Financial planning is setting financial goals in the form of a budget, saving & investing to meet the goals which range between settling debt, creating emergency funds, acquiring assets, safeguarding the assets against loss, planning for long-term retirement, and wealth transfer.

Components of Financial Planning

Goal setting (Click)

Budgeting (Click)

Savings (Click)

Investment (Click)

Debt (Click)

Risk and preventing loss of assets (Click)

Goal setting

Different strokes they say are for different folks, and so are different financial goals for different folks. For some saving for marriage, holidays, luxury car, retirement, and education all depend on the folks and amount in perspective.

In setting Financial planning goals, your needs must be clearly separated from wants. These needs and wants are subjective as it depends on the person and amount involved. Click for more on needs and wants.

Needs - These are things you cannot go without and the list ranges from rent, school fees, electricity and water bills, and all such purchases that can be categorized as being essential to your livelihood.

Wants - These are items that are desired but you can live without a list ranging from holidays abroad, entertainment, and dinner in a fancy restaurant.

Realistic financial goals are best achievable when specifically written and within a predetermined time frame.

Click the link to download the FINANCIAL GOALS TEMPLATE

Budgeting is a handy tool for goal-setting 

Budgeting

Have you ever wondered what happened to your salary before the middle of the month? A budget would help to track all income and expenses for a particular period. Most household budget is for a period of one month. A typical household budget covers all the income you earn from all sources including dividends and alimony, all your expenses, donations, debt incurred, and debt repaid.

A budget is simply writing down all your income from every source and all expenses and outflow of your money. Click the link to download MONTHLY BUDGET TEMPLATE

The difference between the income and expenses side can be positive or negative. A positive position means that you earn more than you spend or you are able to reduce your expenditure to fall below your income.

Now that you have excess money left over after taking care of your monthly expenses, what should you do with it? Do not spend it or give it out as a donation, save it.

Persistent and continuous positive will leave you with a pile of money to move to investment. A negative position translates that you are spending more than you earn and you are already in debt. It signals that you should control your expenses to avoid debt piling up. Continuous negative is disastrous for a healthy financial well being and debt comes with it is own attendant stress.

Savings

The economic crunch is a motivating factor for savings since there is a high chance of loss of jobs. In that case, an amount equivalent to a minimum of six months' salary is recommended. Other reasons for savings are for the replacement or enhancement of assets. Examples are replacing your car tires, fixing your house roofs, and children's school fees. Savings in a retirement account can also be used to reduce income tax liability, in that case, you are earning and at the same time reducing your tax liability.

Another reason to save is when your money is not enough for investment. In that case, you save for a period till when you can move the pile of money to investment.

Savings ensures that your debt is either minimized or zero and since you do not go borrowing in case of emergency, it saves you from the brunt of repayment of both principal and interest.

How to develop a saving habit.

- Break the procrastinating habit and start now. Saving can begin irrespective of the income level, income level may only determine the amount saved each period. Waiting till you get to a higher income level does not necessarily guarantee the incentive to save. Higher income to someone who has developed a saving habit means a higher amount to save, someone with no saving habit sees higher income as more money to spend. The best time to start saving was years ago and the next best time is now.

- Have a budget and include saving as a priority item, allocate money to the savings like every other need in your budget before spending. Savings first before spending.

- Saving can be fun with partners that you can set targets and challenge each other. Set a goal on what you want the money for and the amount and get some friends to start a saving challenge.

- Work on controlling your expenses and save the extra cash. Go through your expenses line by line in your budget and reduce and cut as far as you can the less essential expenses like phone calls, internet, eating out, and gas.

- Set up direct credit to your savings account and ensure you do not have a debit card on the savings account

After accumulating your money through savings, you will want to move the money to a higher-yielding instrument. Investment is naturally the next in the pecking order of what to do with your accumulated money before consideration of longer-term instruments like mortgages.

Investment

After accumulating money in the form of savings, then it is time to invest.

Like savings, people invest for different reasons. For some, another source of cash flows for retirement, and for some it is to grow an investment to a level where they can apply it to pay up a mortgage or capital for business ventures.

Debt

Risk and preventing loss of assets