INSURANCE . RETIREMENT . INVESTMENTS   

A Guide to building a Financial Plan




Generally, a financial plan refers to a wide-ranging plan that takes into consideration an individual’s current income, future income, future financial state, value of assets owned and potential losses. Building a financial plan takes time and careful consideration, especially given the unpredictable nature of finances and often times it is better to start early as some of the objectives of these plans take time to actualize.   

 
We have written this blog with your financial well-being in mind, giving you 5 steps to building a robust and sustainable financial plan to benefit you and your loved ones in the future. 
 
 
1. Establish your goal(s): The first step of any solid plan; establishing your goals. Financial plans can be drawn up for almost anything; buying your first car, purchasing real estate, investing in the stock market, you name it.  

 
Some points to consider when establishing your goal(s): 
 
- Ensure that your goal(s) are feasible.
- Set realistic timeframes for which these goals can be achieved.
- The sooner the better.  

 

2. Gather data on your goal(s): You have decided on your goals, what next? If you guessed gather data, you got it right. No goal is achievable without relevant data on the topic. Take for instance, you decided on investing in real estate; before you can actually do this you need to research how viable the market for properties is. How much would it take to renovate these properties, how much should your sale price be, what is a good profit margin when reselling? These are questions you should yourself and should be gathering data on. 
 
Without data, you would be operating blindly and the likelihood of making a poor financial decision would be higher.  

 

3. Analyzing the data: You’ve obtained the data you need for your financial goals, now it’s time to analyze this data. Based on the complexity of your goals, analysis of data can be done by you or would require external expertise, for instance Wealth Managers, Bankers and Investment Specialists.  
 
Let us say for example, the re-sale value of houses in the Miami real estate market is valued at 5%, whilst renovations are estimated to cost 20% of the total value of the house in question. Therefore, the cost of renovating a house prior to selling is more than the end-profit of selling, resulting in a 15% loss for the investor. This means your goal is not feasible and to venture into this endeavor would be a poor decision. 
 

 

4. Develop the Financial Plan: You landed on a goal that is not only feasible based on your research but one that has great potential to turn profit for you? With the data you have accumulated as well as advice from experts, put pen to paper and develop the Financial Plan using this information.  

Say, you have decided on investing in an apartment building and need to raise $800,000.00 to build it. Your timeframe is 5 years and your current annual income is $144,000.00 while your yearly expenses are valued at $70,000.00. Therefore you can raise $74,000.00 per year for 5 years, leaving you at $370,000.00, with the remaining $430,000.00 coming from a loan your secured from your bank. 
 
Note that during this step, you have not yet put the plan into action, so there is still room for modifications and improvements to be made.  

 

5. Implement the Financial Plan: Your plan is finally finalized, data gathered, analyzed, developed, proofed, tested and ready for implementation. The implementation step is the 2nd to last step and it is at this step where your plan is no longer theoretical but actual. 

Sometimes sacrifices are required when you implement your financial plan. You may be required to cut back on some aspects of your lifestyle and redirect more disposal income into your financial plan in order to realize it.  

 
 
6. Monitor the Financial Plan: The implementation stage was successful and now you are on the path to success, should this be the end of the financial plan? Not at all. Implementing the plan is one part, but you must constantly monitor your plan to ensure that everything is going smoothly and according to plan. Factors outside of your control may hamper your plan from time to time and it is important that you be cognizant of this and always have contingency plans. 
 
For example, building material costs increased worldwide and now the overall cost of your apartment project is $900,000.00, while you budgeted for $800,000.00. Where can you get the additional $100,000.00 at short notice? Luckily you catered for such changes and have arrangements with an investor who is open to investing upwards of $300,000.00, therefore covering these additional costs.  

 
This brings us the end of our Guide to Building a Financial Plan. We hope this information was valuable to you and look forward to you joining us next week! 


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