In discussions with colleagues, a number of them are disinterested in financial planning given what happened in 2008. Savings were eroded, pensions were lost and most the financial instruments which people invested in were rendered useless. The attitude that most Zimbabweans are taking is ‘let me live for today as I do not know what tomorrow holds’. It is imperative to understand that for every plan there are other factors that can derail or work in favour of the plan. That should not stop one from planning, for the old adage screams; failing to plan is planning to fail. In fact the memory of 2008 should assist in incorporating the risk factor in financial planning.
Financial planning is a process, not a product. It is the long-term method of wisely managing your finances so you can achieve your goals and dreams, while at the same time negotiating the financial barriers that inevitably arise in every stage of. It (financial planning) is borne out of a clear vision and objectives which will guide an individual into developing the necessary financial plan to achieve the desired goals at the end. Just like many plans, it can be divided into short term, medium term and long term.
Most people want to handle their finances so that they get full satisfaction from each available dollar. Personal financial planning is the process of managing your money to achieve personal economic success. Having said that, the financial planning process usually follows a number of steps as follows; determining one’s current financial situation. By determining your existing financial situation it helps to set realistic goals and determine how much alternative income you need to generate to augment what you already have on the table. This involves determining one’s current financial situation with regard to income, savings, living expenses, and debts. Preparing a list of current asset and debt balances and amounts spent for various items gives a foundation for financial planning activities. There is need to develop financial goals and periodically analyze financial values and goal. The purpose of this analysis is to differentiate needs from your wants. Specific financial goals are vital to financial planning. Others can suggest financial goals for you; however, one must decide which goals to pursue. The financial goals can range from spending all of your current income to developing an extensive savings and investment program for your future financial security.
Creativity in decision making is vital to effective choices. Considering all of the possible alternatives in terms of course of action will help make more effective and satisfying decisions. The possible courses of action need to evaluated, taking into consideration your life situation, personal values, and current economic conditions. As some scholars say economics is a study of choice, there is need for an understanding on the consequences of choice. Every decision closes off alternatives. For example, a decision to invest in stock may mean no vacation. A decision to go to school full time may mean you cannot work full time. Opportunity cost is what one gives up by making a choice. This cost, commonly referred to as the trade-off of a decision, cannot always be measured in dollars. Decision making will be an ongoing part personal and financial situation. Thus, there is need to consider the lost opportunities that will result from your decisions.
In evaluating alternatives, another key element of risk evaluation is key. Uncertainty is a part of every decision. Other decisions involve a very low degree of risk, such as putting money in a savings account or purchasing items that cost only a few dollars. In many financial decisions, identifying and evaluating risk is difficult. The best way to consider risk is to gather information based on experience and the experiences of others and to use financial planning information sources. Relevant information is required at each stage of the decision-making process. Changing personal, social, and economic conditions will require that one continually supplement and update their knowledge.
One key element is the development of the plan itself. This requires choosing ways to achieve set goals. As immediate or short-term goals are achieved, the goals next in priority will come into focus. To implement the financial action plan, assistance from others is required. This is where the services of banks, insurance companies, investment brokers are required. In most instances, these are free of charge in Zimbabwe.
There are some important financial planning strategies that one should think of and these include;-
Cash Flow Planning – it involves forecasting short term and long term expenses against projected cash flow.
Investment Planning - An investment plan is always based on your savings. Once you know your amount of savings, you can take the help of financial adviser for various investment opportunities like: fixed income, investment in stocks, gold, forex market, bonds, mutual funds, etc.
Insurance Planning - Insurance coverage for a long term is very crucial type of financial planning. Under unforeseen situations, if you haven’t plan your insurance well in advance then it can spoil your other financial plans as well. Insurance planning is dependent upon individual lifestyle. You should analyze first before you buy any insurance. This include health insurance, vehicle insurance, home insurance among other.
Retirement Planning - It is the event which occurs in everyone’s life. It is one of the important type of financial planning. Mostly you will hear that people set their financial goals for their retirement income due to rising inflation and rising standard of living. You will have to start your saving and investment early in your life for your retirement so that you do not have to compromise on standard of living during retirement.
Real Estate Planning - Asset creation is again one of the important type of financial planning. Wealth creation or retirement planning can be achieved with real estate planning. Real estate is considered as a low risk and high return investment option.
It should be noted that financial planning is a dynamic process that does not end when you take a particular action. There is need to regularly assess financial decisions. Changing personal, social, and economic factors may require more frequent assessments. When life events affect one’s financial needs, this financial planning process will provide a vehicle for adapting to those changes. Regularly reviewing this decision-making process will help make priority adjustments that will bring financial goals and activities in line with one’s current life situation.
Because financial planning takes into account all aspects of your personal and financial situation, it can give a sense of direction in terms of what your retirement would look like; what you want to do in this next stage of life; how are you going to pay for the retirement you envision for yourself ; your ability to fund your children’s post-secondary education; If you become disabled, will you have enough income to manage until you are well again; When you pass away, will your family be financially secure; consistency of your investment strategy with your financial goals among other things.
Achieving your financial goals doesn’t happen overnight; it takes careful planning and execution. Financial planning is important because the process enables you to clearly identify your priorities and focus your resources on achieving your objectives. To attain your goals you need to know where you stand today, where you want to be in the future and how you’re going to get there. Remember Warren Buffet said ‘Someone is sitting in the shade today because someone planted a tree a long time ago’.
Dephine Mazambani writes in her capacity as Chief Economist for the Bankers Association of Zimbabwe. For your valuable feedback and comments related to this article, Dephine can be contacted on dephine@baz.org.zw or on numbers 04-744686 and 0773841566