Pinoy Financial Planning and Simple Ways to do it. | EfPrime Finance
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Financial planning is a
process that involves carefully analyzing and planning your financial goals.
Doing so helps you identify areas of improvement and determine strategies that
can help you reach those goals.
Importance of Financial
Planning.
If you're struggling with
a financial issue, a financial plan can help you overcome it. It can also help
you avoid making costly mistakes.
1. Being more mindful of
your money habits.
Do you know where your
money goes? Without knowing where it goes, you'll be surprised when it gets
spent.
Financial planning helps
you identify areas where you can improve your financial health. It helps you
manage your expenses and income.
2. Making wiser
financial decisions.
Getting good at financial planning is challenging if you don't have enough data. This is because making smart decisions requires having a clear understanding of your financial situation.
3. Prepares you for unforeseen events
A good financial plan
can help you identify and prepare for potential emergencies. It can also help
you manage your expenses and minimize the impact of unforeseen events.
4. Resolving financial
issues
Financial planning helps prevent problems from happening in the first place. For instance, if you're not fully paid for a loan, you can fix it before it gets worse.
5. Becoming financially
independent
Financial dependence is a part of Philippine culture. It is a way of life that most of us can relate to. Financial planning is the process of achieving financial independence. It helps you get out of debt and save for your future.
6. Achieving your life
goals.
A well-thought-out financial plan helps you set goals and keep track of how you're going to reach those goals. The point of planning is to get where you want to be in life. Doing so requires a lot of work and money.
The Financial Planning Process: Procedure in Making Financial Plan
If you wish to do a
Financial plan, but don't know how to do it, then this is for you. Here are the
six basic steps to take for an easy financial planning process.
1. Assess current
financial position
No one-size-fits-all
financial plan works for everyone. Having a plan that works for you and your
situation is the key to effective financial planning.
Knowing the answers to
these questions can help you set realistic goals and make changes to improve
your financial situation. It can also help you set goals and improve your
financial standing.
The best way to assess
current financial position is to compute your net worth:
Your net worth is the
basis of your current position which will determine whether or not you will
push through with a financial transaction or not i.e. to buy something or not.
Your net worth is the sum of what you own and what you owe. In other words, it
is the difference between the assets you own and the liabilities that you owe.
After knowing your
financial position, you should learn to examine your cash flows i.e. knowing
your sources of income and your expenses. Likewise, examine your accounts and
look for trends, those with unusual values i.e. your credit card obligation,
your high expense on electricity or your high internet bills. Make your life better by making well-informed
financial decisions to adjust these abnormal balances.
In this regard, it is best advised that before you invest in any venture, you must settle or at least keep to a minimum the number of your liabilities. If you have a dependent family, you better have life insurance as a priority before going to investing.
2. Set your financial
goals.
Your financial goals can
help guide you through the process of developing a plan. This will guide you in
defining your financial goals:
Ask yourself open-ended
questions about your goals and needs. How do I envision my life in 20 years?
What kind of lifestyle do I want for retirement?
Use your present
financial situation as a reference point to determine what direction you want
to take in the future. Then, consider how money can help you reach your ideal
financial future.
Create short- and long-term goals. You can then determine what you want to achieve in the next couple of years. Short-term goals help keep you motivated to reach your goals.
3. Develop Financial
Strategies
Focus on the five
aspects of personal finance which include the following: financial management
thru monthly budgeting, insurance planning, taxation planning, estate planning,
and retirement planning.
The strategy must focus in keeping your expenses within the budget, minimize obligation, insure the future of your family by way of insurance, minimize your taxes, create an estate plan and invest for retirement in instruments such as stocks, bonds, cryptocurrencies, real estate, forex among others.
Here are the tips to best manage your liabilities:
- You can also list down all your current debts by nature and length of obligation.
- You can also identify the debts with the highest monthly payments or interest rates.
- You can also explore various options to reduce or completely pay off your debts.
Part of the strategy is to create an emergency fund. An emergency fund is a set of savings that you can use when something unexpected happens.
An emergency fund is an important aspect of financial planning for many reasons. It can be especially critical if you are a breadwinner or have an irregular income.
One strategy that can help boost your savings is to establish a dedicated savings account. This account will allow you to save regularly and get a high interest rate.
Another financial strategy is to build wealth through insurance planning. Having the proper amount of insurance coverage is important to protect your assets and loved ones.
Estate planning is another strategy that only a few Filipino does. While it may seem counterintuitive for the rich to protect their assets, it is important for the middle class to do the same. An estate planning strategy can help preserve your assets and protect the loved ones you care about most.
Retirement planning as a strategy. Aside from building wealth, investing for retirement is also an important aspect of financial planning. You will able to fill in the gap in money that you need from your retirement up to the end of time.
When investing, you should consider the following:
- How much you'll need to save for retirement?
- How much risk you should take when investing for retirement?
4. Track your progress.
The process of financial planning doesn't end once you've implemented your plan. You should regularly check how far along you're with your goals and how far you're from reaching them. How has my money managed? How have my investments performed?
5. Review and update
your plan
Major events can have a significant impact on your financial plan. You should regularly review your financial plan to make sure that it's still working properly.
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Disclaimer
The Author is advising readers to consult with your respective Financial Advisors before venturing into any investments. Investing your money is dependent on your goals and your risk tolerance. You should know the risks and rewards of investing before you actually do the same. The illustrations above are for educational purposes only and any risks or losses that you may incur are imputable to your respective decisions.
The author does not in any way provide a guaranty as to the effectiveness and quality of the products and services that are featured in this blog. The products and services were advertised based on personal experience and product and service reviews that the product/service received.
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