Financial Planning by Kwadwo Acheampong

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The restaurant was nicely lit with beautiful antique lamps that neatly hid the bland fluorescent bulbs they held.

It was a breezy evening, perfect for outdoor dinner for close friends. They had met at this restaurant for many years to catch up, laugh and ‘compare notes’, as they referred to their gossip sessions. However, today was a bit different because one of them had fallen on hard times and they needed to rescue her.

Four friends with more than forty years of friendship, they had only a couple of years ago retired from active work. Life had been good and they had worked hard. More importantly, careful planning and discipline had been thrown in right for the start and that had made a difference for them all. Except for one…



That evening, their meeting was not the most joyous one. The ladies all came from modest backgrounds and had met in secondary school.

They had formed a strong bond of friendship right from Form One to Sixth Form at their alma mater. It was in Sixth Form that they had participated in a workshop on financial planning on their campus.

At the time, the ‘apor’ sounded alien but they decided they would consciously try it. It felt like a very sensible way to manage personal finances. It seemed practicable too, something that would work with some discipline. School had taught them discipline, for sure, so it had had to work.

What had they learned then? Financial planning entails, in essence, a plan. It has to do with finances, obviously: what comes in, when it comes in, what needs there are, the priorities and how to decide which items to let go of.

Personal financial planning involves planning and managing personal financial activities such as generation, spending, saving, investing, and protection. It also features deciding among several options to generate money, spend it, save it, invest it or provide security for the wealth generated.

A financial plan helps guide one to choosing and deciding. Without one, the several options could mean one would end up choosing what would not serve one’s best interests. 

Getting Started

Starting had been difficult. They had vowed to save, invest and be careful with spending. At the time, they could only buy investments from banks and the returns appeared painfully low but they liked the fact that they could see their own money grow. More importantly, their plans guided their use of money so they always ended up with a little amount to add to their savings and investments.

The five steps to financial planning, they learned back then, are:

  • Preliminary assessment
  • Setting realistic goals
  • Developing a workable plan
  • Execution
  • Monitoring and appraisal

Initially, it is useful for us to review our finances and come to terms with what we usually would earn in a month, on average, or in a year. It may be slightly above or below but we know what we earn, roughly. The assessment is helpful because it helps us have our feet firmly on the ground, even if we have lofty aspirations. It serves as a guide to setting goals which are realistic.

After the Assessment

Once we have made an assessment of our situation, we set our objectives. Why are we drawing up the plan? What need do we hope to meet or what do we intend to achieve? The financial plan could be for a unitary item, like purchasing a car or house, or for every aspect of our lives, like pensions or having financial independence.

The goal should be practical and achievable within a reasonable period of time. There’s no point setting an objective which would require a chance happening (like striking the jackpot in the national lotteries!) to achieve it.

It could only end up in frustration and sometimes, even depression. Also, critical in setting goals is our goals should not conflict, if we have more than one. It is good to have ‘backup’ goals but they must align rather than oppose.

Once we have our goal(s) set, we have to ask ourselves: how are we going to get there? Which steps should we take? How long a time period should we reasonably expect to reach our goals. What tools do we need to achieve or goals? Is additional training needed to start a venture to earn extra? Would extra credit help expand our business? At what cost and for how long is the extra credit going for? What can we forego in order to get to where we intend to get, and faster?

A plan that can work is required to be drawn. It helps to outline and document the plan well enough since this will serve as a working document to ‘bring us back in line’. It can be a budget drawn up intricately on a spreadsheet or a simple compilation of notes detailing what to do and what not to do.

For instance, a budget would show income and the expenses that match the income. In implementing, if we go above budget, then we know we endanger the possibility of attaining our goals. 

Life hardly a Straight Line

The plan we draw should not be too rigid. Life is hardly a straight line so our plan should have some degrees of freedom. Many events outside our control happen all the time. While we may stick to the plan, these events could cause deviations from what we ought to do. For instance, in December 2018, we envisaged to save GHS 5,000 from salaries of 2019 and 2020 for home remodeling at the end of the 2020. However, by March 2020, the COVID-19 pandemic threw our plans off for probably a year.

In 2020 therefore, we may not have been able to set enough savings aside. However, since the goal has been set and some resources gathered to meet the need of the goal, it may well mean the remodeling would be rescheduled for the end of 2021, a year later than intended initially, rather than scrapped entirely.

The plan should incorporate some likely scenarios. What happens if income increases by 50% in 2 years? Will the plan support suspension of 60% of income or what adjustments can be made to expenses if that happens?

Since certain risks exists which can frustrate the plan, we may want to consider insurance. Although premiums are expenses which could have added up to our savings or investments, their worth is realized when an unexpected and unpleasant event happens.

Today, insurance companies are not strait-jacket product companies. They have products that the insured can benefit from if nothing unpleasant and unexpected for a period.

Working within the plan so designed requires discipline. Execution is all about focus and discipline. There is no use spending time to assess our situation, set goals and fashion out a plan if we can’t follow it.

This is different from when something critical happens, like when income is significantly slashed indefinitely or when substantial expenses that have to be borne arise? 

Monitoring is Key

From time to time, the plan ought to be monitored. Are we approach or moving farther away from our goals? A review would afford us the chance to re-evaluate and change some things.

For instance, we may have devoted 10% of our salary to medium- to long-term investments. With time, we may realise the need to vary this percentage to better reflect prevailing conditions. The plan, due to the review, is kept alive, even if certain parts may be changed.

Many personal financial planning advisers would recommend, especially for young adults with some constancy of income, to begin with a life insurance cover.

If the worst happens, the surviving family members would not be saddled with the full weight of funeral expenses.

Secondly, we would want to build up our emergency funds (savings, money market instruments) and probably start a short-term investment plan (money market instruments, short- to medium-term fixed income investments).

After some number of years when insurance premium has been paid for a while and there are enough emergency funds and short-term investments, we can graduate to more purposeful and long-term investments (bonds, mutual funds, equities).

A financial planner may event advise that if investments become comparable to insurance policy cover, we could decide to forgo the insurance and adding the premiums to our investments.

Part of our investments can be in actively managed portfolios which may take on more risk for a possible large return. Another part can be in a more stable form of investment portfolio (‘slow but sure’ returns). The combination should grow with time, focus and discipline.

Certainly, as was said earlier, life is hardly ever a straight course. Many events disrupt our lives and could set us back. The friends had met at the restaurant because it had happened to one of them. She had developed a degenerative ailment. This had, in a few years, taken an enormous hit on her finances and she was left almost destitute, needing excellent healthcare she could not afford anymore. They had met to think about what could be done to help her.

In the End

Again, they set about having a good financial plan. They decided on a health insurance cover for their friend, after assessing their friend’s status and what she needed. They decided on how the premiums would be paid and committed to splitting up 75%, with her family taking up the rest.

Their aim was really to ensure that their friend received adequate medical care for at least the next five years. They planned to also visit and more importantly, meet again to review their plan, make changes where necessary and focus on the patient’s well-being.

It goes without saying that we all need to set financial plans for ourselves. It is a set towards financial independence. With careful considerations and good financial advice, it should serve us well.