“Your present circumstances don’t determine where you can go. They merely determine where you start.”
Nido Qubein
If you have been with me for a minute, you probably know my thoughts on dealing with finances. We always start from the beginning, and, in the beginning, we kick off with a plan. A financial plan is a roadmap for your money journey. Let’s get into what you need to consider in making this simple financial plan, and as you start, please don’t let all the ideas you might have overwhelm you, because the thing with being too preoccupied with many things is that you never really settle to start on anything. So mute the overwhelm button and start….. at the beginning, of course.
- Mindset Shift
We need to shift our mindset, otherwise, this year’s financial plan will be the same as last year’s. The right mindset is the game changer, and by this, I mean you have to want the plan to succeed. This mindset goes hand in hand with the correct habits. Financial planning is behavior-based and you must accept that you will need to drop some habits as you pick new ones and amplify them for you to succeed.
- Start with what you want the end to look and feel like.
Most of what you will list down on the plan are things that you want to do to achieve your annual goal. Therefore, start with a picture of what success will look like to you and then put your goals in that order, usually, you can keep a good eye on 3-5-year goals. You can now break it down to annual goals. More than that may lead you to have many unfinished goals and even be saddled by guilt.
- Find out your current financial position
List down what you own and what you owe. In finance speak list down your assets and liabilities. Be candid, especially about the debts you owe. Please approach this exercise with an open mind because it is not a finger-pointing exercise but more to know what you are working with.
- Narrow down your financial goal for the year
Personal finance is broad, and it entails several facets that need to be meticulously planned. For instance, it involves Retirement planning, Budgeting, Saving and Investing, Tax planning, Debt Management and Insurance. All these can be overwhelming if you try to take them all in one go. I would recommend that you pick two or three areas to focus on and then build from there. Only make sure that saving and investing are part of what you choose.
- Review opportunities for cost reduction
One of the quick wins that is within reach. I will not say it is an easy process because it involves some discomfort. It is, however, well worth the effort. Contrary to our beliefs it is possible to live on less than what you are, currently. In fact take it up as a challenge, not so that you become extremely stingy with yourself but so that you leave more money in your pocket. For instance, start by questioning your loyalty to brands. Brand names come at a premium, so review any preferences around this and what could be your trade-offs.
Cost reduction will also need you to take a hard look at the big-ticket items in your monthly cash outflows. I’m going to mention rent and school fees. And yes, I know it is a big deal, but hear me out first. Review these two big costs in the context of sustainability can you “downgrade” to help you reach your goals faster?
6. Check your income.
By this I mean, what is your true income? Some of us operate with the belief that salary advances, and mobile wallet loans are part of our incomes. Please Please Please only budget for what you earn. And it may well be that you earn lump sums every so often, and work with a monthly average. I suggest you take the pessimist view when it comes to income to avoid situations that lead you to borrowing especially when you don’t get what was anticipated.
The thing with income is that you can also expand your base by selling your skills and expertise to earn in your free time or making products and selling them. Essentially, be honest with where you are but, make a plan to grow that income.
7. Outline and start your Saving and Investment Goals
You should likely pick one large scary financial goal that you will start this year and one to two mid-size goals.
The reason you want a large goal is so that you start planning for your financial goals that are 2- 4 years away. So, the large goal will run over several years but must begin this year. Examples of such goals would be saving and investing for a car purchase, a home/land purchase, or generally saving to invest and build up your financial asset/ business portfolio.
The Mid-term goals will probably cover 1 – 2 years, these will typically be goals such as saving for a holiday, saving to build up your emergency fund, saving up to have your insurance premiums ready when they are due, and saving for school fees.
You could also throw in a bonus “small “but not-so-small financial goal that could entail saving enough to cover one month of your expenses.
Remember it is all about taking in bite-sized chunks, because if you overdo it then you will easily give up on everything. Work at a manageable pace for yourself.
The Science of the small goal is twofold; you will have peace of mind for having saved up one month’s worth of expenses and secondly, it will give you the confidence boost and motivation to be consistent in accomplishing your financial goals.
8. Review and regroup
As much as possible review your progress every so often. And this is so that you keep on the straight and narrow. Where you fail, dust yourself off and start again. Please don’t wallow in self-pity. Also, where you are doing well keep at it. This journey may be lonely and you may also feel misunderstood sometimes, but since you have a goal to achieve, keep your eye on it.
I truly believe that it is possible to have financial freedom but only if you are intentional and work at it. But once you create a rhythm around saving and investing, you will not look back.
As always, I’m cheering you on to your success!