A financial planner will not fail to advise you that getting the right type of insurance is of paramount importance in achieving success in your financial goals in financial planning.
In financial planning, a logical step to improve one’s net worth is to indulge in a careful and a well implemented investment plan. In investment planning, you need to choose the right instruments, with time on your side and also the patience not to touch your investments long enough to allow them to grow through compounding. Understanding that there are always foreseeable risks in any form of investment program, having the right type of insurance is needed to protect your funds is therefore a necessity. The following are the various types of insurance recommended:
1. Term Insurance with TPD (Total Permanent Disability) rider.
“Buy term and invest the difference in a diversified portfolio of long term investment instruments” is the call of most financial planner. The reason for it is that term insurance is the cheapest form of life insurance in the market and the purest form of insurance with “protection” element only without any ”saving” feature built into it and thus provide more protection coverage for a smaller annual premium. This will allow you to stretch your insurance dollars the furthest and to invest the difference in savings and investment vehicles that have higher long term historical returns.. A term insurance policy with a TPD rider will provide pure protection in the event of death and also in the event for total disability.
With the right amount of term insurance in place, you will be able to allow sufficient time for your investment portfolio to mature to achieve your financial goals within the period before the term policy expire.
Life insurance policies with the “endowment” element which are tools for saving are not recommended if the priority is in investing in long term investment instrument.
2. Medical Insurance
A financial plan is not complete without a medical insurance policy with critical illness coverage and hospitalization and surgical (H&S) coverage. A financial plan can be derail if one should suffer the tragedy of succumbing to any life threatening illness such as cancer, diabetes, etc causing the person to lose his job and income before the financial goal of his investment plan materialize. The cost of treatment which may be exorbitant from the hospital expenses and surgery needed would cause you to use up the emergency funds and in the worst scenario may require you to withdraw from investment program before it mature if a medical policy is not purchased.
The quantum of amount of term and medical insurances required will depend on the individual needs and financial dreams of the individual. Indivertibly, getting the right kind of insurances will go a long way in achieving financial goals as the wrong type of insurance can be costly in the long run.
Seeking Financial Freedom? Work On The Financial Planning Process For The Road To Financial Freedom
Improving Your Cash Flow Statement – 2nd Step In Financial Planning (Organizing your Budget)
Indivertibly, the first all important step to financial planning is computing your current net worth. Upon tallying the assets against your liabilities, you are ready to identify your priorities and carry out the next step to improving your numbers in your net worth.
Preparing your cash flow statement will help to monitor your cash flow and in the organizing of your budget in ensuring a positive cash flow position to enable you to take that excess cash over your expenditure to allocate it to investment planning to improve your net worth.
Common daily expenditures would include your utilities bills (electricity, water & telephone), groceries bills and transportation bills among others. But the real bane to any financial plan at the initial stage of financial planning of a young individual would be to the monthly repayments to offset any housing loan, car loan or in the worse scenario credit cards debts that may have resulted due a high living lifestyle beyond his or her means.
In this scenario, the priority in financial planning stage to improve your cash flow statement would be to tackle these loans / debts head on by adhering to the following guiding principles:
1. Tally the total monthly repayment required to pay off your loans / debts. Then budget your monthly expenses to include this monthly repayment required without going into deficit. Keep paying this same amount but reallocating when some loans get paid off.
2. If you have additional cash for the month, always pay off the loan with highest interest rate or the smallest loan first.
3. If they is any need to delay making payment due a lack of cash for the month, do so on the one with the lowest interest rate.
If you are in a better enviable debt free position, then your priority would be a budget which includes a monthly allocation for an emergency buffer fund. This fund is necessary to take care of 6-9 months expenditure in the event you lose your job or due to any unforeseen and unwarranted event occurring. Unnecessary expenses need to be avoided and delayed gratification need to be the order of the day.
With the emergency buffer in place, only then will you have a clear mind to proceed on to seeking investment opportunities that abound in the market. The allocation earlier set aside in your budget for the emergency buffer can now be channeled to the various investment instruments available in the market such as fixed deposits, bonds and the equities market.
Preparing your cash flow statement will help to monitor your cash flow and in the organizing of your budget in ensuring a positive cash flow position to enable you to take that excess cash over your expenditure to allocate it to investment planning to improve your net worth.
