How do you navigate your way through a location you are not familiar with? This calls for the need of a directional map that shows you your current location and give you the opportunity to choose your destination. The lack and/or inadequate financial strategy we put in place puts pressure on our finances and also hinders us from enjoying our desired lifestyles.
A financial plan is a road map showing your current financial situations, future financial goals and how to achieve them. This financial road map positions you to reach your financial goals easily and more strategically. Below are the steps to creating your financial plan or road map:
Know your net worth
We often come across the net worth of the richest people in our countries and the world, making us think that you need to have a certain amount of wealth before you can know or have a net worth. Each individual has a net worth. Net worth is basically one’s assets less liabilities. It helps to assess your current financial health. The result of your total assets less your total liabilities is your net worth.
Assets: Your assets are simply the things you own from your money at the bank or in an investment account, to your house, cars, and other properties.
Liabilities: Your liabilities are the monies you owe people or organisations. They include your auto loan, mortgages, student loans and other loans.
Know your cash flows
After knowing your net worth, you want to continue to determine your cash flow. Cash flows are how much and where your monies come from and goes. This is similar to your budget but they are not the same. We have cash inflows which shows your sources of income and cash outflows which shows where your monies are spent.
Start by stating all your inflows (sources of income) from your salaries, allowances and all other small gifts in terms of money that are regular. Also list your outflows (all expenses) from the biggest items like your rent to the little things like data for your internet.
We often ignore the little things but they are so recurrent in nature that by the time you sum them up for a particular period, it will be close to some of your huge expenses. Doing this helps you to be able to know how much is left after everything and what expenses you can cut off or reduce to be able to have more to save and invest.
This should give you an idea about your cash flows.
Set your financial goals
Most of us are conversant with new year resolutions that focus on our general goals in life. Some of these goals need finances to push it through for it to become a reality. But we often don’t have financial strategies in place to take care of these goals, certain events and expenses in our life.
Human wants are insatiable. For this reason, we must list all our financial goals and prioritise them. The priority we place on them will assist us know how to strategise our finances to be able to achieve them. This plans may include buying a house, a car, paying some school fees, your retirement, capital for your business, etc. Note that all these are for the future.
Strategise Your Finances
After going through the process above, you will need to strategise in order to be able to achieve the goals. How to save, invest and the things to do with your finances to be able to achieve your financial goals.
It has been established that you need a financial road map to navigate the route to achieving your financial goals. You must first know your net worth, know your cash flows both inflow and outflow, set your financial goals and strategise your finances to be able to achieve it. Most of the time, you cannot strategise on your own so you need the help of a professional. Don’t hesitate to contact the author to assist you create your financial plan to be able to achieve your financial goals.
Let’s achieve our financial goals together.
>>>The author is an investment professional, a financial literacy advocate and a pastor. He is a CFA Level 1 Candidate and holds the Ghana Stock Exchange Securities Certificate. Email: [email protected]: Contact: 0241603589