Creating A Personal Financial Plan

When taking a journey to an unfamiliar place, it’s highly likely that you will get directions and plan your route, right? Your Financial Well-being journey is no different. It requires a clear roadmap – Your Personal Financial Plan. With your financial goal, knowing exactly what you want, when you want it, and how much it will cost makes it much easier to achieve.

The VM Approach to creating a Personal Financial Plan is a Three-Step Process.  

STEP 1: Assess Your Situation and Document Your Goals

In this step, the groundwork is laid. Consider where you are in the Financial Lifecycle, your current Net Worth, and your attitude towards money. Following that, you document your goals. Some popular goals are a home and car.

Let’s explore a few key terms mentioned above. 

Financial Lifecycle: As we go through life, our wants and our needs change. Your position in the Financial Lifecycle refers to where you are in life and your needs at that time. The stages are Early Childhood, Secondary Education, Tertiary Education, Career Development, Raising a Family, Pre-Retirement, and Retirement. Understanding where you are in the cycle puts you in a better position to choose the appropriate savings and investment options.

Net Worth: Your Net Worth is the calculation of your total assets minus your total liabilities. Some examples of assets include cash, stocks, bonds, and real estate. Common liabilities include credit card balances, personal loans, car loans, and home mortgages. Your Net Worth gives a clear picture of your financial health. When you have more in assets than you owe, you have a positive Net Worth. On the flip side, if you have more debt than assets your Net Worth is negative. 

Attitude Towards Money: Your attitude towards money is simply how you view money. Do you consider money a source of anxiety and fear, or as a tool to help you achieve your life goals? A great way to cultivate a healthy relationship with money is by becoming financially educated and practising good money habits, such as budgeting and saving.

STEP 2

Create Specific Plans for Achieving These Goals

Step 2 involves writing down your priority goals, the period within which you want to achieve them, and the amount you want to put away each month to help you get there. 

Ensure that your goals are SMART. That is Specific, Measurable, Achievable, Realistic, and Time bound. This approach helps you to keep focused and increases the possibility that you will achieve your goal.

Based on the time horizon attached to your goal, whether short, medium, or long term, it’s important that your savings product is aligned with that. You may consider one of the following options to get you there.

Short Term – up to 1 Year

  • Contractual Savings Account: Save a fixed amount every month for a minimum period of one year.
  • Certificate of Deposit: Funds remain untouched for set periods of time as they have specified fixed terms (usually 30, 180 or 365 days).

Medium Term – up to 4 Years

  • Contractual Savings Account: Save a fixed amount every month for a minimum period of one year.

Long Term – 6+ years

  • Long-term Savings Account: Funds remain untouched for a minimum of five years.

STEP 3

Track Your Desired Milestones to Achieving These Goals

Keeping track of your goals will help you stay focused and motivate you when you reach certain milestones. Review your plan at set intervals, whether semi-annually or mid-term, and celebrate your milestones. Keeping track of where you are will make it easier to adjust if life changes occur which affect your goal. 

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