Common cents: A financial plan is also a lifestyle choice

Sound financial planning is a multi-step process that helps you stay in charge of your finances, avoid trouble and achieve your goals. This process doesn’t necessarily require help from a professional – even though this might be considered if you’ve been upside down on finances for a very long time.

But, more often than not, anyone can implement a plan to manage their finances just by having a clear idea of their problems, capabilities and goals. With this kind of understanding, you can set a roadmap to achieve your goals and eliminate any obstacles along the way.

Financial planning also isn’t a temporary solution. To make it work, it should become part of your lifestyle. In other words, even if you don’t have immediate or short-term goals, you still must have a plan to make sure that your finances remain sound.

To begin this process, you should be prepared to spend some time and effort to set the foundation and the pillars for your future financial planning. Here are the main steps on the way.

Set goals first

Keeping your goals in your sight doesn’t only motivate you, it also guides you to where you want to be. For example, if your goal is to purchase a home and you know that you need a certain amount of money for downpayment, this figure can help you have a concrete end point to which you begin calculating the savings that you need to put aside. The same approach applies to setting funds for retirement, children’s education or even a vacation.

Identify causes

Savings are the first thing that comes to mind when people talk about financial planning. While saving is important, that reason that some people don’t save simply can be because they don’t have excess money rather than just splurging on luxury items. That is why in drawing a road map you should begin by looking at your income and expenses and find out whether the shortage is a result of your overspending or simply because you don’t have any discretionary income.

Fix overspending

If your conclusion is that you consistently overspend, the common-sense answer is to budget correctly and make sure you eliminate bad habits – eating out, killing time in shopping malls, etc. You also may have a certain amount of your paycheck channeled directly into a savings account. Most banks can help you set up such as account and even pass big sums of savings to a longer-term deposit where you can earn some interest on your money. The lack of excess cash in your hand in itself should solve the problem. In addition, having the funds set aside and seeing them grow can help stay focused on your goal.

Falling short

If the problem is that you have limited to no discretionary income, there are two ways to address it. The first is to increase your income. Consider part-time or weekend work – even if it is not directly within your area or industry, and keep you income from this work solely for making your goal happen. The other option is simply to restructure your expenditure, for example, by downsizing your rental house, canceling a vacation or selling an expensive possession.

Monitor and review

To ensure that you remain on track, you have to set milestones along the way and make sure that you achieve them within specific time frames. These milestones could be in saving a certain amount of money, paying off debts, or even just being able to make it from one pay check to another without going on credit. The more you stay conscious of your spending the better you develop a sense of sound financial planning.

Rania Oteify, a former Gulf News Business Features Editor, is currently an editor based in Seattle.

Getting financially sound

- Identify problems and goals

- Take action and seek help, if needed

- Set milestones along the way

- Maintain sound financial habits

- R.O.