Money is unarguably the most valuable asset one can ever have; it is precious and difficult to earn. Many British millennial today prefer to live hand to mouth and thus go by piecemeal approach. Their notion is to make and spend everything to live a swanky life at present, and thus saving money is the last thing they ever want. The problem with this mindset is that they feel helpless and then sulk over the fact that they didn’t save money when an emergency comes.
It is always advised by money managers and financial planners that one should save at least 10-15% of their salary every month. This helps you to sail through the emergencies in your life like any medical emergency, or you lose your job etc. These are the situations when you say to yourself I need money now and you don’t have it. That is where having some savings in your kitty helps, and this is only possible when you have a financial plan.
We all have some goals and aspirations in life like buying our dream car, buying a house, higher studies of children, foreign vacation etc. We need to have a financial plan in place to achieve these goals. An ideal financial plan is the right strategy to achieve your goals, and more than half the battle is won if you have one such plan. Let’s get to know how you can make a financial plan for yourself.
Steps in Financial Planning
There are a few crucial steps that form a part of the financial planning process. These steps are mentioned below:
- Setting Your Goals: Your goals should be SMART that is an acronym in financial planning for Specific, Measurable, Achievable, Relevant, and Time-Bound. Please write down your objectives and quantify them with a time frame to achieve them. At the time of writing these goals, go by the rule of preferring needs over wants and make a clear distinction between them. If you have a professional financial advisor, then get these goals reviewed by him. Also, keep referring to them from time to time to do any upgradations or changes based on the economic environment or your personal growth in career.
Many direct lenders are offering unsecured loans to bad credit borrowers, you have to go online, and type ‘need money now in the UK‘. You will find many lenders offering loan but avoid taking these loans to meet your goals. This is because there will be an additional liability on you which will demand massive cash outflow in interest payment every month. It is advisable to build assets by using assets than incurring additional liability.
- Collecting & Assessing Your Financial Information: Unless you are aware of your reality, it will become challenging to achieve your goals. The second stage involves gathering your information and writing it down to prepare a financial report. This report will have all your finances in the likes of your income, your expenses, the assets you own, the liabilities you owe, your risk appetite, your current savings etc. The final report will give you a reality check as to where you stand currently, which is necessary to create a roadmap to meet your goals.
There are many online tools to assess one’s risk appetite online, like risk profiling questionnaires and models. It is an essential process as it provides a ground for your asset allocation strategy. If your risk-taking ability is low, then you will go for safe investment avenues like bank deposits or government bonds. If your risk-taking ability is high, then you will choose equity or real estate.
- Financial Information Analysis: You can approach a professional financial advisor for this stage if you don’t have a finance background. The information you collected in the previous stage is now used to compute some ratios in the likes of liquidity ratio, debt service coverage ratio, savings ratio, solvency ratio etc. This is done to reflect your financial health as of now regarding:
1- Which are the areas you are strong
2- On which areas you need to work.
- Preparing Financial Plan: Your financial advisor will prepare a financial plan based on your goals and the information gathered and analysed in the previous stages. Then he will present this plan to you with the details as to how you can achieve your goals in the time frame you set for them. He will advise you on ways:
1- To reduce your income tax liabilities
2- Suggesting asset classes to invest based on your risk appetite, expenditure management,
3- Finding other sources of income,
4- Taking the right insurance,
5- Creating an emergency fund etc.
He will advise you a whole lot of things to better manage your finances efficiently so that you achieve your goals at the right time. Remember, a financial plan is good enough only when it is followed religiously. The implementation of the recommendations given by your financial advisor is the key here.
The bottom line is financial planning is not a one-time process rather a continuous exercise until you achieve what you aspired for. It requires perpetual monitoring and review to see that you are not diverting from the financial plan. Just seek professional assistance when you are confused to get your doubts clear and strictly follow the strategy your financial advisor has created for you. The entire problem of needing money now to buy my dream car is resolved with having the right financial plan.