Happy New Year readers. Thank you for your readership in 2018. This column promises to bring you more gems of wisdom for effective personal finance management and wealth creation.
Our 2019 financial plans should be ready. Are they SMART? – where S stands for specific, M for measurable, A for achievable, R for realistic and risks-mitigated and T for time-bound.
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SPECIFIC – Our plan must have specific action steps and goals – what do we want to achieve? How are we going to achieve them? For instance, if the goal is to go for a religious pilgrimage – that goal is specific, so the action steps need to be specific e.g. save one hundred thousand Naira monthly. If the goals and action steps are not specific, our financial plan would not be able to obey the next requirement of a SMART plan.
MEASURABLE – If plans have specific goals and action plans, it is easy to measure how well we are performing in executing them. Measuring performance helps us to determine if the plan needs adjustments. Taking the example above, if you are supposed to save one hundred thousand naira monthly and by June, we have been disciplined enough to have saved eight hundred thousand naira, then we can reduce the amount of savings for that particular goal and divert it to an investment vehicle. Therefore, we must ensure that our financial plans include measurable specifics.
ACHIEVABLE – This brings us back to budgeting. Our financial plans and our budgets must be in sync. It is from our budgets that we can determine if we have the resources to meet the monthly one hundred thousand naira savings requirement for the pilgrimage goal discussed earlier. That goal and its action steps would only be achieved if you have a workable spending budget that makes provision for that savings. Therefore, we must prepare effective budgets together with our financial plans. We can get help from online personal finance management (PFM) apps – a good one would guide you to develop both the budget and the financial plan and go further to support you in the effective implementation of both.
REALISTIC, RISKS – MITIGATED – The financial plan must be realistic. Going back to the pilgrimage example, if we cannot afford the one hundred thousand naira monthly savings, we can halve the amount and make the pilgrimage a goal for next year 2020. That could be more realistic in our own circumstances. An unrealistic goal is dead ab initio and leads to frustration, which in turn could lead to the abandoning of the whole financial plan. Let us avoid this by setting only realistic goals and action steps. However, even if our goals are specific, measurable, achievable and realistic, there is still the risk that we won’t achieve them. This is the sad experience of many of us. What are these risks? Whilst, they differ based on individual situations, the most common one is our inability to consistently save. How then can we mitigate this risk? Firstly, by downloading a good PFM app that sends us reminders and progress reports. Secondly, we can set up standing payment orders with our banks, so that the savings are deducted from our accounts as soon as we receive our salaries. Remember our slogan – PAY YOURSELF FIRST. DON’T SAVE WHAT IS LEFT AFTER SPENDING BUT SPEND WHAT IS LEFT AFTER SAVING. Almost all banks now have this standing payment feature in their mobile banking apps; some people are already using it for Cable TV subscription etc. Let’s use it to mitigate the risks associated with saving towards our financial goals.
TIME BOUND – Every effective plan must have a timeline. The goals and action steps must be bound to specific time periods. Referring to our pilgrimage goal example; the action step is one hundred thousand naira savings monthly. It is specific and time-bound. The time feature breaks a big goal into small chewable sizes and helps in measuring our progress towards our achieving it. A goal with a one million naira price tag may seem very big but if we break it into one hundred thousand naira monthly action steps, it does not seem as frightening.
Achieving set goals is a fulfilling experience that enhances one’s outlook on life. Achieving financial goals creates an even braver attitude to life. Let’s arise immediately and implement our goals.
I wish you a prosperous 2019.
and then