Can a house be built without a plan? The answer is definitely NO. It is actually the plan that is first built before the house itself. The plan dictates how the house should look. Actually the plan is everything, it is the house.Without a plan no house would stand. If it was to be put in a play context, a plan is the script, which dictates what the actors should say and do. Just like houses need plans the same applies to our finances. Our money need plans to direct them. Without this we would find ourselves misusing the money and in no time we would be broke again. That is where the necessity of financial planning jumps in.
Financial planning process involves figuring out where you are now, where you’d like to be and how to get where you’d like to be. It can also be a process whereby you manage your money to achieve personal economic satisfaction.
Keep in mind that your plan should be flexible enough to accommodate the changing circumstances in life and also the ever changing economy. The process of financial planning can therefore be broken down into the following six easy steps;
1. Asses your current situation
Unless you know where you are, you cannot figure out where you are going. You need to know fully the situation you are in so as to formulate an escape route. You need to know your assets, debts, income and even expenses. From there you can see where you are and how to move on from there.
2. Define your goals
After assessing your current situation you need to give yourself a direction to move hence the need of defining your goals. Goals can either be short term, intermediate or long term. You need to know where you are headed when planning and thus the need for setting your goals. You should also set realistic and achievable goals to avoid being stressed up in the process. With a goal in mind you are likely to achieve what you set out to do with your plan than a person who has no goal. The goals will give you directions to where you are headed.
3. Create a plan for achieving your goals
After we have defined our goals, the next step is creating a plan that will help us achieve our goals. Think about what it will take to achieve each and every goal in the list. Think about what you need to do to ensure that each and every goal in the list is executed.
4. Identify and evaluate alternative causes of action.
In case plan A fails one needs a plan B. A back up plan is very important in everything we do since we are human beings and room for failure is always there. To avoid the trouble of going back to the drawing board after your first plan fails, a plan B needs to be put in place. This will also give your plan flexibility and other options. Therefore, prepare for failure beforehand even though you should try to make your first plan as perfect as possible. After identifying your alternative cause of action evaluate it to ensure it is also as perfect.
5. Manage your money
After creating an effective and efficient plan to achieve your goals one needs to manage his funds. In other words, create and implement a financial action plan. You need to manage your money with the goals you set in mind.
6. Reevaluate and revise your plan
After completing your plan you need to reevaluate and revise it to ensure it is well with you. A financial plan should be a living document than one should be able to go by and thus the need for revision. This stage will also help you to know whether you are right on track or not. If circumstances change, your plan should also be able to accept the changes. You should also make sure your plan is up to date with what is currently going on in your life and you should revise it suppose you undergo major life changes like getting a new job, getting married, getting children and all the other changes that you may consider as major.
The six rules of financial planning can be summarized into;
- Assesment of current situation
- Definition of goals
- Creation of goal achievement plan
- Identification and evaluation of plan B
- Money management
- Reevalution and revision of plan