Observe your finances for about a month. Look at how much you spend and on what you spend it. Look how much money you have saved over the past years, and then create your own personal system in which to record all this data. Make a table in Excel, download a special app, or just write it down in a notebook.
The important thing is to find something that works for you; this way, you will always be aware of the state of your finances. Only then can you proceed to the next step.
2. Set goals
The second step is to set your own personal financial goals.
Your goal might be to buy a new car, a house, some jewelry, clothes, a new phone, books or something else that excites you. If there is nothing in particular that you want to buy in the near future, you can start saving money for after you retire or for your children’s college education. However, your goals should be realistic and achievable. Much of the human population is under the illusion that they can achieve something in a very short period of time, such as losing 10 kg in a week or saving up enough money to buy their own airplane in just a month. It is not impossible but tremendously hard to achieve. If things do not work out the way you thought they would, you will feel angry, depressed, and downcast and you will soon give up, and that is not what you want to happen. Patience is one of the keys to success.
As Mahatma Gandhi once said, “To lose patience is to lose the battle.”
Therefore, it is important to plan carefully and not rush things. Which leads us to the next point.
3. Make a main plan and an alternative one
Think about your goal and how much money you need in order to achieve it. Then consider the time frame in which you want to accomplish the goal, for example 5, 10, or 15 years. As mentioned in the previous step, it is important that you do not set too short time.
After you have established your goal, calculate how much money you need to set aside every month or every day in order to be able to buy what you want by the date you have set. However, life is unpredictable and full of surprises. Anything can happen, and things might not go exactly according to plan. For example, your phone might break and you might need to have it repaired, which wasn’t in your plan. Therefore, you must have an alternative plan. For example, if there was something that you wanted to buy, such as new shoes and a nice dress, and it was part of the plan, you might have to put it off for another time. When you have an alternative plan, or even plans, if something unexpected comes your way, you will not feel discouraged and give up. You will be prepared and ready to face it.
One of the many benefits of having a financial plan is that it helps you save mony. It puts you at ease knowing that you have saved some money in case of an emergency and you will not have to worry about money while dealing with it. In addition, you will not need to restrict yourself too much, and you will always be able to pamper yourself or reward yourself after some success in your life. Many people believe that saving money means sacrificing certain things such as going on vacation, a meal in a restaurant, or buying new clothes, but it doesn’t necessarily mean that. It is actually the exact opposite. Saving money helps you cut out the things you do not need in life and it allows you to have a better standard of living. With financial planning comes an increase in your savings and it assures you of a better future for you and your family.
As Benjamin Franklin once said, “If you fail to plan, you are planning to fail.”
Everybody has dreams and goals, but not everybody can achieve them. Only with determination and a plan will you be able to realize your dreams and goals and ensure a better future for yourself.