Writing Financial plans

Why you need to plan your way to financial freedom

Wealth is the ability to fully experience life.”   

Henry David Thoreau

Financial freedom gives you options. It is the state of having enough continuous income that you choose when to work and what to do with your time.  In personal finance the words Financial freedom are sometimes interchangeable with financial independence.

It is the ultimate goal for most of us. I dare quip that it is worth aspiring towards. I am a strong believer in financial freedom. We were created for more than, trading our time for money.

With that understanding let’s delve into the importance of planning our way to financial freedom.

1. It is a deliberate journey it Doesn’t just happen.

It would be nice to just wake up one day and discover that yay! You are financially free! But no, it does not happen that way. Now that I think about it, I don’t even think it happens in the movies!  but I digress. It is a deliberate and measured journey. It requires coming up with a meticulous roadmap. It requires a vision, as big a vision as you dare dream. Once you dream, write down how you intend to actualize the dream. And then the work begins.

2. To develop SMART goals (someday has a timeframe)

SMART is an acronym that stands for Specific, Measurable, Achievable, Realistic, and Timely

A SMART goal creation process, challenges you to be Specific with what you want, how will financial freedom look like to you. Define this.

Make the goal Measurable, something in the region of, “ to reach financial freedom I need to have KES 500,000 (USD 5,000) in passive income per month.”

It has to be a big goal but achievable. Avoid building the proverbial castles in the air.

Realistic means that given your circumstances you can reach the goal. Please avoid making your goals dependent on “a deal, coming through”

Lastly, it must have a time frame. It cannot be “someday.” Put a time measure to the goal, is it years, how many?

3. You get to choose and take charge of the path that best suits you

The roadmap will entail choosing and using a mix of investment vehicles that help you reach financial independence. Low risks investment avenues like treasury bills and bonds give a lower return over time and will require a longer investment period, compared to, for example, investment in medium risk and higher risk like equities and stocks or nurturing a business.

Whichever your risk appetite, you will need to allocate a sufficient timeframe to hit your target.

4. It is easy to monitor if you are on course

Because you have sight of both your short-term and long-term goals, it is easy for you to keep tabs on where you are in your journey to financial freedom.  Are you saving enough? Do you enough insurance? Is your retirement plan on course? Without a plan, and a written down plan at that, you will be groping in the dark for balance. And you won’t know if you are lost or not.

enjoying financial independence

5. You can take advantage of opportunities along your preferred path

When you are clear on the approach you want to take towards your financial independence, it so easy to leapfrog and take advantage of opportunities that come your way. 

Say you have a strategy to accumulate a certain stock, after reviewing its fundamentals at the stock exchange.When you see the share price dip, instead of panicking and selling, you will likely decide to purchase much more than you had planned to take advantage of the discount in price. This is because it was part of your strategy

You may be eyeing a piece of land in a certain area for you to develop and someone offers it to you at a discounted rate. Because it was part of your strategy, you easily snag yourself the asset at a lower than anticipated price.

6. It puts you in a winning mind frame

Achieving financial freedom requires discipline and patience. We require patience when the results will be achieved in the long term. The best example of people who have mastered the art and science of discipline are athletes. They are consistent in practice and careful with what they eat & drink. They have a regimen, and they stick to it. They cannot afford to have too many “ bad hair days”.

 A plan helps you cultivate the discipline you need. That discipline is what will see you achieve milestone after milestone.

7. It focuses you, so you don’t go after every “shiny investment” idea.

A plan makes you focus. Peer pressure is not only true when you were a teenager, but also of adults, hence the phrase keeping up with the Joneses. If you don’t have any idea of what you what to achieve and by when then any road will lead you there. Every manner of “shiny” investment will attract you.

It is so easy for us to be distracted especially by those who are close to us. That is how pyramid schemes thrive because those introducing us to the schemes are our family and friends.

8. A plan empowers you to achieve superior results compared to the market.

This is a bonus reason. I have experienced the benefits of being consistent with an investment strategy. Because the strategy involves you evaluating each investment and getting comfortable with its risk profile, at the onset.

And then the work of chipping away at your goal start, and if you stick with it.. you will tend to get better results compared to the average Joe who jumps from one plan to the next.

In a world where you can get most things instantly, it pays to take a long-term view when it comes to financial planning and investing. It may seem like those who get rich do it within milliseconds, but the truth is, it does take time. And now that you know, please act like you do know…I am rooting for your success…

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