Plan for your Money.

A great part of our expected reward for working is money. Do you have a plan for that money? If you don’t, you’ll waste it – Kayode Tewe.

Take a look at this scenario; someone makes a request of us to lend them money. The first thing we do is to ask what they want to use the money for (if they haven’t already said so), then the next thing we do is ask for how exactly they plan to use the money you may or may not give them to achieve the said aim. In other words, you ask them for a defined, well laid-out plan.Once we hear the plan, we scrutinize it to look for loopholes. If we find any loopholes, we make suggestions on how to improve or just generally thrash the request to bits and tell them you don’t think it’ll work, and so no money.

We feel that without a concrete plan, any money given to them would be wasted. So, if we require a detailed and defined plan from others about how they plan to spend money that we give them, it only makes sense that we should also have detailed and defined plans for how we plan to spend our money. If such a plan does not exist, we usually end up looking back periodically and wonder what we did with all the money we have received over that period. If we had made a plan, and followed through with the plan, such look backs wouldn’t be sad affairs.

Making this type of plan is what is called financial planning or budgeting. Governments do it, businesses do it, organisations (successful ones) do it, the individual who is deciding whether to lend money or not to a requestor demands it. It’s logical to conclude that money planning is seen by many as a pre-requisite for successful living or existence. So why then is it that most of us don’t have such plans?

I was speaking with a colleague some weeks back on the need for such a plan. I was preparing one for myself and thought to share with him. He agreed that it was a good idea but did not think making a plan for all your income was the best thing to do. He felt one should leave some out just in case any emergencies came up! Now, I’m not quite sure if that’s how successful entities carry out their planning (a thorough plan should consider everything and actually make provision for such occurrences, and such occurrences should not be left out of a plan, they’ll be tagged miscellaneous). I shared my thoughts on that with him, but I can only make suggestions based on thinking founded on my perspective to life, not force my ideas on others.

So back to my question, why is that most of us don’t have such a plan? 1 year plan, 3 year plan, 5 year plan? We just don’t make plans. Does it mean we are actually wasting our money? The answer to that is probably yes. It’s not like we throw all the money made away, but there are many loopholes or leaks we are not aware of where money seeps through and can never be recovered. And at the end of the year, we ask, where did all the money i’ve made go to?

You may ask, does Bill Gates make such plans for all monies he makes? or Dangote? the answer is yes. They probably don’t make such plans themselves but they have people who are responsible for planning for how their wealth is spent.

Sample 5yr Plan

Recently, I developed a 5 Year Plan (click here to download a sample). Inputs to the plan were based on my expected income over the next 5 years; all monies I expect to receive including money owed to me (having this on my radar would help me follow through with retrieving). The plan also includes expected expenses, both major capital and operating. I also put in funding required for projects. Doing this helps me get a clear picture of what I have, what I can do, and what needs to be done to increase capability. If I need extra income, I can plan for it. If I’ll have unallocated funds (besides savings), I can make plans on how to utilise these funds because I can actually see the funds.

There’s also a section that shows what I should end up with month-end. This serves as a target for me. I’m not perfect and so may slip here or there, but whatever it is I do, I strive to achieve this target. Missing this target would mean that I’ll jeopardize the plan I have created. This helps me develop financial discipline, which, I think, is a prerequisite for success in life. If at the end of the month I exceed my target (have a bigger balance than forecasted), I rollover the full amount to the next month. The plan was created using MS Excel (excellent tool for doing many things) so I’m able to create tabs for different months. And I never delete data for previous months (always try to keep a history of financial records).

Has the plan helped me? I struggled a bit with staying true to it, but once I realized the reason for the struggle, I readjusted and made improvements. It has helped me put the future in better focus and concretized the concept of creating your future.

If you ever look back, you don’t want to do it with regret. Always have a plan. Make a financial plan today.