Living a good life can be owning a home, owing a business, being debt free, driving a high end car or having a good investment portfolio. These goals are achievable with a strong financial planning.
Home ownership, university education, job security or desire for a retirement at the age of 65 are becoming very hard target for today’s generation. In today’s world a couple may need two incomes to maintain a good desired standard of living.
With today’s economic condition young people need to worry about their future if they want to improve their lifestyle, send their children to university, or want to retire comfortably.
To achieve these desired financial goals you need have a personal financial plan. Personal financial planning helps you define your goals and develop strategies to achieve these goals. Today’s economic environment is very volatile and intimidating. With so much information available on the internet we still do not know how to use it effectively.
As circumstances change you need to revise and adjust your goals. Creating a flexible plan and revising it on regular basis will lead to a very solid financial future.
Having a personal financial plan in place will help you acquire your goals and control your financial resources efficiently. You will be able to gain more enjoyment from your income and improve your quality of living.
In Canada most of the families with children have two parents working. Two incomes do buy more but at the same time require strong management. Using money wisely is big benefit of financial planning. You must determine your current and future spending pattern. It will help you manage your money properly.
Our immediate needs to survive are food, clothing and shelter. A carefully drafted financial plan should always set aside a portion of your current income for future. A best way to do it would be to invest this money in savings.
Always have an emergency account to cover you for at least six months.
Don’t get carried away with unsolicited sales pitches.
Always pay your credit card bills in time.
Save for your retirement through your payroll deductions.
Try avoiding too much credit.
There is a misconception that personal financial planning is only for the rich. In reality, rich or poor all need personal financial planning. If you have enough money, planning can help you spend wisely and invest wisely. If you have less money, try controlling your expenses.
Recent university graduates, married couples, single parents, youngsters who just started a job or senior corporate executives, all need to have a financial plan in place.
Financial planning involves following steps:
Define your goal.
Develop a plan and strategies to achieve your goal.
Implement your plan and strategies as required.
Develop budgets to monitor and control.
Use financial data to evaluate results.
Redefine goals and revise plans as required.
Financial goals cover a very wide range. These could be savings, investments, to be financially independent, sending children to university, plan for retirement. Be very specific in defining your financial goals. Your goals should be realistic and attainable. Setting your goals too high will put your financial plan at risk. Once you have set your goals your next step is to prepare appropriate cash budgets. Always prioritize your goals and give them a time frame. Remember your goals do change with your life situation, so you need to revise your goals as required.
Once you have set your goals, set up target dates. These target dates can be your check points to evaluate progress.
Long term goals are usually for six or more years. Your long term goals should indicate wants and desires for a long time. Sometimes these goals will change over the time and you will need to revise them accordingly. Too high goals need to be revised to bring them back to reality. On the other hand if the goals are too low, you will need to adjust them to get the best result from your finances.
Short term goals usually cover 12 months. These goals should aim at regular contributions to savings. Setting aside funds for an emergency should be part of your short term goal.
Once you have set your financial goals you need to set financial plans to achieve these goals. First part of your financial plan is to prepare a budget to control your spending. Liability plans will help control borrowing, and savings and investment plans will provide emergency funds. A retirement plan will provide you security in your old age when you are not working anymore and estate planning will provide a cost effective transfer of your assets to your heirs.
Disclaimer:
This information is for educational purposes only. It does not constitute any legal advice or opinion. Please do not use any of its contents without seeking a professional advice.
References:
Personal Financial Planning by Gitman, Joehnk, Gallant and MacAulay.
Money Management for Canadians for Dummies
Mansoor Suhail (Mani)
Accountant
BSBA – EA – ICIA – RA
Tax for Canada and U.S.A
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