Understanding financial planning

Still staying on track and being committed to achieving our financial and lifestyle goals, let us continue to have the habit of looking at our vision board. Nothing is impossible when our belief system is open and ready embrace the possibilities ahead of us. The winning formula of inspiration, aspiration, planning, action, commitment and belief is one that still stands the test of time.

Also, let us continue to track our income and expenses on a daily and monthly basis to increase the accuracy of our budget next year. As the winter season is here, most of us have started stocking up on winter gear such as clothing. Whether we buy for fashion or for quality, the consideration of costs helps us stick to our budget. Another way to overcome the urges of unnecessary spending at this time is transforming the price tags we are considering to pay with our hard earned money as opportunity costs. This type of thinking is similar to always replaying the memory of our vision board but with an additional step. This additional step is really thinking about everything else we could be sacrificing as an outcome of satisfying our urge to unnecessarily spend. Taking it day by day and living in the moment with the consideration of the future is truly a mental-gym task. It is a build up of small actions that lead to big achievements. We are all a working progress in one way or another. It is okay for us to embrace and celebrate our progress so far.

Our financial planning topic for this week is UNDERSTANDING FINANCIAL PLANNING. With so many financial planning topics discussed, true understanding is what will enable us to effectively use the knowledge we have gained thus far to fulfil the main purpose of financial planning. The main purpose of financial planning does not lie in the actual solutions applied but lies in the achievement of the financial and lifestyle goals we set for ourselves in a personal and/or corporate capacity. There are actually three components that can help us turn our aspirations into reality. They are the concepts of financial inclusion, financial literacy and financial planning. All these concepts are tightly linked and connected. It is very important for everyone to understand these three concepts and how they relate to each other to enjoy the benefits they provide.

Financial inclusion

Financial inclusion is the first part of the chain. It is the awareness and accessibility to a financial or resource product. Note, successful financial inclusion is whereby both awareness and accessibility are realised after a financial inclusion campaign is provided by a company that offers these products and resources. For example, we would be financially included when we are aware of and have access to acquire a new product in our financial market.

In this case, we would know: the name of the product; where to get the product; and that we can acquire the product

On the other hand, there has been some confusion in the financial industry regarding what is meant by accessibility. Some companies operate on the definition of accessibility to mean that we (the clients) have access to the location where the product is available. Other companies operate on the definition of accessibility to mean that we (the clients) meet the actual requirements needed to acquire the product. The reality is that many companies that provide financial and resource products still have to catch up to the understanding that accessibility means the combination of both definitions.

Financial literacy

Financial literacy is the second part of the chain. It is the knowledge of the type of financial or resource product. For example, we would be financially literate when know the different types of products available in our market such as current accounts, savings accounts, shares, investment portfolios, retirement annuity funds, pension funds, funeral plans, trusts, and so forth.

In this case, we would have adequate knowledge of both: the benefits of that particular type of product; and downsides of that particular type of product.

Having knowledge on a type of product is not linked to any company that provides it. But, it is the understanding of the basic skeletal frame from which products are formed. This understanding is what allows us to compare different products of the same type available in our market.

Financial planning

Financial planning is the last part of the chain. It is the process of using awareness, accessibility and knowledge of financial and resource products as part of a solution to achieving our financial and lifestyle goals. Financial planning answers the question of how to use chain combination.

Basically, we would: know what we want to achieve; set SMART goals; align a type of product as part of our solution to achieve our goal; know the benefits of that particular type of product; know the downsides of that particular type of product; know the names of products (of that type of product) available in our market; know where to get the products; know that we can acquire the products (by physical location and set requirements); compare the different products to decide on the one to pursue; appoint our chosen product as a solution; and meet our set financial or lifestyle goal.

Let us take some time this week to ask ourselves the following questions: Am I financially included? Am I financially literate? How am I effectively financially planning? Are the financial and resource products I currently own effective?

In conclusion, we know what we know and don’t know what we don’t know. We do not have any power over what we don’t know. But, we do have power to move forward with what we do know. From understanding the relationship between the three concepts discussed, we basically need to be financially included to be financially literate to use effective financial planning to achieve our financial and lifestyle goals.