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The Financial Planning Process

Posted: 05 Jul 2016

3 mins to read

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Previously, we’ve looked at financial planning, why you should take it seriously and what benefits it has. It’s now time to look at what the financial planning process is all about.

Questions to ask before you kick off your financial journey

Before you start the financial planning process, ask yourself the following questions. If you answer “yes” to all of these questions, you know you are ready to start your journey towards financial health.
  • Are you ready to accept the responsibility to change your financial position?
  • Are you confident that you can take the necessary steps to achieve financial wellness and change your attitude towards money?
  • Can you see the benefits of financial planning for your future? (link)

The basic financial planning process

Now that you have answered the above questions and you are determined to make your finances work for you: 1.   Do a personal financial health check-up 2.   Gather relevant financial information 3.   Set life goals 4.   Assess your current financial status 5.   Review your current situation and future plans on a regular basis – then come up with a strategy to meet your goals 6.   Monitor your progress or re-evaluate your position and make changes to the plan if you need to Remember, this process will not come without some sort of sacrifice. You might need cancel your satellite television for a year or give up on the idea of an overseas holiday. These sacrifices will however be worth it at the end as you will see the changes that will happen.

Fundamentals of financial health

If you are a financially healthy individual, you will have most of the following habits and systems in place:
  • Emergency fund – This is money put aside every month for an emergency. Should there be no emergency, it will be added to your savings.
  • Credit report – Your report should reflect a good credit score and more positive credit information than negative information.
  • Debt eradication – This does not refer to all debt; it refers to managing your debt wisely and paying more than the required credit instalments whenever possible.
  • Insurance cover – Credit insurance is necessary to cover you in the event of death, illness or disability. You will also have asset insurance to cover your property.
  • Savings – This is necessary to achieve your financial goals.
  • Investments – You do not need an investment to be financially fit, but it can help you to achieve your goals and secure your family’s future.

The next steps of financial planning

Gather all your current financial information:
  • income statements
  • bills to calculate your expenses
  • statements of accounts to create a list of all your debts and their interest rates
  • and lastly, get a copy of your credit report (link)
It would also be smart to see a financial services and credit provider or financial planner to get information on savings plans, investment opportunities and retirement annuities. Find out what the minimum monthly deposits are, how much is required to initially open the account, how easy it is to access the account, all the costs involved with the plan and what interest rates are offered.

Track your spending

Before you draw up your budget and set financial goals, you need to get an accurate picture of your current financial position as well as your spending behaviour. You have already done your health check: The next step would be to track your spending for 30 days. Keep all your receipts and record all the money you spend on a daily basis. When you have a clear indication of your income, expenses and your general financial health status, you can start setting financial goals. Go on, take control of your future!