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Financial planning looks at where you have
been, where you are now (a snapshot shown from your financial statements),
and where you want to go (financial plan). Basically, the financial
planning process is the conduit between where you are now and where
you want to go.
Most people, says financial planner John Jue, start planning their
finances only after they have acquired some responsibility - for example,
they get married or when they start having children - as it means
added expenses and a need to plan for the future.
The first thing one has to do is set financial objectives. These objectives
are both qualitative in terms of attitudes, concerns and hopes that
will dictate how you will proceed with your plan, and quantitative
in terms of the actual number crunching you will have to do. Furthermore,
these financial objectives stem from each individual; there is no
standard plan for everyone.
In establishing objectives, you have to consider the importance of
setting objectives. Setting objectives helps you focus on the problems
and look at ways to solve them. Define your objectives so that you
will not make the mistake of overlooking solutions. Focus on specific
goals, and commit your objectives; you need to have the motivation
to take your plan to the next step.
Organise your objectives by taking into consideration the family life
cycle. At different stages, you will have different needs.
Define your objectives by looking at the time dimension; set long
term and short term objectives. Look at the result you want to attain,
and whether or not it is realistically attainable given the time frame.
For long term objectives, you would have to consider factors like
the dollar value of your goals. short term objectives take into consideration
key data for budgets, and also the impact of your short term decisions
on your long term objectives. For instance, buying a Mercedes right
now would mean using money that you would otherwise be saving for
your house.
Refine your objectives by looking at the planning environment. Consider
macroeconomic factors that will have an impact on your financial plan.
These factors include:
* The participants in the economic system, that is the government
in terms of taxation and regulation, business and consumers;
* The economy, whether it is in an expansionary stage, recession,
depression and recovery. If the economy is in a recession and you
are out of a job, it means that you would not be able to save. But
is you have a financial plan, you would have saved enough to have
emergency funds for such a situation; and
* Consumer price behaviour - high or low inflation rates have an impact
on your savings and money. |
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