Be Your Own Financial Planner

Shopping sprees, frequent vacations, and fine dining; we have all been there.

Only to be brought down to reality with a hard bump when we take a closer look at our bank account. That’s when we realise that we’ve spent more than we’ve made.

Luckily, it’s not too late to take control of your finances. Even if you can’t afford a financial planner, there are simple steps you can take to gain back the upper hand over your finances.

So, put on your thinking cap, dust off your calculator, and start taking control of your own finances with these five steps:

Step 1: Assess your current financial position

The first step to planning for the future is to understand your net cash flow (net monthly income minus average monthly expenditure) now. You can try using the iMoney’ s FREE budget planner and expense tracker to help kickstart your future money management strategy.

Knowing your net cash flow can help you decide what you want to do with excess cash (if you have a positive net cash flow) or if you need to find other sources of income or cut costs (if you find your net cash flow falls into the negative).

Next, ask yourself what your risk appetite is, which will have a direct impact on the amount of protection you’ll want to take up and the type of investments you make. A higher risk tolerance means you are comfortable living without certain form of insurance or comfortable making riskier but potentially higher return of investments.

Step 2: Have an idea of where you want to be

The next step is to set your goals. These goals can range from achieving financial independence to establishing an emergency fund or paying off a mortgage.

However, to be effective, the goal(s) that you’ve set yourself for yourself must be specific and measurable, but most of all, realistic.

An example of a good financial goal:

To increase your savings by RM100,000 by the year 2033 – this goal is specific (i.e it clearly states the amount to be saved up). It is also measureable (i.e. it has a time limit of 10 years), and realistic (it is possible to save RM833 per month)

The next important thing to do after setting a financial goal?

Step 3: Devise a plan to achieve your goal

Good intentions and knowing what you want for yourself in the future alone is not enough to get you there. There must be a game plan in place to achieve those goals you’ve set for yourself.

Using the example above, in order to increase your savings by RM100,000 by the year 2033, you may be required to look for other sources of income to supplement your monthly salary.

A relatively popular investment to make – if you can afford one, is properties.  Futures and options work much the same way in that you’re putting down money now in hopes that you will make a gain on a commodity such as coffee or natural gas (in the case of futures), or be able to buy or sell a share at pre-designated price (in the case of options) in the future.

If the crop fails or the price of the share doesn’t do what you think it’ll do, you lose out. The larger your investment in these investment instrument, the bigger your loss. With that said however, if things do work out, you stand to make a huge gain.

Step 4: Build in milestones

If all of us are true to ourselves, we would all agree that sticking to a plan – especially a long-term one, can cause frustration, which can ultimately lead to us abandoning the plan altogether.

Hence, it is important to build in little “wins” or milestones in your financial plan to keep yourself motivated. Again, using the example of increasing your savings by RM100,000 by 2033, one of the milestone that you can build into your financial plan is to save RM833 per month or save more than 50% of your goal amount within 5 years.

You can even build in a little reward plan for yourself for hitting or exceeding each milestone. Be creative with your milestones but keep in mind that they too must be specific and measureable.

Step 5: Perform progress evaluation

It is said that the best laid plans of mice and men often go astray, which is why it is important to review your progress at least bi-annually (or monthly if possible). Re-evaluate your plan or make changes to it if you find your progress unsatisfactory,  while keeping in mind that some goals require more time to yield results.

No doubt, planning your finances is a tedious process requiring tremendous amounts of time and discipline (and in some cases in depth financial knowledge) but in this troubled economy, having a sound financial plan has become increasingly important.

Being your own financial planner can be tough, but by consciously planning what you do with your money, it will make a huge difference in the way you manage your finances. Arm yourself with the right information and constantly share experiences with financial experts can direct you to the right investment vehicles that will yield your desired result.

This article was first published in January 2014 and has been updated for freshness, accuracy and comprehensiveness.