FINANCIAL PLANNING PART 1

When he graduated from high school in June 1953, he took a job at the Precision Tool Company and latter drove a truck for Crown Electric. His career goal at that time was to become a truck driver, but all that changed when he met Sam Philips, who owned Sun Records. From there it didn’t take long for Elvis Presley to make his name as a rock ‘n’ roll star. For the rest of his life he continued to be a musical force, and he made millions and millions of dollars. Yet by the time he was in his early forties, he faced financial ruin. How did this happen?

The answer is that he ignored the financial planning side of his life. He used his father; a former truck driver who had one served an 8-month prison sentence for passing bad checks, as his business adviser. He naively allowed his business manager to earn almost 50-percent commission as opposed to the industry standard of 10 percent. He opposed tax shelters on principle, and he impulsively gave away cash and expensive gifts. Moreover, it took over half a million dollars a year just to maintain Graceland (Elvis’s estate). 

Being financially secure involves more than just making money- it involves balancing what you make with what you spend. Basically you must live within your means, regardless of what you make. Elvis certainly made plenty of money, but he managed to spend even more. After Elvis died in 1977, Priscilla Presley took over the management of the estate, which was valued at only $5 million, Priscilla was able to turn the Presley financial affairs around, and today the estate is worth well over $100 million.

What’s the point? Life is better with a bit of personal financial planning. It’s always easier to spend than to save. It was true for Elvis, and it’s no doubt true for you.  It is also the case most people; in fact over 80 percent of Nigerians who are working has no solid retirement savings at all, because there always seems to be something better to spend their money on instead of saving it. Although without a financial plan for saving, you might not be able to afford to retire. Unfortunately, financial planning is not something that comes naturally to most people or corporations, and as result many people/companies and business work themselves into a financial corner that is much easier to avoid than it is to get out of. 

To keep your financial life stable or better till old age and after death, it is important to plan it. Picture your financial life as a ship to sail the sea and you are the Sailor. Imagine the ship has no definite designation, no map and no bearing; the ship will definitely get lost on the sea, if it leaves it location at all. This article provides you with the know-how to avoid financial pitfalls and to achieve all your financial goals. In fact, with good financial planning, you can get whatever you want or retire at early age. 

A plan is a detailed proposal for doing or achieving something, an intention or decision about what one is going to do. The process of making plans for something can be regarded as planning. In-order word Financial Planning is an ongoing process to help you make sensible decisions about money that can help you achieve your goals in life; it might involve putting appropriate wills in place to protect your family, business, and investments.  It involves thinking about all of factors together i.e. your 'plan'. You can build a plan on your own, or if your needs are more complex you might want the help of a Financial Planner.

The benefits of a solid financial plan certainly seem to be valuable. The question now is how to put them in place. Financial planning is an ongoing process that changes as your financial situation and positions in life change. However, there are five basic examined before we move on. 

Step1: Evaluate your financial health

A financial plan begins with an examination of your current financial situation. How wealthy are you? How much money do you make? How much are you spending, and what are you spending it on? To survive financially, you have to step back and see your whole picture. Of course, seeing your whole financial picture and evaluating your current situation are going to require a lot of careful record keeping, especially when it comes to spending. 

Keeping track of what you spend may simply be a matter of a few minutes each evening to enter of the day’s expenses into a little budget book. Is this record keeping dull and tedious? Sure, but will also be revealing, and it’s a first step to taking control of your financial well being.

Step 2: Define your financial goals

You can’t get what you want if you don’t know what you want. The second step of your financial planning process is defining your goals; accumulating wealth for retirement, providing funds for child’s education, or investing into business that will bring profits. Later we will discuss how to set achievable financial goals. You will notice that, as you age your goals change. Keep in mind, that your goals aren’t elusive and ever changing. Rather, as events happen and goals are achieved, they give way to other goals. Goals are like stepping-stones: Without a sound financial plan as a solid footing, it’s easy to lose your steps. 

Step 3: Develop a plan of action

The third step of the process involves developing a plan of action to achieve your goals. Although everyone’s plan is a bit different, some common concerns should guide all financial plans: flexibility, liquidity, protection and minimization of taxes. 

Developing a game plan for your financial future may seems overwhelming, so you may be tempted to turn to investment advisor or professional financial planners, for help. Before you do so, you should develop an understanding of personal finance for your own protection.

Planners and advisors can help you; in fact, for many individuals they are their financial salvation. However, in the end, you’re still the one who must decide on your own plan. 

Flexibility in financial planning means planning for the unplanned. Your financial plan must be flexible enough to respond to changes in your life and unexpected events. An investment that does not give you any access to your money before retirement or day of maturity may not do you much good. Dealing with unplanned requires more than just flexibility, sometimes it requires cold-hard-cash, and it requires it immediately. Liquidity involves having access to your money when you need it.

What happens when unexpected turns out to be catastrophic? Liquidity will get you through the repair bill for unexpected fender bender, but what happens if the accident is a lot worse and you wind up seriously injured? What if the cost of the unexpected is far higher than all you worth? Your liquidity allows you to carry on during unexpected events, but your insurance shields you from events that might threaten your financial security. Insurance offers protection against the worst, and costliest, unexpected events, such as flood, fire, major illness, or death. However, insurance is not free, but a good financial planner includes enough insurance to prevent financial ruin.

Keep in mind that as an individual or a corporation, chunk of your earning may go to the government if care is not taking. For instance, you need to earn of 1million naira from an investment to make profit from it, make sure it yield the 1million naira after taxes. It always good to pay little in taxes as possible, but it’s even better to understand in advance that tax will lessen your earnings and to plan accordingly. In effect, your goal is not necessarily to lessen or minimise the tax but maximize the cash available to you after taxes have been paid. 

Step 4: Implement your plan

Although it’s important to carefully and thoughtfully develop a financial plan, it is even more important to actually stick to the plan. For most people, ticking to the plan also means using common sense and moderation; you don’t want to become a slave to your financial plan. For instance, if you force yourself to write down every penny spent and track all expenditure, your efforts will probably stop in no time. 

Just keep in mind that financial plan is not the goal; it is the tool you use to achieve your goals. In effect, think of your financial plan not as punishment but as a road map. Your destination may change, and you may get lost or even go down a few dead ends, but if your map is good enough, you will always find your way again. 

Step 5: Review your progress, Reevaluate, and Revise your plan

What happens if you want to go to Lokoja from Lagos and what you have is a road map to  Abakaliki? Its time to get a new road map! Periodically you must review your progress and re-examine your financial plan. If necessary you must be prepared to start all over again and formulate a different plan of action. In other words, the last step in financial planning often returns to the first. No plan is fixed for life; remember also that a goal without plan is a fantasy.  

Summary:

Create a sound financial plan by: 

Evaluate your current financial position – Work out what assets and liabilities you have – write them down.

Establish your goals in life – short, medium and long term.

Develop your plan – create a “route map” for achieving your different goals.

Implement your plan – make the changes and make it happen.

Monitor and review your plan at least yearly and make adjustments when needed.