We are in 2022, and sadly, could not leave the pandemic behind in 2021. The Omicron strain seems to consolidate Covid-19 as the new virus that is here to stay, although with a limited level of lethality. The projections for this year speak of a more protected world, where restrictions will be, and vaccines will reach more corners, including sectors that distrust the traditional health system.
In economic terms, the global recovery is a fact, with consumption as the main driver. However, rising global inflation raises concerns and sets possible limits to growth, especially if it translates into a rate hike.
As we can see, the scenario is changing and forces us to modify our goals and strategies. It’s time to shuffle and give again to set new objectives in 2022.
Why Financial Planning Is Important
Saving for retirement, having control over our expenses and income, preparing the estate, having a cushion for contingencies, achieving an efficient payment of taxes, or saving with a specific objective are complex challenges. Still, they are even more so if we do not have adequate financial planning.
A financial plan is, neither more nor less, a compass that allows us to know where we want to go and where we are, indicating which is the shortest route and with minor obstacles to reach our destination.
Those who think financial planning is “a rich man’s thing” are entirely wrong. The truth is that high net worth will have some needs, while the most modest will have to face others. And they are as important as the others.
Keys To Get It Right
The starting point of all financial planning is, without a doubt, to make a conscientious analysis of the current situation and the goals that you want to achieve. If, for example, we want to plan our retirement, we must consider the moment in which we will start saving for retirement, the age at which we will foreseeably retire, and the life expectancy after that milestone.
Set clear and specific objectives. It isn’t easy to plan if we do not know what we are planning. If we do not prepare the stages of the trip well, we could arrive with our bag of provisions empty or, on the contrary, see how we have leftovers after having been hungry on the way.
Decide which is the best way to materialise our planning. There are so many alternatives, products, and information that it is vital to stop and reflect on the most appropriate for achieving our goals. We cannot ignore aspects of our financial profile, such as inflation, tax efficiency, and the advantages and disadvantages of each product.
The adaptation is essential as well. We evolve; our heritage and the circumstances surrounding us do not remain unchanged either. At each stage of our life, we may need different things, and, therefore, it is not enough to draw a master plan on paper and wait for everything to go as planned. Towards the end, we’ll have to circumvent rocks and cut bridges, forcing us to make a detour.
Financial Planning for The Coming Year
Identify your financial goals to help you determine where you want to go and how to go about it. By setting your short, medium, and long-term goals, you can choose how to organise your savings.
Once you’ve figured out how much you wish to save, it’s time to think about how you’re going to do it. Consider the following planning strategies:
Short Term Goals
You should be able to easily access your funds for short-term goals within the following year. Consider keeping the money in a savings or money market account so that you can access these funds when you need them.
Planning: this is one of those magic words that everyone is tired of hearing and thinks he knows about everything. But not all companies, especially smaller ones, spend the time necessary to draw up strategies and achieve objectives and goals. Whenever we talk in the short term, impulsive decisions replace the action plan.
Short-term planning means formulating plans (courses of action) to achieve goals and objectives soon.
For this, it is necessary to evaluate the needs, demands and available resources to establish a strategy to implement an action and, later, to direct and control.
Medium Terms Goals
Your medium-term financial goals may be to buy a car, save for your child’s education, or repay your debt. You should reach your medium-term financial goals within five to seven years. Medium-term savings goals serve as a link between short-term and long-term financial goals.
Reasonable medium-term financial goals include:
- Taking out insurance:
Life insurance acts as a lifeline for your dependents, whether you are the only member of your family making money or not.
In general, insurance premiums increase with age. Therefore, the sooner it is, the better. Easy term life insurance is sufficient, inexpensive, and if you die unintentionally, your family will be insured. The same is true for disability insurance. If you have a disability and cannot work, the insurance institution will replenish a portion of your income.
- Chasing dreams:
We all have this “wish list” that we want to achieve someday. This list includes savings for family vacations, home repairs and refurbishments, savings for buying larger homes at significant destinations, savings for purchasing new cars, and more.
Risk Desire for Medium-Term Savings Goals
There is no room for risk in short-term financial goals, but the longer the target date for medium-term goals, the more risk you can take to achieve a larger savings plan. Investing over an extended time allows you to recoup any losses you may incur due to risky or unstable investments. That still doesn’t mean that you risk your six-month savings to buy your favourite blue-chip stock, as that is also a risky move.
Medium-Term Savings Target Option
Current Deposits: They are the safest option you can use, but unlike short-term financial savings options, we recommend that you do not consider short-term certificates of deposit. The shorter the period, the smaller the deposit.
Securities Accounts-Bonds are a safer option than stocks because of the limited time to recover. Investing in fixed income is considered safe, although earning income is limited.
Municipal Bond Funds-Municipal bond funds can be a good investment as their income is also tax-exempt.
Look for specific plans like these to earmark resources to achieve your medium-term goals
Long Term Goals
When you save for more than five years, you might consider other deposit or investment options to reach your goals. Investments that could offer a higher return could also be riskier. You must assess the balance between risk and return when making any investment decision.
A long-term financial goal is to save for more than ten years, or even life after retirement.
According to one study, you may need up to 85% of your pre-retirement income after retirement.
Your long-term goal is primarily your retirement. What is your retirement plan, and how do you want to retire? The answers to these questions form the foundation of long-term financial planning.
We often overlook short- and medium-term goals because long-term goals are not urgent. However, we recommend that you put 10-15% of your monthly income into the pension fund. It’s about harnessing the power of capitalising money over time to build a body big enough to fight inflation.
How Do You Assess Your Retirement Needs?
Calculate monthly costs after retirement. Budgets prepared in short-term financial plans can help.
Calculate all the income you will receive during your retirement. This calculation includes pensions, plan money, social security, and more.
The amount to be supplemented with long-term financial goals is total expenses minus total income.
Simply put, P = E-I
P is the amount covered by retirement savings.
E is the total cost incurred after retirement.
I is the income you will receive after retirement.
If you have enough time on your hands, you can take more risks if you feel like doing it. As you approach retirement, you can aggressively invest in high-margin investments, such as stocks and investment trusts, and switch to less risky investment options.
Where to invest a long-term savings fund:
Stock Market: There are risks associated with the stock market. However, stocks are more likely to have risk-adjusted returns, and the higher the risk, the more likely they are to be profitable. A long-term view means that investments are more likely to survive short-term market volatility.
Personal Retirement Account – Those who don’t have access to an employer-sponsored retirement plan can invest in an IRA. These plans provide tax-exempt or tax-exempt growth for retirement funds.
Venture capital funds or hedge funds: Wealthy individuals may want to consider options like hedge funds or hedge funds, which are high-risk investments but pay a lot.
For whatever strategy you choose, be sure to review your progress regularly to make sure you are on track. Following a savings plan is an intelligent strategy to achieve significant financial milestones.
Goal-based financial planning defines a roadmap for you to have all bases covered.
Once your goals are in place, keep reviewing and updating your goals according to the changing scenarios. Suppose you spend a decent portion of your emergency fund to pay medical bills or other emergency expenses – look for ways to replenish it and then look to revise the target if the original one seems unlikely.