Financial Planning 101: A Beginner’s Guide to Building Wealth & Security

Financial Planning can feel overwhelming, especially for beginners. Well, I am glad you are here today reading this, because we are here for you to guide you! Fret not, with the right knowledge and tools, anyone, especially you, can take control of your own finances and work towards a brighter financial future! In this guide, we will break down the essentials to consider when you start your financial planning- from setting goals to creating a budget and investing wisely. Let’s embark on this journey together and empower ourselves to achieve our financial dreams!

Setting Financial Goals:

The first step in financial planning is to set clear, achievable goals. Whether it is to save for vacation, buying a home, to retire comfortably, having specific targets in mind helps keep you motivated and focused. Start by identifying your Daily Essentials Expenses, Short-Term Goals, Long-Term Goals, and Insurance Expenses- then break them down into actionable steps, also known as a Healthy Cashflow.

Having a healthy cashflow is important and vital when it comes to think about your future, no matter how near or how far the future. Saving money every month allows you to make smarter money decisions in future. The main purpose is to be cashflow positive. Cashflow negative can cause you to fall into a debt spiral situation and potential ruining your finances. [(Source: Nerdwallet.com)]. So, how can we begin this journey?

Creating a Healthy Cash Flow:

Creating a Healthy Cash Flow is the cornerstone of financial planning. It is a roadmap that helps you track your income and expenses, prioritize spending, and allocate funds towards your goals. You may begin your roadmap by listing out all your sources of income, then, allocate your funds to split into the following:

40% of your Income- Daily Essentials

• eg. Housing, Food, Transport, Utilities, Phone Bills, Subscriptions, Filial Money if any

30% of your Income- Your Short Term Goals

• What do you want to achieve within the next 5 years
• Emergency Funds

20% of your Income- Your Long Term Goals

• How much is enough for your future children’s education/ your retirement?

10% of your Income- Your Insurance Covered

• Have you gotten your basic coverage? Is that enough to create a safe financial net for you and your loved ones if anything were to happen to you?

Managing Debt (If Any):

Debt can be a significant obstacle to financial security, so it is crucial to develop a strategy for managing and refrain or reducing it as much as possible.

Start by making a list of all your debts, including balances. Interest rates, and minimum monthly payments. Consider prioritizing high-interest debt for quicker repayment while making minimum payments on other debts. Explore debt consolidation options or negotiate with creditors to lower interest rates and monthly payments if possible.

Building an Emergency Fund:

An emergency fund serves as a Financial Safety Net. It provides you a peace of mind and protects you against any sudden unexpected expenses or income loss. It is advisable to set a target on saving at least 3 to 6 months’ worth of living expenses in a separate, easily accessible account. Start with small contributions if necessary. But make a habit to make regular contributions to your emergency fund until you reach your target amount.

Investing for your Future:

Investing is a powerful tool for building wealth and achieving long-term financial goals. Start to educate yourself on different investment options. E.g. Stocks, Bonds, Mutual Funds, Savings, Endowments etc. Here are some considerations to think about:

• Your risk tolerance: How willing or ready are you to accept market losses? Is your risk appetite able to suffice the loss in order to gain a higher return? Or do you prefer investing in something with lower risk however with lower returns?
• Time Horizon: How fast do you want your returns to come? Do you think you can leave the funds in for a longer period in order to see your money grow? Picture yourself planting a money tree, then picking the fruits of your own labor after a period of time. It also tests your patience limitation.
• Investment Objective: Linking to the previous points, what is your ultimate goal to start investing? By choosing a particular investment- Do you think that you will be able to match your financial goal?

It is advisable to start with low-cost, and always diversify your funds into different investments. Separate your eggs into different baskets. Then gradually increase your contributions as your knowledge and confidence grows.

Seeking Professional Guidance:

While it is possible to handle many aspects of Financial Planning on your own, seeking professional help and guidance can provide valuable insights and expertise. This will value add to your knowledge on the market but to know yourself better as well. It is important to consider working with a Financial Advisor as they are able to help you develop a personalized financial plan, navigate complex financial decisions, and stay on track towards your goals with you.

Conclusion:

Financial Planning is a journey, not a destination. By setting goals, creating a budget, managing debts, and building an emergency fund, investing wisely, and seeking professional guidance, beginners like yourself can lay a foundation for a secure and prosperous future! Always remember, every small step you take today brings you closer to financial freedom tomorrow. Have you started building your financial journey today?