It’s understandable if people get confused when we talk about money. Money, finance, banking, wealth management and/or debt involves complicated complications that are sometimes beyond one’s comprehension. However, we are hopelessly dependent on it as it is the medium that the system (i.e. our government, banking institutions, etc.) use to circulate, disseminate and collect wealth through tax revenues. In other words it helps keep things going for as long as civilization exists. But more than just understanding what money is, it is equally important how to use it to your advantage.
Now don’t get me wrong, because money in itself is already an advantage to anyone, but financial planning is a completely different thing!
Finance is defined as a large of sum of money that the government or large companies manages, but how about personal finance? Personal finance can be address as a way on how an individual or families obtain, budget, save and spend their money and what they do with it. Personal finance usually includes checks and saving accounts, consumer loans, credit cards, health insurance, life insurance, disability insurance, investment (mutual funds, bonds, and stock market), retirement plans, social security benefits and income tax management.
If you have bigger plans in the future when it comes to your personal finance, financial planning is the key. The following are the six steps in personal financial planning:
Assessing Your Current Financial Situation
The first step in financial planning is about knowing your current financial situation. Prepare a list about your income, savings, living expenses and debts. By knowing your current asset and debt balances and also the amount that you’ve spent for other items can make it easier to budget your money and make financial planning activities easier.
Developing Financial Goals
Having a savings account isn’t enough; one should develop several goals which will increase financial your output while using your savings as a vehicle to reach your goals. But remember, your goals – even the financial ones – will ultimately be determined by your habits. Your financial goals could be seen between a scenario where you spend your whole savings on pleasure or investment scams; or you’ve invested it on business assets and grow your money over time. It’s up to you on what you think is the best way to secure your future financial security. So be careful and watch out for your impulses.
Identifying Alternative Courses of Action
Having an alternative course of action is crucial when it comes to making good decisions. There have been situations where one would continue the same course of action, expand the current situation and make a mess of things. Flexibility should be in your nature because, in the end, it all boils down to simple math…and you place your bets on the strategy that wins. Sure you won’t be able to see those victories right away, but using deductive reasoning and predicting outcomes based on initial results will help you make intelligent and informed decisions otherwise.
From half-way down the line you can tell whether your strategy is successful and then, you can stay the course; otherwise be flexible and creative. It can be summed up in this scenario:
- You have 2 options, either buy a real estate property (a family house that fits 8 people) or invest $600,000 on an export/import business.
- Let’s assume that you already have the best strategy for both potential investments, where you’ll lease the house for $300 per person per night and on the other hand you could get 5% – 20% income from your total investment value on the export/import business. The problem is that you only have $600,000 and you can only invest on 1 cash bucket, so what’s it going to be?
- You must first consider the advantages and disadvantages on both investments. Is the real estate market good these days? Or is the export/import business better? Well, we know for sure that it was the real estate market that knocked the U.S. Economy back to stone age and it’s not a good investment venue at the moment considering it has less than 3% growth. We also know that the supply and demand of the world is continuously growing and that the export/import industry is booming, so it’s basically a no-brainer there for you.
- You will have won twice the amount of your initial investment in a year with export/import than with real estate. Real estate business is only good where people constantly moves in or out of certain places like tourist hotspots.
In evaluating possible alternatives, you should consider what your life situation, personal values and current economic conditions are. Decision has always been an ongoing scenario in your personal and financial life. There are always consequences in every decision you make. For example, deciding to invest in the stock market can lead you to losing a significant amount of your money, because of poor stock performance. The alternatives to this is to divest from the company stocks, invest in a better performing one, or just freeze your money in your savings account and re-evaluate your situation. Or better yet study more on stock market investment before getting back in the game. What I’m saying is just make sure those alternatives work always in your favor.
Creating and Implementing a Financial Action Plan
An action plan simply means a set of goals that you will act on different points in time, usually not too long, and see if the outcome will be exactly as you have predicted, close to it or not at all. As it is stated in Murphy’s Quantum Law that says, “Anything that can, could have, or will go wrong, is going wrong, all at once. If there are two or more ways to do something, and one of those ways can result in a catastrophe or pregnancy, then someone will do it.“ So, it would be wise to anticipate road bumps and sink holes along the way and come up with a countermeasure to mitigate its effects on your financial action plan.
Fortunately, you’re not the first one to create and implement a financial action plan and it is highly unlikely for you to fail, when millions of others have succeeded in doing it.
What you should Focus On…
Strive to make every effort to go to the next waypoint of your financial action plan, because you don’t want to get stuck in the same place for too long, or else you’ll default and fail miserably. The steadier your strides are, the further you will go until you will have achieved your goals. Don’t worry about problems, in a world governed by laws of contradictions and infinite possibilities, problems will always be common. What’s important is how you’ll react or respond to these problems and get on top of them.