How To Plan Your Finances To Achieve Your Goals In Ghana
Creating a personal financial plan is very important to your financial life. Personal financial plan is a great step towards getting a secure financial future, however, it doesn’t matter the amount of your income, planning your personal finances can help you to save money for the future, help your prepare for emergency situations whiles you work to achieve your goals. The way to a great financial future is financial planning which projects your goals, values and your needs. A proper financial planning guarantee’s financial independence, it considers your net worth, your Cash flow, your goals and strategies to achieve your set goals. Before we look at how personal financial plan works, let’s see what it is as one may ask “what is personal financial plan”?
A personal financial plan refers to the actual and thorough process of putting into documents your current financial status, future financial goals and achievements strategies. It takes keen consideration on your current net worth, current cash flow and expenditure, goals and achievements and expectations. Personal financial plan also considers the future financial goals and provides the better ways to achieving those goals in the long run. A financial plan should be actual and reflect your true financial state, future expectations and risk bearing.
The Importance Of Planning Your Finances
Planing for your financial future is very important to the future success of your financial life as it guides you to set future goals and strategies to achieving them. It’s actually a life penalty if you don’t plan the future of your finances to outline your goals and achievements, being aware that retirement awaits you one day! Below are some importance of personal financial plan to your financial life..
1. Financial planning helps you to manage your income and cash flow effectively through planning.
2. Personal financial planning helps to improve the financial security of your family as it guides you to achieve your set goals to financial independence.
3. It enhances you to better understand your finances of current net worth, your cash flow and how to manage your income to achieve your goals in future.
4. Financial plan entices you to make long term goals and achievements which improves your future well-being.
5. It serves as a guide to measure your current financial state, how you spend your income and your future expectations.
6. Planning your finances helps you to control your cash flow on expenditure and focus on achieving your goals.
Essential Factors To Consider In Personal financial plan
There important key elements in financial planning which you can’t forgo when creating a financial plan. By default, you need to consider these elements in your plan because they are active elements that can affect your finances whether current or future.
✔ Risk management plan: In your financial plan, you should consider planning for risk management. Risk management means to evaluate, and prioritize risks through planning and financial management in order to monitor and control or reduce the impact of unforseen contingencies that may arise in future. This has to do with your level of risk tolerance.
✔ Long Term investment plan: You must consider planning for long term long term investment that has the prospect of giving you good returns in future. Long-term investment plan means an investment decision you make to invest in things that can be kept for a long period of time for profit. Real estate, stock market and investment bonds are examples of long term investment. Long term investment plan includes your specific investment objectives and your risk management profile or risk tolerance factor.
✔ Estate plan: Estate planning means to make preparations to manage your asset when you die. An estate planning includes making a “will” or bequest an asset to your next of kin in terms of death in future.
✔ Retirement plan: Retirement planning refers to the process to determine your retirement income goals, risk management and the decisions which is needed to achieve your goals. Retirement planning is a very important factor to consider when creating your personal financial plan.
✔ Tax reduction strategy: Consider tax reduction as a factor of financial planning. Analysing a financial plan which allows you to pay the lowest taxes. A strategy that minimizes how much tax you pay as an investor and it’s very essential in financial planning towards retirement.
Drawing Your Personal Financial Plan
Now let’s look at the processes involved in creating a financial plan. Before you begin to draw your personal financial plan, it’s very necessary to get all documents ready including financial planning template, get a spreadsheet or perhaps papers which will be used in creating your plan.
1. Start by calculating your net worth: To begin your financial plan, your net worth is the value of financial assets that belongs to you subtracted by the value of your outstanding liabilities. Financial assets includes houses, cars, cash in bank, your investments and all properties owned by you. These financial assets are then subtracted by outstanding liabilities such as household expenses, credit card debts, outstanding mortgage, loans and other liabilities. The value of what remains after subtraction is your net worth. Its like this Total asset – Total liability=Net worth(current)
2. Determine your cash flow: The next step in creating your personal financial plan is to know where your net worth or money goes to and fro, what it’s spent for and how it’s spent. Cash flow totals the amount of money that’s being received into and out of your account. Money received into your account is known as inflows, whiles money spent also known as outflows. In determining your cash flow, calculate all your inflows and outflows, gather all documents on your income and expenditure. Determine how much is pent on; necessity items, bank documents, your investment and savings. To know the exact amount of cash flow in a month, get all documents on your income and expenditure from within a year, tabulate it and then divide it by 12. The amount you get is the amount of cash flow in every month. This amount determines how much is spent on liabilities and assets.
3. Define your goals: At this point, you need to clearly define your goals, what you want to achieve financially in the long run. Think of long term investment, family and children welfare, retirement savings, estate plan and other goals that you may clearly define.
4. Prioritize your goals: You should consider your priorities on your goals which you want to achieve first. You may want to fund your children to universities, get a permanent residence for your family, make long term investment or perhaps becoming a business owner. Prioritize your goals according to how you want to achieve them.
5. Determine to achieve your goals: The final step in personal financial plan setting is to determine to work towards achieving your set goals according to your priorities. Determine the amount of money you need in order to achieve your goals and set apart that amount by monthly or yearly according to your income. Consider all means to get your goals achieved including getting a residual income, getting extra income and increasing savings.