• Tuesday, March 05, 2024
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BusinessDay

Creating a simple financial plan for 2014

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Becoming financially comfortable or free is not a stroke of luck, it requires hard work, discipline and most especially financial planning. The problem with most people is not the hard work or self discipline; the problem is that most people plan myriads of activities that would take money from their pockets such as travelling to their hometown during the festive period, acquiring luxury cars for enhanced status, paying of house rents, total makeover for their homes and paying their children’s school fees.

Some take their planning to the extreme by drawing up a list of some negative things they do not want to repeat in 2014, which they call New Year Resolution.

While all these are necessary blueprint and part of a responsible individual’s money activities, it is important for such an individual to have a financial plan that will help him or her to manage, save, invest and increase his or her money in 2014—that is where the simple financial plan comes in.

Although, there are complex financial plans, but for a beginner who intend to gradually increase his monthly earning, it is important to begin the journey with a simple financial plan.

What is a financial plan? It is an ongoing process to help you make sensible decisions about money that can help you achieve your goals in life. In business, a financial plan can be the three primary financial statements which are balance sheet, income statement and cash flow.

For a very successful person, financial planning might involve putting appropriate wills in place to protect family, thinking about how your family will manage without your income should you fall ill or die prematurely.

Such probably can afford financial planners who can tidy up this aspect of his or her life. But for those who are salary earners or small business owners, financial planning is simply creating a system of spending, saving and multiplying your monthly salary or income. The appropriate system for you is the simple money chart system.

The simple money chart is a system that shows you how you can systematically spend your earned income (or salary), save and multiply part of it if you discipline yourself to apply and adhere to the system.

Like I always say in my seminars and consultations, you must see yourself as a manager of your own salary or income and this your salary or income is the allocation you must spend, save, invest and multiply. The major activity of a manager is to control a system that produces result through the allocated resources given to him or her. That is what you must become; you must produce results with your salary or income.

Here is the chart. Once you receive your salary or make profit from your small business, set aside 10% for charity. This may sound crazy, but the secret to increasing your money is giving part of it out as charity. Send this 10% to any charitable organisation of your choice or pay it as a tithe to your local church if you are a Christian.

Set aside 40% for your monthly expenses and discipline yourself to improvise once you have used up this allocation for expenses. Discipline yourself to eliminate unnecessary spending and also note that some problems are never solved; they naturally go away just the way they came.

The third percentage to set aside is 30% for personal investment. For whatever reason, don’t see this 30% as your money; see it as what you need to re-invest in any financial vehicle that is less risky and can yield tangible returns.

You can begin your investment plan with paper asset such as Shares. Some trusted financial houses (Banks) are offering a typical stock broking account for as low as five thousand naira; you can start with that. Or invest in Treasury bill in which some financial houses can let you get on such platform with as low as fifty thousand naira and you can watch your money grow as you add 30% to your initial investment at the end of every month.

The last percentage to set aside is 20% as savings in case of emergency. This is for contingency. Once you have used up your allocated percentage for expenses, you can solve important and urgent issues using your savings.

However, you should not see this as an opportunity to quickly use up your percentage for expenses because you have extra set aside for contingency. Make sure you discipline yourself not to quickly exhaust your expenses on unnecessary problems because you have contingency fund.

If at the end of the month, you did not use your savings, turn it over into your investment account. It is better to get your money working for you, yielding returns, than to allow it to be dormant in a savings account.

If you can apply and adhere to this simply money chart in 2014, you are sure to be financially comfortable or free in no time. Welcome to 2014.

 By: Alfred Ade-Ijmakinwa