Once again Global money week is here. This year’s theme is “plan your money, plant your future”. This year’s GMW theme focuses on sustainability and raising awareness of the implications of individual financial behaviour. So there is no better place to start than with planning our finances.
Managing one’s personal finances has become increasingly complex for many reasons. Increased human longevity, a broad range of financial solutions, and a highly regulated financial services industry, together with the inherent complexities of cryptocurrency, may leave some feeling somewhat daunted. However, with the right knowledge, tools, and strategies, financial planning can become a manageable process that can help individuals achieve their financial goals and secure their future.
We will break down the financial planning process into a series of eight steps designed to help you set the course and begin your financial planning journey the right way. Each step will be discussed in detail, providing a comprehensive guide to help you understand the importance of each step and how to implement it into your financial planning process.
Set goals and revisit them often
The first step in any financial planning journey is to set realistic goals. However, life is fluid, and circumstances change quickly. Therefore, it’s essential to revisit your goals often and adjust them to your current circumstances. Documented goals can be powerful motivators and catalysts for innovation and creativity. While you want your goals to be realistically achievable, don’t be afraid to push the boundaries of what you feel is possible for your life. A lack of affordability should not prevent you from setting a goal. There are no turn-key financial solutions when it comes to financial planning, but rather a series of prioritized solutions that can be implemented in line with your needs and affordability.
Adopt a values-based budget
Preparing a budget that allows you to allocate money towards the things that you deem important in your life is crucial. In a world of heightened consumerism, it can be challenging to separate market-driven messages from your true value system. Therefore, spend time deciding what is important in your life and where you want to channel your expenditure. Not all objectives will be instantly achievable, but a values-based budget will help you manage cash flow, prioritise your goals, and direct your money towards those goals that are really important to you.
Use technology to monitor and track your expenditure
Monitoring your expenditure is pointless if you’re not prepared to manage it carefully to ensure that your expenditure remains directed towards your goals. Given our attachment to our mobile phones and the fact they are probably the way you interact with your bank, I recommend using an expense tracking app. These apps readily provide reports and analyses of your income and expenditure. Do your research and download whatever app is best for your circumstances, and then commit to regularly reviewing your expenditure.
Mitigate your risks
While you’re building your wealth, long-term insurance can play an important role in protecting you against the risk of disability (whether temporary or permanent) or ill health. Your ability to generate an income is the foundation on which your wealth will be built, so be sure to protect your income by putting appropriate risk cover in place. Zimbabwe has a strong insurance industry that provides both short-term and long-term insurance options. Shop around for policies that suit your needs.
Employ good debt strategically
Not all debt is equal, and employing good debt to leverage your financial position may be a strategy worth employing. Good debt is debt that is incurred to pay for big-ticket productive items that one would not otherwise be able to afford. For instance, taking out a home loan allows you to leverage affordable debt to help you invest in a property which you would otherwise not afford to pay cash for. On the other hand, debt that is incurred to purchase clothes, consumables, and other goods and services is generally expensive debt and not sustainable in the long term.
Create an emergency fund
One of the most important things you can do is create an emergency fund. We live in one of the most volatile environments and trouble can hit us at any moment. When it hits, it hits hard. An emergency fund is money set aside for income replacement if you lose your income. The ideal size of an emergency fund is 3-6 months of your expenses. You do not need to create this fund all at once, just by putting in a little money a month until you reach the desired level. The money should be kept in a secure and accessible saving vehicle preferably denominated in US dollars.
Plan your affairs
In addition to having a valid will, it is also important to have a document outlining your last wishes. Having this document in place can provide peace of mind for both you and your loved ones in the event of your passing. It is important to review and update your will and last wishes document periodically, especially in the case of major life events such as marriage, divorce, or the birth of a child. These documents should also be stored in a safe and easily accessible location, and you should inform trusted individuals such as family members or an attorney of their location.
Seek professional advice when needed
While it is important to take control of your own finances, it is also essential to know when to seek professional advice. Financial advisors can provide guidance on a range of financial planning matters, including investments, insurance, retirement planning, tax planning, and estate planning. When choosing a financial advisor, it is important to do your research and select someone who is qualified, experienced and has your best interests at heart. Look for a financial advisor who is registered with the relevant authorities and who is willing to take the time to understand your unique financial situation and goals.
In conclusion, financial planning can seem overwhelming, but by breaking it down into a series of manageable steps, you can take control of your finances and set yourself on the path to financial security. By setting goals, adopting a values-based budget, monitoring your expenditure, mitigating risks, employing good debt, creating an emergency fund, documenting your last wishes, and seeking professional advice when needed, you can create a comprehensive financial plan that meets your needs and helps you achieve your financial goals.