It is not a matter of intelligence; financial management can often be a matter of temperament rather than training or education. If you cannot resist the temptation to buy, even if you cannot afford the purchase at present, your desire may still overcome your brain telling you that you should wait. Unfortunately, there are many people operating in the financial sector, often with fancy titles, “consultant,’’ “advisor’’ or ‘’wealth managers’’ who sound impressive but may not be able to provide you with the best advice for your circumstances. It is a concern, because those who accept their lack of expertise may not be getting the quality of advice that they are seeking.
What Is Financial Planning?
Well first of all, it is not a lesson in investment. It is more about making best use of your money and if you are in debt, that means reducing the money you are wasting; typically, that is paying high interest on a credit card by carrying forward a balance. It is far better to pay off such debt with a much cheaper personal loan while someone is unemployed and disciplining yourself to use your card properly. That means paying your full statement amount when it falls due.
Plans have a timescale; you should have a plan to get to a point in a year, five years or at retirement when you have reached a stage where you are progressing and at retirement where your assets can fund the later years of your life. You are the only person who can decide where you want to be, but there is certainly nothing wrong in getting some help with where you should be. That is especially the case with retirement where the earlier you start to save regularly, the better chance you have to use compound interest to help you grow your savings.
Start with thinking about what you want and where you want to be. You need to access the money to enable you to achieve your goals. It is not a one-off exercise just as a budget needs constant revision if circumstances change.
Elements of Financial Planning
- Cash Flow. You need to grasp how much are spending, and what you are earning, by the month in both cases. If you don’t have an emergency fund, you are potentially vulnerable.
- If you have monthly debt, you need to prioritize that; perhaps a cheaper source of money?
- Real Estate. Do you own or rent and what are your future plans if you own? Cash your property in to fund retirement?
- This is becoming increasingly expensive; are your children going to go to college?
- Can you see a clear career path?
- Have you a surplus you can invest and will you go for risky investments for higher growth?
- Is your insurance cover adequate?
- Have you started to save and do you appreciate how much you might need to funs a comfortable lifestyle?
- Ensure you have completed all the necessary documents?
Make no mistake; planning is the only way for ordinary people to manage their finances. There are poor advisors and before you rely on someone to help you secure your financial future, make some checks on the person involved to ensure you are dealing with someone with real expertise.
You need to grasp every element of your financial circumstances so that when you are faced with a decision, you make that decision with all the accurate information available. You must know your cash flow, the dates when all your bills are due because there are implications to your credit score if you make late payments, particularly on a regular basis.
It is positive to be positive and self-disciplined. Debt is certainly stressful and the only way to reduce your stress levels is to get into a situation where you are in control and making good progress. A recent survey suggested that a majority of people who currently have a financial plan feel that it is certainly helping them towards the future. That contrasts with only around 30% of those without a plan feeling positive.
Clearly a good financial plan helps you achieve your goals.