WHEN we were much younger, we were addicted to the saying “knowledge is power”. Practical experience has taught us that this was an intellectual decoy which kept us engaged but not moving forward.
Knowledge is not power, applied knowledge is power.
As Zimbabweans, we are proud to highlight that we are second only to Tunisia on the African continent in terms of literacy. The question we have to ask and answer honestly is whether this high literacy has translated into a better standard of living?
This column is an attempt to stimulate a desire to increase financial literacy which I hope then translate in increase applied financial knowledge. It is a call to action.
For animals like cattle, grazing, chewing cud and sleeping on its own manure while waiting for the appointment at the abattoir is a decent existence. As part of the human family, we are called not just to exist but to live and financial planning from one horizon to the next is part of that life.
If you understand the concept of time, and value of money, then you need to establish your own moving financial planning horizon which takes into account your goals, current financial position, and risk profile. A planning horizon is the length of time an investor projects into the future and it affects your asset mix.
Having a planning horizon provides direction, measurement, and meaning to your financial decisions. It allows you to understand how each financial decision you make affects other areas of your finances, and it allows you to take control of your future.
A planning horizon is the period covered by that particular plan within a planning cycle. Generally, the length is dictated by the degree of uncertainty in the external environment with higher uncertainty giving rise to a shorter planning horizon.
For most people, five years is a sufficient horizon. Each five-year horizon should produce a significant milestone which in reality is the summation of your annual outputs.
Choosing the right planning horizon is the key to any solid investment strategy. Each decision and action you take will have a significant impact on your future financial circumstances. A good financial blueprint will lay out what you need to do today to achieve your goals tomorrow.
A sound financial plan includes a balanced portfolio of investments, with shares, bonds, cash and property, invested in both local and international markets. This diversification ensures that you do not have too many eggs in one basket. The result is a lower level of overall risk, while still enjoying exposure to potentially inflation-beating returns.
Our financial plan should take care of self, spouse, and heirs but we must aim for social impact which goes beyond our immediate families.
Many people will say they want to retire comfortably or that they want their children to attend good schools, without quantifying what "comfortable" and "good" mean so as to determine when the goals have been reached and what is required to get there.
The planning process involves gathering relevant financial information, setting goals, examining your current financial position, and coming up with a plan for how you can meet your goals given your current situation and resources.
A financial plan formulated to fit your lifestyle is often about prioritising and compromising. It is also about making the best use of income, expenses, and resources. The planning process can unravel more efficient uses of cash flow, thereby generating more for spending or saving.
Planning is an ongoing process and is also about proper asset allocation and tax efficiency.
Your planning horizon addresses your concerns, eliminating the unknowns, and helping you to achieve your life’s goals. In many cases, an investor’s largest asset, excluding their home, is their retirement plan.
Where are you today? What is your current financial situation? What is your financial future and goals? Will you be able to get there and when? How do you plan to achieve this? How flexible is each goal? What is the planning horizon for each goal? What is your general tolerance to investment risk?
Risk profiling can help you make decisions that are suitable to you. You have individual experiences and unique hopes and dreams. Your core values become the basis for defining your financial philosophy and this serves as a guide in developing your planning horizon.
If you are aware of your attitudes and preferences concerning your money, then you can clarify and connect your vision, values and goals into the planning process.
Planning integrates your risk profile and planned financial goals with your current investments and liabilities. It rebalances your portfolio according to your. You quantify in money terms what resources you need to meet those goals, and the timeframe during which you want to achieve these goals. Asset allocation projects your cash flow and net worth over your planning horizon.
A comprehensive financial plan serves as a framework for managing your finances. You are better placed to focus on your goals and understand what it will take to reach them. One of the main benefits of having a financial plan is that it can help you balance competing financial priorities.
A financial plan will clearly show you how your financial goals are related and help to prioritize financial goals, time frames for achieving these goals, implement specific strategies, and choose suitable services. You can then implement strategies that address your current financial weaknesses and build on your financial strengths, monitor your plan, making adjustments as your goals, time frames, or circumstances change.
The key is not to procrastinate and to start exactly where you are. If you are temporarily resident in New Zealand, or instance, make investment decisions relevant to where you are. In any case, an investment can always be disposed of when you decide to go back to Zimbabwe.
Managing you financial planning horizon should bring contentment, preparedness, happiness, stability and an excellent standard of life. Financial planning can help you reach your goals by evaluating your whole financial picture, then outlining strategies that are tailored to your individual needs and available resources.
Tafirenyika L. Makunike is the chairman and founder of Nepachem cc (www.nepachem.co.za), an enterprise development and consulting company. He writes in his personal capacity