Importance of financial planning

In every important aspect of life, we should have a game plan that outlines what needs to be done, how, when and by whom. Otherwise, we may not be able to get optimum results. As the saying goes –‘he who fails to plan, plans to fail’. Written plans are the most effective as they help us articulate the route to our desired future and even identify and mitigate upfront any inherent risks. However, plans may not always be written. Let’s takeEducation for instance – Parents know when they would register a child in school and which school they’llchoose; in short they have a plan for the what, how, when and whom of the education of that child. Even though some of these variables change, they do not abandon the plan; they adjust it and continue with it.

Managing our finances, requires even better planning and preparation. If indeed we want to see changes in our financial situation we must put in the required initial efforts and it’s never too late to start practicing these principles.

For many years we have been Post Offices. A Post Office collects letters from one person and delivers it to another, without keeping anything to itself. Every month, we collect our salary from our Employer and efficiently share and deliver to other people e.g. our landlord, fast food restaurant owner, petrol station dealer, telecoms company, supermarket owner, school Proprietor, mechanic, Ankara trader, tailor etc. and we keep nothing for ourselves; except depreciating items like clothes, shoes etc. Some people are so efficient that they deliver all their salary before the month ends.

In order to stop being Post Offices, we need to keep some of the money we earn for ourselves. So, how do we keep this money and how much can we keep without compromising Quality of Life? This is where the issue of Financial Planning and Budgeting comes in.

Financial Planning is the process of controlling and channeling one’s financial resources to IMPROVE one’s living standards and meet life goals. Financial Planning gets one prepared for life’s events FINANCIALLY.

Someone may say, “I’m a man of faith, I don’t have to plan my finances”. I refer you to the Scriptural admonition, “Go to the ant and learn of her”.

Almost all life’s events have a financial aspect – exceling in JAMB’s UTME and getting admission to the University of One’s choice, being blessed with children etc. All these have hefty financial considerations that require adequate financial planning.

Budgeting is a key component of Financial Planning as it ensures the prudent disbursement of One’s financial resources. We are all living witnesses of how important Budgets are to Governments at all levels, and how a well prepared and efficiently implemented budget can improve quality of lives.

The Budget is not the Financial Plan. In Nigeria we have the BOTH Annual Budgets and the Medium Term Expenditure Framework and Fiscal Strategy (MTEF) – the latter is the equivalent of the Personal Financial Plan. A Budget is for the Short Term, whilst a Financial Plan is for the Medium-Long Term.

The benefits of Personal Financial Plans include

• Identifying and blocking sources of financial leakages
• Discouraging unplanned, impulsive frivolous spending
• Channeling adequate finances to Causes that matter to us
• Preparing for a future when One can no longer work and earn money
• Generating pools of money for investment
• Reducing money-based relationship friction
• Reducing financial impact of life’s emergencies

The above underscorethe necessity of Planning and Budgeting in our pursuit of Financial Independence.

Next week, we would discuss how to create our Personal Budgets and Financial Plans. Don’t miss it.