Steps to building an adequate financial plan

When it comes to financial planning, people tend to do it straight out of their heads. No pen and paper or fanciful Microsoft excel to the rescue. While there is nothing wrong in doing things how you prefer them, a time comes where there is a somewhat unconscious need to start knowing the details about how much comes and goes in and out of your pocket periodically.

Knowing this helps you manage and plan for growth financially.

Factors influencing financial planning

  • Individual factors
  • Economic factors

Steps to an adequate financial planning

  • Awareness of your current financial situation
  • Creating financial goals
  • Planning a different course of actions
  • Evaluating all alternatives
  • Implementing and Reevaluating plans financial action plans

Factors influencing financial planning

There are a lot of factors that affect financial planning, they can influence your decisions directly or indirectly.but most people remain oblivious to them. Two broad groups of factors are the individual and economic factors.

 

The effect economic factors have on finances are more indirectly influential on your financial plans. They range from currency value (either appreciating or depreciating), Gross Domestic Product (Expansion or Contraction), Employment rate (this affects the availability of jobs and juicy wages).

 

Economic factors are more complex when compared with individual factors so more in-depth information would be given in subsequent posts.

Individual factors

Individual or personal factors include things that have the most direct influence on anyone. They include:

  • Family structure
  • Career choices
  • Age

Family structure

Your family structure plays an important role in determining your dreams and aspirations in general. Depending on whether you are catering for others or being catered for, there is a significant difference between being on either side.

For example, anyone responsible for the expenses of others has to be careful while handling what comes and goes financially. This however leads having lower financial risk tolerance and a higher income need.

Career choice

Different career choices come with different pays. Some careers pay more than others and also have different levels of risks attached to them.

For example, athletes are positioned to get high pay and are at a higher risk of sustaining life-long injuries but also get to retire early.

This factor plays a strong role in determining whether income and wealth or your rate of asset accumulation.

Age

This factor comes into play when you think of things like spending needs and general risk tolerance.

The younger generation generally has lower spending needs and considerably higher risk tolerance when placed in comparison with the older generation.

Steps to an adequate financial planning

Awareness of the current financial situation

However good or bad your financial situation might be, the first step in making any plan is to lay down the playing chips to get a clear view of the playing field.

This includes all pros that might be of use and cons that need to be worked on.

Creating financial goals

Your only job here is to dream wild, that shouldn’t be too of a task but most people have been conditioned to box their aspirations.

To make things easier, picture where you would like to be in 5years (short-term) and 20-30years (long-term). Align these thoughts with your current path and interests. Your current path is just one way to achieving your goal.

Planning a different course of action

If you’ve lived a day in human life, you’ll know things don’t always as planned but that’s fine because you aren’t counting on it anyway.

Planning a different course of action makes you more open to a diversity of options to accommodate various life changes.

Evaluating all alternatives

While it is good to have viable alternatives, It should be known that all options come with their risks and benefits. The best options won’t leave you in a worse situation than you started.

Implementation and Reevaluating financial action plans

“Financial planning is a lifelong process”

After laying out a plan, implementation lets you attach the plan you have chosen into specific actions that get you steps closer to achieving your goals.

 

Constant reevaluating and readjustment of plans is needed to be sure that the new circumstances that are involved are in line with the real goal.

 

In conclusion, in a world where people spend a lifetime only thinking about what their next meal will be or from where it will come. Financial planning keeps you ahead of poverty and gives you something to work toward.

 

“Adequate planning is what gives life meaning”

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