Financial literacy means having the knowledge to make good financial decisions during every stage of your life. This means knowing how to effectively spend, save and invest your money in preparation to retirement.

Financial planning is a step-by-step approach to meet one’s life goals. A financial plan acts as a guide as you go through life’s journey. Essentially, it helps you be in control of your income, expenses and investments such that you can manage your money and achieve your goals.

If you take a closer look at the above examples, you’ll find that there is one factor that connects all of them, and that is money. You need to have an adequate amount of money to fulfil your goals and desires. More importantly, you need to have money at the right point in time. In this context, the money or the retirement benefits that you will receive.

There are a number practical benefits to financial planning. It helps you to:

1. Increase your savings: It may be possible to save money without having a financial plan. But it may not be the most efficient way to go about it. When you create a financial plan, you get a good deal of insight into your income and expenses. You can track and cut down your costs consciously. This automatically increases your savings in the long run.
2. Enjoy a better standard of living: Most people assume that they would have to sacrifice their standard of living if their monthly bills are to be addressed. On the contrary, with a good financial plan, you would not need to compromise your lifestyle. It is possible to achieve your goals while living in relative comfort.
3. Be prepared for emergencies: Creating an emergency fund is a critical aspect of financial planning. Here, you need to ensure that you have a fund that is equal to at least 6 months of your monthly income. This way, you don’t have to worry about procuring funds in case of a family emergency or during your retirement days. The emergency fund can help you pay for varied expenses on time.
4. Attain peace of mind: With adequate funds at hand, you can cover your monthly expenses, invest for your future goals and splurge a little for yourself and your family, without worry. Financial planning helps you manage your money efficiently and enjoy peace of mind. Don’t worry if you have not yet reached this stage. If you are on the path of financial planning, the destination of financial peace is not very far away.

Financial Planning for Life Goals

The importance of personal financial planning in Zambia cannot be ignored. It is not just about increasing your savings and reducing your expenses. Financial planning is a lot more than that. This includes achieving your future goals, such as:

1. Wealth creation: The rise in the price of everyday items means that if you want to maintain or increase your current standard of living in the future, you need to create a sufficient collection of wealth. You may also want to purchase a better car or a new house in the future. All this requires money, and it merely highlights the importance of wealth creation. It is possible to achieve these goals by carefully investing your money in the right avenues that can be a suitable option for long term goals.
2. Retirement planning: Your retirement may be 25 or 30 years in the future. But that does not mean you plan for it when you retire. To enjoy a happy and comfortable retired life, you need to start building your safety net right now. Planning at an early stage in life can help secure your future against financial uncertainties. Also, you invest lesser amounts if you start early and gain from the power of compounding which helps to build a large enough funds over the 25-30 year period.
3. Child’s education: Education has become very expensive, not only in Zambia but across the world. And in future, this cost is only going to rise. This is why it is necessary to start planning from the moment your child is born. Calculate how much you wish to earn and start investing in long-term investment avenues that can help you achieve this goal. You can approach a financial advisor for advice if you are not sure how to proceed further.

Why Personal Financial Planning is Crucial

1. To create a contingency fund: The future is uncertain, and anything can happen at any time. Here’s a scenario that highlights this point. Imagine a father who has taken an education loan to finance his daughter’s college education. At the same time, he is also saving money to fund his retirement that is a couple of years away. But suddenly, a medical emergency occurs in the family. Unfortunately, the lack of medical insurance coverage means he has to pay for medical expenses out of his savings. This depletes his retirement funds and increases his financial burden. Many people face such situations. And while it is good to hope for the best, it is necessary to plan for the worst. A sudden job loss or an unexpected medical emergency can shake up your finances considerably. This is why you need to have an emergency fund to deal with such issues. Financial experts advise investors to keep an amount equal to 6 months’ salary as a contingency fund. This can be invested in a liquid fund so that you can access the money quickly in case of an emergency.

2. To manage your money in the best possible manner: Satisfying the needs of your family members can be tricky. Your teenage child might want to go for school camp trip while your oldest child is ready to go to college. In personal finance, planning is vital. It not only helps you understand the needs of different family members but also how you can achieve them. But for this, you need to manage your money in the best possible manner. For instance, parking your savings in a bank account is better than spending all of it. However, this is not the best way to deploy your money.  In comparison, avenues like mutual funds could provide better annual yields. So, when you identify your family’s needs and make your money work actively to achieve them, you may expect to see good results.

How to Create a Successful Financial Plan

1. Understand your current financial situation: Determine the status of your current finances, i.e., your income, expenses, debt, savings and investments. This is the first step in financial planning, as it gives you a good sense on the state of your finances and ways to improve.
2. Write down your financial goals: Ask yourself: ‘what are the different financial goals I wish to achieve in life?’ Write them on a piece of paper. Don’t hesitate to put down any goal because no goal is too small or too big. However, make sure that your goals are S.M.A.R.T. Goals are part of every aspect of life and provide a sense of direction, motivation, a clear focus, and clarify importance. By setting goals, you are providing yourself with a target to aim for. A SMART goal is used to help guide goal setting. SMART is an acronym that stands for Specific, Measurable, Achievable, Realistic, and Timely. Therefore, a SMART goal incorporates all of these criteria to help focus your efforts and increase the chances of achieving your goal.

3. Look at the different investment options: There are numerous investment options available to investors. In the mutual fund market alone, you can choose from nearly 2,000 schemes. Different investment avenues help investors to achieve different goals. For example, equity funds are suitable for long-term goals like retirement planning, child’s education, etc. If you are interested in relatively steady income and you are risk averse, you may want to invest in debt mutual funds. Equity Linked Saving Scheme (ELSS) fund are good to save tax. When it comes to investing, many financial experts have highlighted the importance of mutual funds. Investing in these funds consistently over a longer period can help you achieve your dreams and goals.
4. Implement the right plan: You need to select the right investment option based on factors such as your goals, age, risk appetite and investment amount. If you are unsure on the funds you need to select for your portfolio, you can avail the services of a financial advisor. These are certified professionals who help investors make the right investment choices. They also help with other aspects like insurance, retirement planning, estate planning and taxation.
5. Monitor your financial plan regularly: The financial planning process does not end once you invest your money. You also need to monitor how the funds are performing regularly. If they don’t perform, you may need to replace them with better performing funds. You also need to follow your plan because as you grow older, your goals and dreams evolve. For instance, your financial priorities may change after the birth of a child. Now, you need to accommodate the expenses and objectives of a new member in your family.