Its not how much you make, its how you handle what you get. This is a self-explanatory idiom in the Oshiwambo language. I know people who make reasonable salaries to live on, others make really good money, while some literally make peanuts. But regardless of the difference in their income, you get people from all three groups who complain about not having enough to put away as savings. I know that life can be hard. But it’s also true that we can create the financial lives we desire. So I want to use this post to talk a little about doing just that through financial planning.
The first step is getting an eagles’ view of your situation in terms of your income, expenses and liabilities. Use the following questions to come up with a budget:
- How much money is coming in?
- How much does it cost you to live? Consider things you need like rent
- What do you owe that you pay for every month?
- Do you have everything you need or want?
- How do you want your financial future to look like?
- Will your actions today lead you to that future?
- What are you look forward to in future, that you need to save for today?
The first 3 questions will help you determine your financial picture as it relates to meeting your needs. After you have figured out your survival, you need to plan. Answers to the last 3 questions will determine your financial goals. The categories of financial goals below help as guidance on goal setting.
Short-term Goals
Which of your goals do you want to achieve in the near future? These usually lie in the timeframe of 1 to 3 years. My friend is planning to buy her car, as soon as she gets her driving license. That could be next month, so in her financial plan, she should be ready to buy a car. Do you want to travel next year? Your short-term goals could also include the luxurious things you want to spend on but have to save for because you just can’t afford them now, or maybe just don’t want to pay for them with one month’s earnings.
The Emergency Fund
Your short-term goals should include savings for rainy days. Life can sometimes be unpredictable and things happen. Ideally, you need savings that are at least equivalent to your 3 to 6 months’ total expenses, depending on what you are comfortable with. An emergency fund will allow you to solve any emerging problems you may find yourself in without turning your world upside down. It also helps in unthinkable situations like if you were to lose your job.
Medium and Long-term Goals
Whatever goals you want to achieve beyond 3 years form part of your medium term. Do you have any plans to invest? For your long term plan, also think about retirement. When do you want to retire? What kind of life do you want? Most employers have compulsory pension contributions. Will this be enough for you?
You’ve set your goals, what’s next?
For this goal-setting thing to work, you need to get to work and implement.
- Clarity is important in goal-setting. It helps with big numbers if you break them down into smaller bites so that they are not so overwhelming.
- Pick out the ‘urgent goals’ that need to be tackled first. Take baby steps and tackle your them in bites.
- When you have decided what you are paying or saving towards, it helps if you make your payments or savings automatic; to remove the imperfect human nature from the equation.
You can get the life that you want, but it requires you to put in the work. Your dream life has a price which is to be paid for today.
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