Financial Management: Who Is In Charge, You Or Your Money?

Financial Planning: Who Is In Charge, You Or Your Money?

A wise person once said, ‘Financial planning is telling your money where to go instead of wondering where it went’. In this case, you are driving with your money in the back seat instead of the other way around.

Imagine you want to build a house. You must first determine what kind of house you want – a small bungalow, a large duplex, or a mammoth castle. Knowing this helps you properly allocate your resources so you can reach your goals within a desired time frame. In the same way, clearly outlining your money goals helps you pursue them with laser focus which in turn helps you get there faster.

A financial plan is an overview of your current finances, your financial goals and any strategies set out to achieve those goals. Good financial planning should include information about your cash flow, savings, debt, investments, insurance and any other part of your financial life.

ALSO READ: 4 Essential Tips Every Business Owner Should Know To Achieve Success

There are generally three types of financial goals – Short term, Intermediate and Long-term goals.

A short-term goal is one you want to achieve in the near future typically less than one year. This can include paying off a small debt, saving up for rent, your wedding or a vacation, building your emergency fund or saving up for a professional exam.

Intermediate financial goals are executed over a period of one to five years. Examples are buying or replacing your car, building or purchasing a home.

Long-term goals usually take longer than five years to achieve. They can include saving up for retirement or your children’s college tuition. It can also be growing your net worth to a desired sum.

Clearly outlining your goals gives you something to race towards. Write the vision; make it plain that he may run who reads it. Does that sound familiar?  Breaking things down also helps you apportion your income wisely so you can have all vehicles running simultaneously. Additionally, it helps you celebrate milestones as you attain them. Never forget, your goals are personal to you and your family.

ALSO READ: Avoid These Common Small Business Pitfalls

Financial goals should be as specific as possible. Instead of writing ‘To save money monthly’ write ‘I will save 30% of all my monthly income.’ Then develop steps to ensure that you will. Your plan should also be realistic giving your current level of income and financial responsibilities.

Don’t kill yourself trying to save up more than you can afford. Instead, you can seek out ways to increase your income so you can save and invest more. It’ll be easier to stick to it. Finally, evaluate your progress periodically. You’ll be surprised at how much you’ve achieved.

Generally, though, there are five main steps to the creation of any in-depth financial plan:
  1. Determine your financial goals.
  2. Assemble all relevant documents and account statements that represents your current financial situation.
  3. Prepare a long- and short-term plan to reach your financial goals.
  4. Start putting your financial plan into practice.
  5. Whenever your life and goals change, always adjust your financial plan.
Here’s a sample of clearly defined financial goals.
  1. Short-term: For the next ten months, I will save up XXX each month for my rent.
  2. Intermediate: I want to earn passive income 2.5 times my current income within the next three years.
  3. Long-term: I want to have a retirement income of XXX a month by the time I turn 50.
What are some of your money goals? I’ll be waiting in the comment section.
Next Post Previous Post
No Comment
Add Comment
comment url