Whether you do your financial plan personally or with a financial planner, it is very important for you to have one. Life happens to everyone and responsibilities occur naturally. It is very easy to say for us young professionals that we live comfortably with our income today but can we confidently say that we will also live comfortably when we start having our own family? Or maybe when the time comes we need to send kids to school? Or maybe retiring comfortably?
These are life stages where we have different needs and priorities in life and the goal of a financial plan is to guide us in order for us to be sustained and be comfortable in every stage of it. Simply, having money for life!
Last month I was blessed enough to join Sun Life‘s #Money4LifeChallenge with Aya Laraya of Pesos and Sense. It is a 6-month financial planning workshop with sir Aya as our financial coach. We will be having sessions for us to understand concepts in financial planning and help us achieve financial independence.
Having said that, I will be sharing here my #Money4LifeChallenge Journey so that you may also start your way to financial independence.
How to start your journey to financial independence?
First of all, we have to know first our own definition of “financial independence”. In a simpler way, what are your financial goals in life and what are their price tags. How much is “rich” for you? 1 million, 10 million, 100 million? By giving a monetary value to our financial goals, it gives us a better gauge in our own perspective towards it.
Second, we need to acknowledge where we are starting from. We should know our financial net worth by listing all of our assets minus all our liabilities. Having a positive net worth would be ideal.
In the sessions, Aya ask us to have short term goals and clearly define when do we want to achieve it and how much was needed.
You may find me weird because I had a hard time thinking of a short term financial goal simply because I didn’t want anything right now. For the sake of sharing, I started my journey to financial independence 3 years ago and that time my short term financial goal is to have an emergency fund. I would advise you to do the same if you don’t have an emergency fund yet.
Another short term goal is protection. Emergency fund and insurances are fundamental in a financial plan, both cover certain risks in life and at the same time give you the luxury to stay invested. If you don’t have these yet then I wouldn’t advise investing because chances are you might withdraw early if you accidentally needed money.
For a medium term financial goal, I am saving up for my wedding. When do I want it? I pray that it will be in 3 years time. So how do I plan for it? Here’s a calculator that I used, to gauge the financial goal and estimate how much I need to save and invest for it to be ready at that time. You might want to try it too.
For a long term goal, I am saving up for my retirement. When do I want it? I pray that I will retire by the time that I get to 50. How much do I need? A LOT! I’ve already computed my personal retirement fund before and I would save this topic in a different post since there are many things to be considered regarding this.
In the sessions I’ve learned that setting financial goals varies from person to person because we are unique in every way. Depending on our current life stage, what’s important is that we define them clearly, list them appropriately and act accordingly.
Budget, Budget, Budget
Our financial goals needs to be financed and it will normally come from our budget. While budgeting is a basic thing in personal finance often times many fail at it and I proudly say that I am one of them when I started working 3 years ago. I am thankful that I’ve failed it early and also learned it thereafter!
Here are a few articles I’ve written with regards to budgeting that may be helpful if you are also having a hard time with it.
Sir Aya also shared to us a mobile app called Wally. It is an expense app that records what you spend categorically. It can be very helpful to your budgeting because it accounts everything you put to it and give you your current status with regards to your budget.
Following a budget might be hard at first but as soon as we get used to it, it will be easy as pie. What is important is that we are aware of every single peso that comes out from our wallets. We should tell our money where to go and who’s BOSS, not the other way around.
Here’s the basic flowchart on how to start your own financial plan
Define your financial independence>Know where you are starting from>Set your Financial Goals>Manage your budget(cashflows)>Protect yourself first with emergency funds and insurance>Calculate, save, and invest for your goals>Believe!
The journey to financial independence is a tough road but I believe that it is achievable. Mindsets and behaviors are keys to a successful journey so whatever circumstances you are in right now believe and be positive that you will get to your goals.
These are but snippets of what we are having in the #Money4LifeChallenge. As we go through the sessions I will be sharing more of these so stay in touch by subscribing to this blog for you to get updates.
P.S. BTW after writing everything above, Sun Life has launch it’s moneyforlife website where you can use an e-planner for your own financial plan. It is an easy and user friendly e-planner that will guide you to starting your own financial plan.