Stages of Financial Planning
Nine months has passed since the pandemic hits us. It has tested all living aspects in our society be it in terms of mental, health, work and financial issues. For most, the pandemic caused many to face challenges in reduced income. Therefore, solid planning on household finances and investment plans became very important to mitigate the risk we may face in the future.
The big question is, among the many things that need to be addressed, which one is the priority? Before delving into the answer, we must understand first that financial planning is a process to achieve financial goals by managing household spending. For this reason, there are several stages that Financial Consultant, Prita Hapsari Ghozie has shared with us.
First, we must determine the dreams or goals an individual or the family wants to achieve. Every month, we have to prioritize setting aside a fund to these short-term and long-term goals.
To make identifying these goals easier, we could write down the details of our goals, whether for the short or long term. It’s also important to write down the amount of money we’ll need to meet these goals as well as calculating additional cost due to annual inflation. Then, we could choose a variety of investment instruments that match our risk profile.
Second, after determining the financial goals we want to achieve, the next step is calculating the required funds to achieve them. We must also remember that an inflation rate or a price increase may occur, thus the nominal of items we purchase today could be different in the future.
Third, develop a strategy according to our financial plan. After identifying the funds we require for our future plans thanks to the calculation we did in the second stage, we can evaluate if there are existing assets or savings we can add into our plan. That’s why it’s best to conduct yearly financial check-ups.
Fourth, learn the investment package we want to use. Now that we know what we want to achieve, we must plan our strategy, as well as identify alternative financial products that can be used to achieve our financial goals.
We must think beyond savings and check if there’s alternative investment products that are interesting. To name a few, there are investments in precious metals, mutual funds, retail government securities, and stocks directly. Every financial product has different potential benefits and risks.
Fifth, implement the financial plan. The financial plan will be our main guide in managing our income and expenses. However, if there is no action, the plan will be limited to only talks and dreams. To execute this plan, Prita recommends to separate the funds into several different accounts. Each account could focus on operational accounts for monthly use, investment accounts, and emergency fund accounts.
Sixth, monitor and evaluate. After making plans and implementing them, periodic evaluations should be carried out. The financial plan must be flexible to keep up with changes.
Financial planning will not promise instant profit. However, by planning, your life and your family will be more focused, prosperous and secured. Finally, with the various efforts you have made, you will be more grateful for whatever you have right now.