Why you should make a 'money roadmap' for 2014

Posted at 01/08/14 9:20 AM

MANILA, Philippines - All motorists understand that a good map is worth its weight in gold, especially if you are navigating in difficult conditions. In this age of GPS or global positioning system, charting one’s course has never been easier. Are you doing the same with your money?

The best way to open the year on the right footing is to have an idea of where you’re going. This is why the beginning days of 2014 is a great time to work on a personal financial plan. This could serve as a roadmap that will guide you in the year ahead.

Why do you need a personal financial plan?

In a nutshell, it’s your map that would guide your spending and investment decisions to help you reach your goals. Simply put, how to get from A (your money situation right now) to B (your goals).

A personal financial plan may also be likened to a blueprint of a house that you are building. While it may be fun to think of how to decorate individual rooms and make your choice of toilet fixtures, you cannot create a sound house without having an architectural plan first.

Similarly, making spending and investment decisions that are not part of a personal financial plan could keep you from achieving your goals of having a secure financial future optimally.

What goes into a personal financial plan? It should have your goals on one hand, and your personal financial profile on the other. Here are some tips to get you started in working on the different components of your personal financial plan.

Your goals:

Look at every facet of your life and try to come up with comprehensive goals. These could cover the following aspects:

Intellectual goals.

This could include continued education, whether graduate studies or short courses. You may wish to add accreditation tests that will help further your professional career, or learn new skills to enhance your capabilities. Consider if you would like to venture into new or related disciplines as well. Also think of your educational goals for your children—possibly university education abroad or extra courses.

Professional goals.

If you are employed, think of where you would like to be in the medium and long term. Do not limit yourself to just positions within your organization, but consider what other companies you may want to work for. Also think of other disciplines that you may want to move on to. You may also be thinking of putting up your own business. Include this in this plan.

Lifestyle goals.

This would cover your aspirations on how you plan to live. It includes leisure, travel, and entertainment. Perhaps you plan to celebrate your 25th wedding anniversary or intend to have yearly vacations abroad with your family. There may also be sports that you plan to take up, or hobbies that you would like to pursue.

Relocation goals.

If you intend to move out of the country, this should be part of your personal financial plan.

Going through the list above, think of what you would like to be and what you want to have very soon, in the near future, and in the distant future. These will constitute your short, medium, and long-term plans. Define these by a timeframe – short term could mean the present up to the next three months; medium term could mean the next three years; and long term may mean anytime from five years and above.

Estimate how much you would need to achieve your different goals. For instance, if you plan to buy a car in the next six months, indicate how much you think this would cost.

Your financial profile:

List down your current income streams.

This would include your monthly pay (if you are employed), your earnings (if you have a business), interest or investment income, rental income, and all others as the case may be.

Do an inventory of your assets.

This will include your savings accounts, real estate, cars, insurance plans, shares of stock, your retirement fund, and all others as the case may be.

List down your debt.

This will include your credit card debt, amortizations on real estate or car purchases, and other personal debt that you may have taken.

Examine your expenses.

Based on your past months’ expenses, determine how much you spend on different things: utilities, rental, education, transportation, entertainment, etc. This will be helpful as you make a financial plan that will help you achieve your goals.

Your financial strategy:

Looking at your goals, now expressed in peso terms, against your current financial profile, project how much you need in savings or investments to be able to have these in the future. For this, you would need an investment plan to grow your wealth, and a spending plan, to manage your expenses.

Take note of your current life stage. Your financial strategy is determined by your current life stage—you may have just started working, you may have just had a baby, or you may be just a year away from retirement. This may also determine your risk appetite, which refers to your willingness to invest in high-yielding, but high-risk investment instruments.

Seeing your goals and financial net worth on paper will make it easier for you to design a financial strategy. If you need help in coming up with a financial plan, consult a professional financial planner. Banks and other financial firms would be glad to provide these services to you, and help you on your path to a more secure financial future.

Happy planning!


Grow Your Money is an editorial partnership between ABS-CBNnews.com and Citi Philippines to promote financial education and provide helpful information to Filipinos on how to better manage their personal finances.

Visit www.citibank.com.ph for more information.