When you hear the words ‘financial plan’, you might think they don’t apply to you. After all – isn’t financial planning only for the rich? No, it isn’t! Financial planning is all about how you manage your money – every cent – and use your money to achieve your goals. Everyone should have a financial plan.
A financial plan is what you want to do with your money and will include:
- What you want
- When you want it
- How you plan to get it
As you can see, having a financial plan doesn’t depend on how much money you’ve got.
Saving a few rands can make a difference:
For example, if you save R25 a week you will have an extra R1 300 a year to invest. If you invest this amount every year in an account earning 5% interest (fixed rate, interest earned annually), at the end of five years you’ll have R7 542.
Here are some great ways to save this amount. You can build this into your financial plan.
A financial plan is also not a budget. A budget starts with what you have, whereas a financial plan looks at what you want, how much that will cost and how you can achieve it. When you know this, you can build it into your budget.
If you have goals, you need a plan to achieve them. If those goals cost money, you need a financial plan.
What do you want?
Where do you start drawing up a financial plan? Start by thinking about your life goals. Not all of them will take money – for instance, a goal might be, building a good relationship with your spouse – but many of your goals will involve money. Some examples of life goals that you need to fund are:
- A home, renovations, new decor or perhaps a second home
- A car
- A holiday, locally or abroad
- Emergency savings
- Insurance, so you can fund expenses such as a funeral, car accident or stay in hospital
- Starting your own business
- Paying off debt
- Education – for your children or yourself
- Balancing your budget every month
- A retirement with no money problems
- A financial or property legacy for your heirs when you pass on
When do you want it?
Put a timeline to your goals – it can be a range such as 10 to 15 years or a definite date, such as in five years’ time.
How much will I need?
Now we’re getting onto the money. Find out how much you need and put the number next to your goalSo let’s say you want to buy a house that costs R700 000.
You will need a R70 000 deposit, and
+ R6 000 a month to pay off your bond
You can find online calculators such as this bond repayment calculator to help you work out how much you need .
You can also ask a certified financial planner or advisor for assistance. They are trained in financial planning and will help you identify what you want and how much money it will take to get there.
A financial planner will charge for their time so explain what you want, how much money you have and ask them what they will charge.
Plan to get there
When you know what you want and how much it will cost, go through your budget to find an expense you can reduce or find a way to earn extra income so that you can save for your goals.
Using our above example – you need to save R70 000 for a deposit for a new house.
If you already have R10 000 saved and can save an extra R1 000 a month in an account earning 7% interest, it will take you four years and one month to save enough for the deposit. You can use this calculator site to help you work out the numbers.
When you’ve got these numbers and know the amounts you are going to save each month, you can slot them into your budget.
Investing is within your reach
Another myth about financial planning and investing is that you need a lot of money to start an investment account. This is simply not true. You can open an account on EasyEquities and invest as little as R5 in a share. You can open a bank savings account with R50, and some banks allow you to open a savings account with no minimum balance as long as you have a transaction account with that bank. Fixed deposit accounts can be opened with as little as R500. Most unit trust funds allow debit orders of R500 a month.
You can also start an investment club or stokvel which will give you a larger amount to invest.
When you’ve got your financial plan, remember to review it regularly to check that your goals haven’t changed and that you are on track to achieve them.
A final thought
Some things happen by accident – you may meet your soulmate walking down the street or become best friends with a work colleague. But not many goals happen by accident – they are the result of a plan being followed.
If you have financial goals, a financial plan can help you achieve them. Why not sit down with your family and find out what you want to achieve and how you can begin saving for your goals?