• Barend van der Westhuizen

What is your personal financial plan?

There are several benefits to having a Personal Financial Plan not limited to - and including that it enables you to save for both the unforeseen and the long term; gives you the financial confidence to achieve short and long-term goals; helps you to ensure a better quality of life; enables you to achieve your financial dreams and goals and it could even help you settle debt faster.

In order to create a personal financial plan, we recommend you set financial goals in three sections namely: short term goals, which can be accomplished in five years or less such as saving for an overseas holiday. The second category is for medium term goals for example buying a car which can be accomplished over the span of five to ten years, plans that would only be accomplishable over a period spanning longer than ten years bring us to the third category namely long term goals for example settling payments on a home loan.

The mistake you should not make is to put all financial goals into the category of investments - try a plan with other non-investment-related goals which may include getting rid of debt, most likely a high-priority goal for most of us.

The next step in creating an effective and efficient personal finance plan is to discover and adequately track down where your money is going. There are a few easy steps to getting this started such as starting a budget which would allow you to gain a clear picture of how much money you earn, how you spend it and how much is left over, if any. Cutting expenses is another step in tracking your money because part of the discovery of the budget exercise is to face the harsh reality of the dent debt makes in our cash flow situation.

A key tool in a personal finance plan is getting rid of toxic debt which can be done by making a list of all debts and cutting costs to unnecessary expenses so that you could pay off a monthly loan for example much faster. In any plan we make we also need to prepare for the unforeseeable future - let’s call this risk management which seems to change through the different stages of life one goes through. Risk management may be dealt with by identifying the cause of risk such as untimely death for example, it falls on your adequate personal financial planning to determine how much of this risk you are willing to retain yourself. The real risk could be financial Armageddon for those that you leave behind in the event of premature death and this is where life insurance becomes a critical tool.

Saving which goes without saying is another aspect we should add to our personal finance plan- and an easy way to do this is by investing your surplus funds to reach your financial goals and dreams.

As we have mentioned before the different stages of life present new monetary and saving challenges which any personal finance plan needs to accommodate. Something like retrenchment where you immediately lose the revenue stream which represents the cash inflow in your budget, the question you need to answer is: “Do you have the necessary emergency funds to keep you financially going for a while?” If you can confidently answer yes then you are well-prepared with a solid personal plan and if not some adjustments to that plan needs to be made.

Managing one’s own finance may require a bit of help from time to time and if you are struggling to come up with an adequate personal financial plan there is no harm in seeking out a financial adviser or broker whose job it is to advise people about saving and who is professionally equipped to help you do this.

Your financial plan is the backbone of every financial decision and dream you may have – now and in the future. Your financial goals will vary regularly, so remember that life does not start at retirement and it is never too late to start saving.