CREATING A PERSONAL FINANCIAL PLAN

A lot of people are saving and investing their money which especially in these times of rising costs, is extremely commendable. However what most people are failing to work with is a structured Financial Plan. What would you do if you did not have detailed job description? What if your boss came and told you that you are expected to grow sales this year but did not actually give you a number to work with? Chances are you will feel lost because no actual target had been established but rather you have been given a vague idea of what you need to do. If we cannot work with vagueness in other areas of our lives, why do we agree to work with it when it comes to our money.A Financial Goal without a numerical target is simply a slogan! There is a reason banks usually do not lend to companies that do not have a Business Plan. I’m challenging you to create or learn how to create a business plan for your personal financial life.

Many people do call themselves financial planners. However many of them are actually out to sell you a financial product and hence make a commission. There is nothing wrong with buying these financial products as long as they are in line with your objectives. So the starting point in creating your Financial Plan is actually identifying these objectives and putting a number to them. For example at a very basic level, if your objective is to set aside Kes 500,000 to buy a piece of land in three years time, you basically need to save about Kes 14,000 per month. If you need Kes 2 mn for a college education fund in 6 years you need to aside Kes 27,000 per month. A concrete financial plan will factor in the fact that you may earn some sort of returns in where you choose to save or invest your money. It will also factor in inflation and the increased cost of your financial objective. If the piece of land that you want to buy today costs Kes 500,000, in your plan please set what it will cost at the time you want to buy it, as your target. So you might be working with a figure such as Kes 800,000 instead. If college today cost Kes 2 mn, you might be working with a figure of Kes 2.5 mn depending on where you want your children to go to school.

After identifying the figure that you need it is important to break it down into palatable bits. In my experience what discourages most people at this point is the large figures because they never know how that are actually going to achieve them. The important thing is to start and this is where budgeting comes in. Establish what you can save or invest every month and start consistently putting it away towards your financial plan. Kes 10,000 saved every month is Kes 120,000 a year. The next year it will be Kes 240,000 (and even more if it has earned some interest or some form of returns). There are a lot of investments you can do with Kes 240,000 but if you do not start with the Kes 10,000 per month today you will never be ready for the Kes 240,000 opportunity when it comes by. Set quarterly, semiannual or annual targets. It is much easier to get motivation to continue, once you see that you were able to meet your short term goal. It gives you a boost of confidence and renewed focus to go on to the next step. Once the broken down targets have been established, specific action plans for each period need to be set. These may include opening a savings account, opening a CDSC account, learning about a particular investment, establishing a particular price point to either sell or buy a particular investment, periodic review of your investment status etc. Your Financial Plan does not need to start with money. You may decide just to start by educating yourself and this is just as important, if not more important a start in the long run as investing Kes 100,000 today.

So in summary, the tips for a successful Financial Plan are as follows:

1) Establish specific Financial Goals with actual Numerical targets

2) Break that Goal into Periodic Targets ( annual, quarterly, semi annual etc)

3) Monitor, Review and Change the financial plan accordingly.

4) Education: Work with a professional financial consultant or attend training.

Waceke Nduati-Omanga

waceke@centonomy.com | Twitter@centonomy