Saturday, May 10, 2014

Financial Planning

Financial planning is essentially the formation of a personalized plan that allows you to control your own financial destiny. This means you have a clear picture of your present financial situation: net worth, your monthly obligations, your income, your savings, investments, and so on. Once you have this representation, you can start thinking about a savings plan, an investment strategy, and whatever other financial goals you have.

        Personal financial planning consists of three (3) general activities:

  • Controlling your day-to- day finances to enable you to do the things that bring you satisfaction and enjoyment.
  • Choosing and following a course toward long-term financial goals such as buying a house, sending your kids to college, or retiring comfortably.
  • Building a financial safety net to prevent financial disasters caused by catastrophic illness or other personal tragedies.

        The key to having an effective and efficient financial plan is to have objectives and goals. Knowing your net worth is important. Your net worth is your mathematical starting point in calculating where your money should go based on your money goals and dreams. For example, your money goal is to make a net worth of P1 million after three years. If your net worth at present is P200,000.00, this means you have to increase your net worth by 400% to achieve your money goal. Also, it would be difficult to estimate and forecast what your finances will be in the coming years if you have no financial records.

        In order to achieve an effective financial planning, financial literacy is imperative. Financial IQ is made up of knowledge from four broad areas of expertise: (1) accounting or financial literacy which is the ability to read and understand financial statements. This ability allows you to identify the strengths and weaknesses of any business, (2) investing, the science of making money, (3) understanding markets, the science of supply and demand, and (4) the law. Combine these four technical skills and making money with money is easier.

Our financial genius requires both technical knowledge as well as courage. The single most powerful asset we all have is our mind. If it is trained well, it can create enormous wealth in what seems to be an instant. The world is always handing you opportunities of a lifetime, every day of your life, but all too often we fail to see them. But they are there. Unfortunately, the main reason most people are not rich because they are terrified of losing. Winners are not afraid of losing. But losers are. Failure is part of the process of success. People who avoid failure also avoid success.   

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