ADVERTISEMENT

Financial planing

The objective of these series are to pass actionable knowledge that allow an understanding of personal financial planning.

Financial planing

This will only work if you the reader make an effort to implement what you learn. Make sure you speak with your financial adviser before taking any  financial decisions.

First of all, financial planning is a process, it never stops. you set financial goals and take decisions about your money daily regarding how to achieve them. Those financial goals range from preserving your capital to appreciating your capital to reach an objective eg retirnment.

In taking these decisions you will also have to consider external influences you have no control over like inflation and interest rates.

ADVERTISEMENT

There are basic steps in Financial Planning and I list them below:

(1.) You establish a goal, what do you want to achieve with your money? buy a home? retire?

(2) Then after you have a goal, you work out your assets and liabilities…. Then you determine your networth…..how much are you worth, how far are you from your plan?...write it down.

(3) Create a plan to reach your goal

(4) Set up a budget to meet and control your plan

ADVERTISEMENT

(5) Implement your plan(6) Monitor and amend your plan as events change

But before we go into the step (1) i.e. how to establish a plan, we need to understand how money behaves….specifically  lets talk about compounding  .

(a) So money grows when it receives a return…N1.00 invested daily for 55 years at 0% returns you N20, 000 however, N1.00 invested daily for 55 years at 5% returns N101, 256. So that 5% interest grows the N1.00 over time.

(b) Second point; money grows faster when it compounds more

Thus if I invest N1,000.00 in a bank and I am paid 5% interest, compounded quarterly, my return will be more than if i made a similar N1,000 in the same bank but receive 5% but compounded yearly.

ADVERTISEMENT

(c) Third point; when you invest,  you earn more when your money has TIME to compound.

So a great example, two brothers get a N2,000 allowance every year. Brother A invested his N2,000 when he was 21 years old, till he became 30, so over a 10 year investment duration, he had invested a total of N20,000. His brother B invests the same N2,000.00 when he is age 30 until  he is 50, so over a 20 years investment duration, he invests N40,000.00 . Assume return a  is 8%, Brother A will have N145,841 return, at age 50 while Brother B will have N98, 846 return at age 50…why? Brother A saving had more time to compound, even though Brother B invested more than Brother A…

So in summary, money grows with it earns a return, and compounding works better with time….So let’s stop here, next week we will look at how to establish a financial plan.

Financial Jargon of the week:A Bear market is a financial market condition in which prices of financial securities are falling…it’s usually a downturn of 20% from the market peak and last for a long period of time. Don’t confuse a bear market with a Market Correction, which is a 10% fall and has a shorter duration in time…

Thank You…do follow on

ADVERTISEMENT

Written by Kalu Aja.

JOIN OUR PULSE COMMUNITY!

Unblock notifications in browser settings.
ADVERTISEMENT

Eyewitness? Submit your stories now via social or:

Email: eyewitness@pulse.ng

Recommended articles

A billionaire is building a new Titanic ship — when is the first trip?

A billionaire is building a new Titanic ship — when is the first trip?

Anyone who lives in this beautiful villa is cursed with bad luck

Anyone who lives in this beautiful villa is cursed with bad luck

Sony’s creators convention redefines creative landscape for content creators

Sony’s creators convention redefines creative landscape for content creators

Abortion, cohabitation and other 'sins' Catholic Church does not forgive

Abortion, cohabitation and other 'sins' Catholic Church does not forgive

5 drinks that stain teeth and how to keep your teeth white

5 drinks that stain teeth and how to keep your teeth white

5 tips for escaping a car sinking underwater

5 tips for escaping a car sinking underwater

The largest snake in the world Ana Julia is dead — unknown gunmen suspected

The largest snake in the world Ana Julia is dead — unknown gunmen suspected

10 sexual benefits of watermelon for men and women

10 sexual benefits of watermelon for men and women

8 sexual benefits of ginger for men and women

8 sexual benefits of ginger for men and women

10 Sex Positions for Super-Deep Penetration

10 Sex Positions for Super-Deep Penetration

What It Feels Like to Use a Butt Plug While Masturbating

What It Feels Like to Use a Butt Plug While Masturbating

11 Ways Men Can Make Their Orgasms Even Better

11 Ways Men Can Make Their Orgasms Even Better

ADVERTISEMENT
ADVERTISEMENT