DID you experience having a hard time in managing your finances? Having debts due to excessive expenses or maybe because of unforeseen events in your family? Do you want to achieve your goals of buying your own home or car in the near future? These are just some of the things that we are considering once we started working or doing business.
Financial planning helps you determine your short term and long term financial goals.
After determining your goals, you will be able to plan and set actions on how you can achieve it.
But before that, establishing your why is also important. The reason why we do financial planning is to be a good steward of the resources entrusted to us so we can bless our family, the people around us, our community and contribute in nation building.
Consulting a finance professional can help you on mapping out your roadmap since this is a step by step process. It’s not about getting rich quick but combining discipline, hard-work and of course trusting the source of our income.
Here are some of the reasons why we need financial planning:
1. Managing household expenses. Since money is a medium of exchange in our society, having the right strategies on producing, preserving and growing it will make an impact in our day to day expenses. This includes your basic needs, food, clothing and shelter.
If you’re a parent, educational expenses and needs of your children will add up from the basic needs. The lack of financial planning can cause our family to face difficulties in the long run. Having the right foundation can give us an advantage to achieve our goals and create a better future for our next generation.
2. Avoiding or Getting out of debt. Being in debt can oftentimes paralyze us in achieving our goals. Knowing the techniques in avoiding and getting debts such as increasing cash flow to manage increasing needs in a family can be an advantage.
Try to list down the opportunities that you can take to increase income by also growing your skills. This way you can add more value to the organization where you belong or maybe you can offer sideline services too.
If you’re already in debt, one technique that you can apply is the so called “Snow Ball” method.
In this approach, you will list down all your debts, pay the smallest consistently until you pay the next one and eventually be debt free. If your other debts have interest, and if possible to pay the interest consistently as well til you have big chunk that can deplete it.
3. Increasing your savings. Building an adequate amount of savings in the bank can be difficult if we do not have discipline and consistency. I remember when I started saving 10 percent of my income every cut-off, I started with P2,000 then eventually it grow little by little.
This can be possible if we prioritize our needs and set aside a budget for our wants. Since one of the struggles of many Filipinos is budgeting, it can result to zero savings even in years of hard-work. When we commit to a savings goal, we can take small steps and achieve it for a particular period of time.
4. Prepare for emergencies. Creating an emergency fund equivalent to six months of your monthly expenses can give us buffer funds in case of job loss or family emergency.
On the other hand, getting protected from life risks such as life, accident or health insurance can prevent financial distress due to unforeseen expenses resulting from accidents or medical emergencies. Through this protection, if you’re investing in the stock market or real estate, you can still pursue your goals without withdrawing your investments. There are a lot of people who lost their investments or assets because of the said emergencies.
5. Attaining life goals. Each of us have goals in life. This could be having a comfortable retirement, sending our kids in top Universities or even creating assets that we can even transfer to the next generation.
This thing will not happen overnight but with consistent small steps and having the right financial instruments. Knowing the platforms such as mutual funds, investing the stock market, real estate or creating multiple income streams are some of the factors that we should take to attain such goals.
If you are not yet sure which path to take, make sure to consult a professional to know your current financial status. If we plan an hour, we will save 10 hours of doing. Nowadays, we need to work smart by strategizing so we can maximize our resources and achieve efficiency in our career and business income.
Though as much as we plan, there will still be uncertainties that we cannot control.
Karlo Biglang-Awa is a registered financial planner of RFP Philippines. To learn more about personal-financial planning, attend the 90th RFP program this June 2021. To inquire, e-mail [email protected] or text at 0917-6248110.