Throughout our lives, we establish personal
goals, for example, home ownership or a suitable retirement plan,
as a reflection of our desires and future objectives. A good financial
plan allows, first of all, organizing these goals, identifying
its costs and, in addition, facilitating the handling of unexpected
inconveniences that may arise down the road.
Yet, financial planning goes further than just
allowing you to reach long-term goals. The proper management of
your personal finances lessens the risks characteristic of constant
economic fluctuations and likely tax adjustments; in addition,
it allows you to take advantage of current investment opportunities.
Moreover, a financial plan allows you to develop a strategy that
can serve as a guide for orienting and coordinating regular activities.
With a suitable financial plan, you can be prepared, among other
things, to count on the necessary economic resources to:
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Assume foreseeable future expenses, like
your children’s education or the initial down payment
on a house.
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Start your own business.
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Confront unexpected expenses, like medical
costs from a physical injury or financial support for your
family during the time that this injury prevents the execution
of your normal job responsibilities.
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The process of financial planning is dynamic:
all decisions taken will originate a chain of events that will
require subsequent decision-making.
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It must be continuous and time-bound; it
must pass from planning to implementation, and then to control.
As new information emerges, it must return to planning.
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The goals must imply a commitment, and
they must be feasible, specific, quantifiable and verifiable
throughout the whole process.
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The advice of a financial expert is also
important. In addition to the experience and knowledge they
can share with you, an expert can help you stay focused on
your objectives.
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Set long, medium and shor- term goals.
Long-term objectives, like adequate retirement,
initiate the process of financial planning and are later broken
down into shorter-term goals. The short-term goals may be, for
example, buying a car or first home. Medium term goals may include
providing for children’s education or buying a second
home. It is important to bear in mind that in the short term,
of one to two years, sufficient resources must be counted on
to assume contracted obligations... otherwise, the financial
plan is not working.
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Make a list of your financial resources.
The financial resources
you count on must be identified from the beginning of the financial
planning process. Thus, it will determine if it is feasible, from
this position, to reach the desired goals.
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Follow up on the performance of your investments,
assets and liabilities.
It is necessary to determine
and to permanently monitor your net worth: the difference between
the assets (cash, bank accounts, investments in securities and
real estate, retirement funds) and the personal liabilities (short
and long term debts, mortgages). In addition, the current income
and expenses must be considered in order to determine your saving
capacity.
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Consider the risk factors and elaborate
a cash flow budget, which includes the projection of future
expenses.
The risk factors derived
from existing uncertainty, both those relative to ones personal
finances or those of the changing economic times, must always
be present. These factors can alter the objectives or the strategy
to use. Thus, although you do not try to diminish the risks per
se, you are better prepared to confront unforeseen events and
can decide what risks to take and which risks are unnecessary.
These emergency funds, plus a suitable health and life insurance
plan allows covering, for example, unexpected medical expenses
or repairs in the home.
A suitable financial plan can identify the
best strategy in order to reach the financial security we desire.
Planning allows us to meet current expenses and to invest in long-term
goals. Thus, this can become a mechanism that improves our standard
of living without an increase in income. When planning, the financial
aspects (income, expenses, savings, investments, retirement, estate
plans) must be considered as a whole, and not individually.
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holder. The content of the same does not necessarily represent
the opinion of Banco General"
