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.