It all begins with a plan. Financial planning is a process of measuring where you are now relative to where you would like to be somewhere in the future and implementing the necessary steps to get you there.
Peace of Mind
The main benefit of a successful financial plan is not really found in how much money you have or will accumulate. Money after all is just money. It is what money does and can do for you that makes the difference. If you had enough money to support your lifestyle no matter what life changing event occurs, then the ultimate benefit to you is peace of mind. Peace of mind now and along the way into the future that should you encounter a life changing event you can maintain the lifestyle that your plan sets out to cater for.
Life Changing Events
Life is not perfect and is unpredictable. At times when you least expect it a life -changing event can occur. Lets take a look at some of the typical events, which could affect you.
• Death – the death of someone upon whom you depend for income. The impact could be disastrous as funds required for maintenance of your day- to- day needs comes to a sudden halt.
• Disability – if you are temporarily or permanently disabled through an accident or even an illness, you have yourself and your family to provide for.
• Retrenchment – losing your job can be devastating. The pressure of find a new income gets worse the longer it takes to find a new position.
• Retirement – This is an inevitable life-changing event, which is very difficult to avoid. We are living longer and the pressure is on all of us to save as much as we can for our retirement years. The longer you live the more you will need.
• Marriage – Taking on the commitment to build a life together needs careful financial planning to ensure that financial independence is achieved early
• Divorce – Successful marriages are hard to come by with two thirds ending in divorce. This life changing event has a devastating financial implication on the family.
• Economic crisis – Whether this is brought about by weather or politics or a global melt down, can your financial plan with stand the correction and sustain the recovery.
Financial Planning questions
In relation to your financial provisions you need to answer the following questions:
Where am I now?
Where do I need to be now and in the future?
How do I get there?
The main principle to follow is “If you can measure it, you can manage it.”
The process of financial planning starts with calculating the net worth of your current financial provisions and measuring this against what provisions you need now and into the future should a life-changing event occur. The shortfalls and/or the surpluses that are identified provide areas in the plan where you should be allocating your disposable income.