In order to move from point A to B, you need to know where you stand and what route is required to arrive at your intended destination.
The same holds for our finances. Before we can set accurate financial goals, we need to assess our current financial situation to determine the right plans for our financial future.
Consider a financial plan as a map that guides you through this process. It’s also refreshing to know that a financial plan can be helpful irrespective of one’s financial situation.
More importantly, is the fact that financial planning is a flexible process. In other words, it’s a plan that shifts as your life unfolds therefore adjusting it accordingly will help you stay in control of your numbers.
Creating a financial plan follows five basic steps:
Assessment: Defining your current money situation: Where are you at the moment financially?
Goal setting: Where do you need to be?
Creating a financial plan: How can you get there?
Execution: Take steps to make this happen
Reassessment: Review, Rinse, Repeat.
- Assessment: What is your current financial status? Answering this important question is the job of your net worth statement. Your net worth is the difference between things of value that you own(assets) and things you owe (Liabilities).
Your net worth statement gives you a snapshot of your current financial situation. Read more about creating a net worth statement here.
You need this information to set your financial goals and assess your progress along the way. It will be difficult to plan for the future if you don’t know where you are.
2. Goal setting: Without much thought, we all have financial aspirations. It’s as simple as deciding what you want. Figuring out what you want is as important as writing them down too.
A goal should be written and reviewed often. Make them specific, time-bound and realistic. Instead of saying I want to save better in 2022, say I want to save ₦50,000 by February 24, 2022. Don’t say I will clear my debt in 2022. Instead, say I will contribute ₦50,000 monthly toward my debt with the highest rate.
Putting a timeline on your goals creates a sense of urgency to focus on them.
Categorise your goals into short, mid and long term and how much is needed to achieve them and by when.
It’s easier to divide your goals into smaller steps to avoid being overwhelmed. Get in the habit of creating the next steps after you’ve crossed smaller actions off your list.
GOAL 1: I will pay off my N550,000 debt by June 30, 2022
GOAL 2: Identify 3 areas in my budget where I can save a combined N50,000 monthly- Dec 31, 2021
GOAL 3: Call creditors and renegotiate better repayment terms by Jan 12, 2022
GOAL 4: Use the Avalanche method and attempt high-interest loans first.
Break your goals into short (one year or less), mid(one to three years) and long-term goals (goals you expect to meet in five years or more). This way, it’s easier to stay focused and get a sense of accomplishment and satisfaction. Ask yourself how you’ll track your progress along the way. If you can come up with a measurable answer, you are on track.
After you’ve stated your goals, choose two or three short-term and one or two long-term goals to focus on. Let’s say you choose a goal to build your savings. Set a monthly goal to contribute a set amount to your emergency funds and then towards your opportunity fund.
3. Create a plan: Ask yourself if you have the available resources to achieve your goals. Begin by Identifying which goals need funding
Not all money goals require funds. For example, shifting from a scarce to an abundance mindset requires positive mental exercises because change starts from the mind.
Having another stream of income may require taking some free courses on Coursera or YouTube which is really cost-efficient.
4. Execution: Take steps to make it happen.
Factor your goals into your budget. Automating your finances helps you stay accountable with this step. With the HerVest app, you can save towards your money goals while enjoying up to 10% per annum on the go.
5. Evaluate your progress: You’ve got your net worth statement, identified some goals and broken them down into short, mid and long term. Now you need to determine how you’ll track your progress. You will have a sense of whether you’re making progress or not. Ensure to carve out time at least monthly to review your progress after you’ve updated your budget. Long-term goals can be reviewed less frequently than short-term goals because of the time frame for reaching them.
Worth mentioning: You might find that your goals have changed along the way and that’s okay. A good financial plan is flexible and changes with your wants and needs. If you lose interest in a goal, don’t consider it a failure. There’s no motivation to work for something that no longer interests you.
A great way to stay motivated will be to engage the support of your community and friends who have ticked similar goals off their lists. You can gain from their experience and seeing their success can be the inspiration you need to keep going.
Another powerful tip is to engage your subconscious. Make a list of all the benefits you stand to gain when you reach your goals and review it constantly to align your mind with this perspective. Feed your mind with positivity and in no time, your goals will be easy to attain.