Common daily expenditures would include your utilities bills (electricity, water & telephone), groceries bills and transportation bills among others. But the real bane to any financial plan at the initial stage of financial planning of a young individual would be to the monthly repayments to offset any housing loan, car loan or in the worse scenario credit cards debts that may have resulted due a high living lifestyle beyond his or her means.
In this scenario, the priority in financial planning stage to improve your cash flow statement would be to tackle these loans / debts head on by adhering to the following guiding principles:
1. Tally the total monthly repayment required to pay off your loans / debts. Then budget your monthly expenses to include this monthly repayment required without going into deficit. Keep paying this same amount but reallocating when some loans get paid off.
2. If you have additional cash for the month, always pay off the loan with highest interest rate or the smallest loan first.
3. If they is any need to delay making payment due a lack of cash for the month, do so on the one with the lowest interest rate.
If you are in a better enviable debt free position, then your priority would be a budget which includes a monthly allocation for an emergency buffer fund. This fund is necessary to take care of 6-9 months expenditure in the event you lose your job or due to any unforeseen and unwarranted event occurring. Unnecessary expenses need to be avoided and delayed gratification need to be the order of the day.
With the emergency buffer in place, only then will you have a clear mind to proceed on to seeking investment opportunities that abound in the market. The allocation earlier set aside in your budget for the emergency buffer can now be channeled to the various investment instruments available in the market such as fixed deposits, bonds and the equities market.
Knowing Your Net Worth – 1st Step In Financial Planning
Every financial planner will tell you that knowing your current net worth is the first fundamental step in financial planning. Taking stock of who you are and where you stand will help you to determine your financial goals and dreams and towards a realistic and practical financial plan.
You need to put down in paper all your current assets and liabilities to complete your net worth statement. Your current assets will include your home, bank accounts, saving accounts, real estate investments, stocks, bonds, cars, and everything else that you possessed. Your liabilities will include the mortgage on your home, real estate loans, loans on retirement funds, car loans and any other debts you have.
Why is computing and tallying your net worth so important in financial planning? The two situations below will help to explain this important aspect of financial planning:-
1. If your net worth shows that you are technically a bankrupt.
This probably implies that your outstanding debts on the house mortgage, real estate loans, loans on retirement funds, car loans and any other debts you have outstripped your assets. Hence, your first priority in seeking financial freedom is to seek ways to reduce and retire these debts through managing your budget which will include changing your lifestyle to reduce unnecessary expenses.
2. If your net worth show that is positive.
This will probably implies that you may have some spare funds for your investment planning, or in a enviable position will be able to commence generating a special fund for investment planning. This can be done through a well planned budget diligently carried out with the utmost discipline. Investment planning is one important aspect of financial planning which cannot be overlooked. Putting spare funds into fixed deposit accounts for the short may be fine but for the long term, low yielding financial instruments are not the wisest thing to do.
Hence, knowing your current net worth is the first basic step in the financial planning exercise imperative in your journey towards achieving financial planning. Listing your net worth in a spreadsheet will facilitate the monthly or yearly monitoring and tracking of your net worth.
You need to put down in paper all your current assets and liabilities to complete your net worth statement. Your current assets will include your home, bank accounts, saving accounts, real estate investments, stocks, bonds, cars, and everything else that you possessed. Your liabilities will include the mortgage on your home, real estate loans, loans on retirement funds, car loans and any other debts you have.
Why is computing and tallying your net worth so important in financial planning? The two situations below will help to explain this important aspect of financial planning:-
1. If your net worth shows that you are technically a bankrupt.
This probably implies that your outstanding debts on the house mortgage, real estate loans, loans on retirement funds, car loans and any other debts you have outstripped your assets. Hence, your first priority in seeking financial freedom is to seek ways to reduce and retire these debts through managing your budget which will include changing your lifestyle to reduce unnecessary expenses.
2. If your net worth show that is positive.
This will probably implies that you may have some spare funds for your investment planning, or in a enviable position will be able to commence generating a special fund for investment planning. This can be done through a well planned budget diligently carried out with the utmost discipline. Investment planning is one important aspect of financial planning which cannot be overlooked. Putting spare funds into fixed deposit accounts for the short may be fine but for the long term, low yielding financial instruments are not the wisest thing to do.
