Financial planning made easy
A lot of people complain about the sad state of their finances. Yet, they continue to do the same things
FILIPINOS are indeed a hopeful bunch. Unfortunately, many are content with just being hopeful without doing anything about it. What good is it to hope for a better life for your family if you don’t do what’s necessary to turn these dreams into reality? A lot of people complain about the sad state of their finances. Yet, they continue to do the same things; they continue go about their lives with the same passive attitude; they continue to succumb to their bad habits. If what you’ve been doing all these years failed to improve the financial condition of your family, isn’t it time to try something else?
For a change, use that hopefulness to fuel your burning desire to achieve greater and better things for your family. Begin by overhauling yourself. Change the attitude. Drop the bad habits. Do more of the things that will move you closer to your dreams. Create a plan of action.
To have an organized and structured plan of action, do the following:
Define your goals. Call it dreams if that evokes a more powerful mental image. To achieve greater things, you should have a dream. And not just any dream, it should be a clearly defined dream or goal.
Your goals should be specific and as detailed as possible. Instead of “I want to retire rich,” state “I want to have P5 million in retirement funds 20 years from now.”
Goals should also be achievable because unrealistic ones set you up for failure and will only cause distress. All goals should have a deadline so that you will have a sense of urgency in working for it and let you monitor your progress. Finally, write down your goals; don’t keep it in your head where it can be forgotten.
Prioritize your goals. Like me, you probably have many dreams in life. However, with limited resources and time, we should prioritize our goals. Focus should be given to those that are most important. It is also a good idea to categorize your goals into short-term (less than three years), medium-term (three to seven years) and long-term (more than seven years).
Assess your financial standing. After defining and prioritizing your goals, you need to assess your current financial condition so you will be able to gauge how near or far off you are from your dreams. You need to take stock of what you currently have—savings, investments, insurance, pre-need plans, cash flow (income and expense)—so you know how much resources you have available to reach your goals. If it turns out that some of the goals you have written appear unrealistic in view of your present financial status, go ahead and change them.
Draw up a plan. Once you determine the resources at your disposal to attain your goals, you will now create plans for spending, saving and investing. Shop around for investment products; your basic choices are special savings and time deposits, insurance and pre-need plans, Unit Investment Trust Funds (UITFs) and mutual funds. Forget regular savings account; as an investment vehicle, they’re for dummies. Remember to invest regularly and consistently as well as diversify to maximize returns over the long-term. (Annual returns should be greater than the inflation rate.).
Implement and monitor your plan. This is actually the hardest part—doing what you’ve set out to do. Remember, plans rarely fail. It is the failure to follow the plan that makes us fall short of our targets. Don’t make excuses; just do it and stick to the plan. Assess your progress regularly, every three to six months. If your investments are not giving the projected returns, try switching to other alternatives or another company. Performances vary considerably between types of funds and companies. When a situation arises that makes it difficult for you to follow your plan (e.g., temporary loss of job or prolonged sickness), then change it. Plans and goals are not supposed to be set in stone; it should be modified (upgraded or downgraded) to reflect changes in your financial condition. Just don’t make changes to your goals to accommodate lavish spending or because you’re not willing to work hard for it.
Involve your spouse as you go through the tasks above. Financial planning should be a joint effort between husband and wife. Sure, you can come up with an impressive plan by your lonesome. But will he or she be able to implement your plan if you suddenly suffer a stroke? To achieve marital bliss, learn to talk money with your honey.
Alvin Tabañag is a Registered Financial Planner of RFP Philippines. He is personal money management coach and founder of Pinoy Smart Savers Learning Center. He is the Best-Selling book author of “12 Steps to Build Wealth on Any Income”.
Source: http://www.businessmirror.com.ph/index.php/en/business/banking-finance/16487-financial-planning-made-easy
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