Personal financial planning

Personal financial planning is about thinking about your finances, assess where you are now, who are dependant on you, and what goals you want to work towards in the future.

It is a journey. It is not just a point in time. It evolves as your personal circumstances change.

It is the discipline of getting your thoughts and ideas on a piece of paper, or in an electronic note on your phone, so you have a record. So you can commit yourself to it and review it from time to time.

Follow these steps in developing your personal financial plan:

1.

Assess your current situation

Think about and note down the following:

• What are your sources of income? How much is you income after tax? Is your income fixed or variable?
• What are your monthly expenses? Are these fixed or variable? Are there expenses you can cut down, to save money?
• Every month, are you able to save money? Or you find yourself running out of money before the next paycheck?
• How do you invest money?
  
• Do you have dependants? Your parents? Your spouse and children? Your siblings? Who are financially dependant on you for support?
  
• What are your assets, and their values? Assets are things that have value, and you can sell them for money. Examples are property, gold coins and cars.
  
• What are your liabilities? Liabilities are the money you owe to another party, for example home loan, vehicle finance, credit card debt, personal loan.

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2.

Visualise where you want to be

Think about and viualise where you want to be, in 2 years, 5 years and 25 years from now. In terms of your job or business, your level of income, your family, what you do and where you live. The kind of lifestyle and financial resources you'd like to get to.

So this is the "dreaming" stage. You dream, you discuss with your family and friends. You visualise, and you aspire towards.

Again, note these dreams and goals down. Be specific. The more specific you are, the more you are aware of them consciously and subconsciously, and you will be more motivated to work towards these goals and realise your dreams.

3.

Consult a Certified Financial Planner

If you are in the upper income tax brackets, you should consult a qualified financial advisor. Developing a comprehensive financial plan takes into account a lot of aspects, such as:

Budgeting and money management
Banking
Risk planning
Healthcare
Investment planning
Tax planning
Retirement planning
Asset liability matching
Dependants' needs
Financial forecasting
Offshore investing
Estate planning
Human behaviour and psychology

These can be complex and technical. A good financial planner is trained to work with you, to get information from you, understand your needs, then conduct financial analyses, and discuss the findings and recommendations with you.

A financial planner is a financial doctor. Like a medical doctor checks you for symptoms and causes, a financial doctor checks your financial affairs, to give you diagnosis and treatment.

Robert Kiyosaki, the best-selling author of Rich Dad, Poor Dad, attributes his success to having good advisors working for him. Advisors such as accountant, lawyer, financial advisor, banker. Have good advisors and pay them well. You will reap the rewards.

4.

Develop your plan of actions

There are many things to consider, and to do, to take you from where you are now, to where you wan to be in the future. Some of the key questions you should think about when developing your plan of action are:

• How can I increase my level of income? Do I need to do further studies or training? What about having a career mentor? What about a second job?
• What about starting a business? Or invest in a business?
• What expenses can I cut down, to save money to invest?
• Do I have an emergency fund in a bank account? Would it last me for six months if I am unable to work?
• Do I need to get more life cover? Disability cover? Severe Illness cover?
• How can I pay off my debts? Which one do I pay off first? By when do I when each one off?
• How do I use the bonus I receive from the company? On holiday, buying a new car, or paying off home loan?
• Do I invest my money, or pay off my home loan first?
• What product should I use to invest for growth? Bank deposit, shares, unit trusts, or Stockvels? Offshore, US Dollars?
• When I make money with my investments, do I have to pay tax? How much?
• How much pocket money do I give to my children each month?
• How do I pay my children's school fees? Monthly or annually in advance?
• If I die, who is going to get my money? And my assets? My money in retirement funds?
• ​Do I need a will? Who can draft a will for me?
• Do I need more life cover? funeral policies?

Write down your plan of actions.

5.

Just do it!

An Achilles heel of many South Africans is talk, talk, talk, and no action. That's why politicians let us down. That is why people let their families down.

Your plan doesn't have to be perfect. If you have consulted a good financial planner, and you have a reasonably good, workable plan, then just do it. Focus on one or two things at a time. Action them. Once done, tick them off your list. Then focus on the next one.

Sportswear brand Nike famously coins the phrase "Just do it". It embodies action, positive thoughts, get off your bum. Don't wait for the perfect plan or the perfect moment. Just get on with it.

6.

Review your plan as your life changes

Your financial plan is a living document. It is not static. It is not something cast in stone. It needs to adapt and change with you, as your life changes.

The significant life-changing events are:

• Go to university
• Get first job
  
• Go into business
  
• Get married
  
• Have a baby
  
• Emigration
  
• Relocation
  
• Major accident
  
• Severe illness
  
• Suffer a disability
  
• Change job
  
• Lose a job
  
• Divorce
  
• Business failure
  
• Lose a big sum of money
  
• A death in the family.
  

And the list can go on. It is important to review your plan as your life changes, to see how you should change the plan to accommodate your changing needs and goals. Then change your course of actions accordingly.

Work with your financial planner to review your financial plan, and to check whether you are on track to reach your life goals. A good financial planner is your financial coach. He takes time to understand you, to guide you, to give you advice and ideas, and to hold your hand in times of panic and distress.

I hope this article is useful, giving you an insight of what personal financial planning is, and the framework of developing your financial plan.

If you have any questions we can help answer, please use the button below to book an online meeting with one of our financial planners.

If you are a business owner and/or professional, we would love to work with you to develop or review your financial plan. Schedule a meeting and see whether we can work with each other.

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