Hence, knowing your current net worth is the first basic step in the financial planning exercise imperative in your journey towards achieving financial planning. Listing your net worth in a spreadsheet will facilitate the monthly or yearly monitoring and tracking of your net worth.
Financial planning – the road to financial freedom
Obtaining a credit card these days has become so easy that even a young adult just starting out into the working world may be holding up to 5-10 credit cards within a year into employment. Hence, it is no surprise that many people are depending on their credit cards for their financial needs and ending up with a debt they cannot manage. Many people are just not taking heed to the actual planning of their finances apart from paying the bills and saving or spending what is left over.
Hence, it is imperative that the young individual should be educated early in life of the necessity of financial planning so as not to fall into credit card debts and ruining their future. Financial freedom is a worthy target, the quicker you start on it, the better your life will be.
Consulting a financial advisor may be an option. But if budget is a problem, you may consider following the following steps in financial planning in ensuring that your road to financial freedom is a successful one:-
Step 1 – checking your present net worth
This include listing out your all the assets and liabilities. Assets will include your bank balance, investment in stocks, mutual funds, gold, property, insurances, vehicles etc. Liabilities are the loans to repay (home loan, personal loan, credit card debt, car loan). This will help you arrive at your present net worth.
Your personal net worth statement is the personal, human equivalent of a company balance sheet. Remembering that your road to financial freedom, having this net worth statement will help to identify how much debts or investible funds that you have.
This exercise will give you a clear picture of what you have and what you owe. As a first step towards correcting the financial situation it is always better to get rid of costly debts such as credit card bills, personal loans, car loans etc. as soon as possible.
Step 2 – prepare cash flow statement for monthly / yearly budget
Your cash flow statement helps you to see how and where you spend your money. It will provide you with a guideline on how to spend your money in order to plan your debt elimination and start saving for the future. With a budget, you are able to recognize the areas in which you can save money in order to improve your financial situation month by month.
Step 3 - identifying your financial needs
The first two steps above assessed your current financial positions. The next step then is to identify your financial needs. For most young couples, the most common needs would be: home ownership, tertiary education funding for their children and retirement.
This step would require you to estimate the funding and time required to achieve these goals.
Step 4 – investment plans
Eradicating your debts and a saving problem will start you off to the road to financial freedom. But putting your savings into banks with low yield is not the wisest thing to do as over the long term it will not hedge you against rate of inflation.
To achieve your financial these goals, you will to stomach some level of risk in embarking on a investment program. However, before embarking upon this you advisable that:-
1. to determine your personal risk tolerance and to establish the preferred asset allocation
2. to ensure that a 6 to 9 months emergency buffer fund is in place otherwise any mishap will cause you to plunder into your investment funds too early for it to gain momentum.
3. If you considering self managed direct investment, then educate yourself with enough knowledge before starting investing and to ensure that you have the time to monitor the dynamic investment conditions of the market. Alternatively, do engage a professional for sound advice.
Step 5 – protecting your investment program.
Any financial plan is required to be protected against any foreseeable risks. Hence, you need to have proper insurance to cover any emergencies that could suddenly pop up that will derail your financial and investment program.
Different types of life insurance meet different needs. Good health insurance and a comprehensive life insurance should be top priorities. Property insurance will help to cover all hazards in your area. If you can afford it, disability insurance is always a good idea.
Step 6 – writing a will
The writing of a will is a prerequisite in any financial plan and is advisable. The scariest thing for any dependent survivors of an individual who passed away without a will is the agony of having the courts to decide the division of the individual estate and waiting for months for the letter of administration to be issued.
Seeing a lawyer conversant with probate issues or seeking the services of trustee organization.
Step 7 – monitor and review your investment program regularly.
Your investment program needs to be monitored and reviewed regularly especially so in the event of any major changes to the political, economic or financial situation in the country.
About this Blog
This blog is intending for those who may need an idea about basic financial planning. Articles will be included in this blog to enable readers to have a better understanding of financial planning. Cheerio for the time being.
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