What would happen if your income stopped tomorrow?
Could you handle your expenses for a few months? Would your family be protected? Are your investments working towards something specific? What happens to the wealth you have built when you are no longer around?
These are not questions reserved for wealthy people. They are the questions that make up a good financial plan.
Financial planning is not simply about saving money. It is about deciding what your money needs to do for you, protecting it along the way and making sure you are prepared for the future.
Here are seven things every Nigerian should consider.
- Clear Financial Goals
Start with where you want your money to take you.
Buying a home, starting a business, paying school fees, travelling, supporting your family or retiring comfortably are different goals. Each one requires a different amount of money and a different timeline.
A goal gives your money a job. Without one, it is easy to earn, spend and start again without making much progress.
- An Emergency Fund
Life does not always respect your budget.
A medical bill, car repair, job loss or unexpected family responsibility can put pressure on your finances quickly. An emergency fund gives you a cushion when things do not go according to plan.
Keep it accessible and separate from money meant for long-term investments. The right amount depends on your income, expenses and personal circumstances.
- A Debt Strategy
Debt can be useful when managed properly. A business loan can help a company grow. A mortgage can help you own a home. Some borrowing, however, can become expensive when repayments begin taking up too much of your income.
Know what you owe, how much it costs and when you expect to clear it. Your financial plan should tell you which debts to prioritise and how much you can comfortably borrow.
- Protection for What Matters
Building wealth without protecting it leaves you exposed.
Think about your health, income, family, home, vehicle, business and other assets that would be difficult to replace after an unexpected event. The right insurance can help reduce the financial impact of some of these risks.
Financial security is not only about growing your money. It is also about protecting what you already have.
- Investments That Match Your Goals
Saving and investing are not the same thing.
Money you need soon may need to remain liquid. Money you will not need for several years may have more room to take investment risk in pursuit of growth.
Your investment choices should consider your goals, timeframe, risk tolerance and need for access to your money. The Securities and Exchange Commission encourages investors to understand investment risks and make informed decisions before committing their money.
Diversification also matters. Putting all your money in one investment, asset class or market can expose you to unnecessary risk.
- A Retirement Plan
Retirement planning should not begin when retirement is around the corner.
For employees covered by Nigeria’s Contributory Pension Scheme, contributions are paid into a Retirement Savings Account managed by a licensed Pension Fund Administrator. PenCom also provides a Personal Pension Plan for eligible self-employed people and employees of organisations with fewer than three employees.
Your pension is an important part of retirement planning. Your wider plan should also consider other investments and the lifestyle you want to maintain when regular employment income stops.
- A Plan for Your Wealth
There is one final question worth asking: what happens to everything you have built when you are gone?
A financial plan should consider how your assets will be documented, protected and transferred according to your wishes. Depending on your circumstances, this may involve a will, trust or other estate-planning arrangements.
Wealth is not only what you accumulate. It is also what you preserve and pass on.
Putting It All Together
These seven areas work best when they are connected.
Your goals determine what you need to save and invest. Your emergency fund gives you breathing room. Debt management keeps repayments from taking over your income. Insurance protects you from major financial shocks. Investments give your money room to grow. Retirement planning prepares you for life after work. Estate planning considers what happens to what you leave behind.
This is where financial planning becomes more than a spreadsheet.
It becomes a plan for your life.
Norrenberger takes this broader view of financial planning, offering services that span investment advisory, portfolio management, education planning, estate planning, fixed income and retirement planning.
You do not need to have millions of naira before you start. You need to understand what you have, what you want to achieve and what needs to happen between where you are today and where you want to be.
Your money should have a purpose. Your financial plan should help you give it one.
