Covid-19 has dimmed livelihoods, businesses and economies. Amid this uncertainty, financial priorities have shifted. The pandemic has poignantly taught us that in planning the future, we must always anticipate the unknown. It’s time to go back to the basics.
Some financial experts opine that the best time to reset financial goals is during an economic downturn like the one we are experiencing. This is because when people realign expectations with reality, they tend to become more focused on what matters to them.
Indeed, Covid-19 challenges have forced many to shun unnecessary spending as they think of ways to protect and grow their income and wealth. It might seem counter-intuitive to even think of planning for an uncertain future but as they say, failing to plan is planning to fail.
In economic theory, human wants far exceed the resources to satisfy them, known as the scarcity problem, highlighting the value of clearly outlining and sticking to spending priorities.
A personal financial plan is essentially a stepwise process detailing how one intends to achieve important goals in life by effectively managing that scarce resource called money.
Creating a plan is not enough, one must follow through on it.
Behavioural scientists tell us that individuals make better financial decisions when they exercise self-control over their spending habits, like avoiding impulsive decisions that may derail their financial goals.
Personal financial planning has many benefits, first, by empowering individuals to set and work towards goals thereby creating a sense of purpose. A good plan incorporates the use of financial tools like insurance to mitigate risks and assets like shares, bonds, cash and land to generate income and wealth.
Second, planning helps people align their financial goals with their values. For instance, taking out life insurance signifies a strong desire to protect one’s family financially in the event of death, disability or illness.
Parents who care for the future of their children will always think about how to make this happen. Thinking of building a fund to cater for their education is imperative in this context and a good education policy is one of the savings vehicles available for this purpose. Why? It allows for very disciplined savings over a long time and if well-arranged should mature to coincide with the date when funds are required. As well as protecting potential downside risks that could curtail the achievement of this goal.
Third, financial plans enhance the ability of individuals and families to cope with life’s vagaries and risks.
Health insurance should be included as it alleviates the financial burden of managing illnesses and especially given the rising prevalence of lifestyle diseases. Of course, pandemics such as Covid-19 also remind us of the fragility of life and health as well as the fact that no one can predict with certainty what the future hold for us.
Fourth, financial planning has been shown to have emotional as well as mental health benefits. A 2017 survey by the Lincoln Financial Group showed that 83 per cent of Americans with a written financial plan feel better after one year. With the majority stressed out by the pandemic, planning finances has never mattered so much.
Fifth, growing income and wealth through assets like stocks and bonds require a plan, which enables one to take a long-term view while optimally allocating cash to available investment opportunities.
From the foregoing, it is clear that failure to plan is a recipe for disaster. Unfortunately, many people make financial plans based on little information and research. There is also a tendency to rely on friends and relatives when making important decisions.
While there is nothing wrong with seeking advice from those we trust, it pays to do some research and seek professional advice. Having a trusted, credible, innovative and knowledgeable financial partner help you make the right decisions. For example, hiring a professional asset manager or an investment adviser will save you the hassle of tracking investments and instead focus on achieving your long-term objectives. A good insurance adviser will help you identify the right products for your family and business based on needs and goals.
In an increasingly digital world, such a partner should have demonstrable agility in responding to fast-evolving consumer needs through an innovative, diversified product offering, all targeted at meeting agreed customer needs.
We must also dispel certain attitudes, myths and beliefs that limit the ability to plan financially. There is a common belief that purchasing life insurance is akin to contemplating death, a taboo in some communities. Or the attitude that health insurance is not necessary as long as one is not sick.
Think of insurance as a financial protection tool and not as an expense. Any good driver will never embark on a journey without a spare wheel, not because they will get a puncture but just in case they need it. This gives them peace of mind to take the journey.
The post-pandemic era opens new opportunities for personal financial growth but requires a new mindset. That said, a personal financial plan is more than just a set of commitments on paper.
Rather, it is a compass with which to navigate the present and future economic uncertainties, on the way to financial security.