Financial planning is a straightforward 4-step journey that doesn’t have to be intimidating. By taking the first step of reading this blog, you’re already on your way to jumpstart your journey and take control of your finances.
Step 1: Do I understand my own money? Let’s give it a checkup.
To begin your financial planning journey, start by understanding your own finances. Ask yourself how much you earn and spend each month, and record this information using a notepad or simple excel sheet.
To get a clear picture of your spending habits and lifestyle, gather receipts and bank statements for a few months to track your expenses and identify areas where you can make improvements. Use categories like “Income”, “Savings”, and “Expenses” to organise your data.
|What is the 50/30/20 rule?
Once you have categorised your expenses, use the 50/30/20 rule to allocate your income into needs, wants, and savings. This rule suggests putting 50% towards needs, 30% towards wants, and 20% towards savings.
As you get better at it, you can use more advanced tools such as an expense tracking mobile application. By successfully tracking your expenses, you can become your own financial planner.
Step 2: I understand my finances. Now I need a goal.
Once you’ve gained a better understanding of your finances, it’s time to set achievable goals for yourself.
Ask yourself questions such as:
- Am I living within my means or overspending?
- Do I have a budget in place to help manage my money?
- What debts do I currently have, and how much do I owe on each one?
- How much money can I realistically save each month?
- What steps can I take to reduce unnecessary expenses and save more money?
- What financial goals do I want to achieve in the short-term (within the next year) and long-term (over the next few years)?
- What resources can I use to learn more about personal finance and money management?
- How can I grow my money and double my savings?
Turn your financial aspirations into concrete goals and identify clear next steps. A useful tool for goal-setting is the ‘S.M.A.R.T’ framework.
|What is a ‘S.M.A.R.T’ framework?
It is a tool for setting goals that are specific, measurable, achievable, relevant, and time-bound. It helps ensure that goals are well-defined, achievable, and aligned with overall objectives, increasing the chances of success.
Step 3: How do I make this goal work? Create a plan.
Once you’ve set your financial goals using a S.M.A.R.T framework, it’s time to make a plan. This involves budgeting and finding ways to reduce your spending.
To develop an emergency fund, make a savings plan and find areas where you can reduce expenses.
|What is an emergency fund?
It is a pool of money that provides a financial safety net for unexpected expenses or emergencies such as medical bills, car repairs, home repairs, sudden loss of income, etc.
Emergency fund = Min. 3 months
To grow your money, consider investing in low-risk funds such as Unit Trusts, Fixed Deposits, etc. that aligns with your timeframe, whether it’s short-term (less than 1 year) or medium-term (between 2 – 5 years). It’s important to do your research and consult with a financial advisor before making any investment decisions.
💡Related: Savings Goals
💡Related: Investing 101
Step 4: Stick to your plan to see results.
Sticking to your financial plan is easier said than done. Always remember:
✅ Track your progress: Schedule regular check-ins to ensure you’re on track with your goals.
✅ Update your plan: Be prepared to adjust your plan as unexpected events arise.
✅ Don’t quit: Learn from mistakes or setbacks and keep working towards your goals.
By taking these steps, you are well on your way to achieving financial stability and independence. Remember that it takes time and effort, but with dedication and discipline, you can turn your financial aspirations into a reality.