How to create a 2020 money plan

Every adult – no matter their financial situation – needs a money plan.
Every adult – no matter their financial situation – needs a money plan.

The beginning of the year is the best time to think about where you are, where you want to be, and what you need to do to get there. And here we’re not talking about the usual gone-by-March New Year’s resolutions. No, we’re talking about a clear, comprehensive plan of how you want to organise your money and build your wealth this year and in the future.

Every adult – no matter their financial situation – needs a money plan to help them make decisions and keep on track to achieve their short-, medium- and long-term goals. Ask yourself: Where do I want to be, financially speaking, next month? How about next year, or in 5 years, or 20 years from now? Think big.

Why do you need a money plan?

As the saying goes, a goal without a plan is just a wish. That’s why it’s important to put a comprehensive plan in place, and to see how your money can help you to reach your goals. A money plan will serve as a detailed map that shows you exactly where to spend your money, where to save and for how long to save.

A monthly budget is a crucial part of the plan, but it’s not the end of it. Once you’ve figured out how much money you have coming in, the next step is to decide what you want to do with it. And once you’ve calculated how much is going out, the next step is to work out how to reduce your expenses (or increase your income!).

Sit down and draw up a list of your personal goals. Now break that list down into long-term (10-plus years from now), medium-term (one to 10 years) and short-term goals (things you want to get done this year). Now rank them in order of importance.

The more specific you are, the better. For example, rather than saying you want to retire early, determine the exact age at which you want to retire and the exact amount you’ll need. If you’re struggling, get a trusted friend, relative or adviser to help you.

It’s important to revisit your plan regularly and update it as circumstances change. After all, life is full of surprises and you never know when unexpected expenses might arise. In the same way, you also never know when you’ll enjoy a salary increase or a financial windfall.

How to create a money plan

Your financial plan should include 4 key ingredients:

Budget: Including your monthly income and expenses, your net worth and your debts

• Goals: Be specific, e.g., instead of saying “travel”, say “2-week holiday in Zanzibar next July”

• Extra expenses: Including your investments (e.g. your pension fund), insurance, debt repayments and emergency fund

• Expected life events: Including your children’s education and your retirement

This post and content is sponsored, written and provided by Capitec.

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