Stages and signs of a successful financial planning

In a world where change is the only constant, planning ahead and sticking to plans concerning finances is a challenge BUT very essential.

Are you on track with your financial plans? What are the vital signs in a good financial run and a strong finish?

Stage # 1

This is when one starts earning their own income. Since one is in control of how to spend and save, this is the stage when habits, good or bad form. The habits have consequences as far reaching as into the last stage when one is no longer earning.

In this stage:

• Learn to make a budget and stick to it, differentiating between needs and wants.
• Establish a saving pattern in an account that would cost the least and yield the most interest.
• Protect yourself through insurance with a package that cushions you against unforeseen incidents like sickness or disability.
• Learn about options in as far as financial services such as bank accounts that cost the least to operate and wise borrowing such as through credit cards are concerned.
• Set goals such as acquisition of assets like land, a house or a car.

You are getting along well in this stage if:

• You have a savings account from which you would draw funds for buying land or other assets.
• You are covered medically as part of your terms of service at work or through insurance that you have taken out for yourself and would be taken care of in case of sickness.
• You have an emergency fund that will keep you going comfortably for at least six months if you lost your source of income or was unable to work due to illness or any other reason.
• You have done your homework on credit and now which institution would cost you the least and be most flexible in terms of interest on credit and repayments.

Stage # 2

This is after five to seven years since starting your first job. You have possibly had job progression with better terms or promotions that have seen income rise.

Expenses have also risen and this is when the first home, first car and other large assets are likely to be acquired. A family is also likely to start at this stage and children add onto expenditure.

Focus on changes from acquiring assets like a car and house to accumulating for the future. The focus is on saving for the children's higher education and putting away money into a pension plan for your sunset years.

You are on track if:

• You are through or almost through with first loans such as for a car or home construction. A mortgage should ideally be the only long-term loan you have.
• You have kept up with saving money into a savings account that would be available in case of an emergency.
• You have an account for each of your immediate dependents and are putting away money regularly or paying into an education insurance policy.
• You have been making smart investment decision like investing in stock market for the long run. You should have also diversified you investment portfolio to include: low risk, low yield and high risk, high yield investments like unit trust and money market.

Stage # 3

This is the last stage when one leaves the work force and goes into retirement. It may also be the stage one spends their day running an own business in a field of their choice.

You will be enjoying the third stage if:

• You have no dependents and the lower expenses went to the savings account or a larger investment portfolio.
• You changed your insurance plan to meet your need as your age advances.
• You are through or close to finishing long term loans such as a mortgage and paying for children's higher education.
• You have a written will detailing your assets and how you would like your estate to be run or divided.

All of the above is how life progresses no matter what level of income one is at.

Bottom line: is to make the most of what is available and live with the rule of thumb to always live on less than you earn and put away something regularly no matter how small. A little adds up to a lot in the long run.

Caution: The first and second stages are where many fail by living for now and not thinking about 20, or 30 years down the line because that seems a lifetime away. These are the people who drive the big cars, live in the big houses and send their children to expensive schools but are completely lost when retirement or job loss comes.

There is no way to undo the damage in stage three if the first two are frivolously lived.