IF YOU have been hurtling forward with no specific personal financial plan, you may be surprised we are now half way through 2012. You could be singing, as Bob Nyabinde said, “kushanda mubindu sevamwe, asi chabuda hapana.”
Nyabinde was singing about an all too common experience: you put as much effort in the fields like everybody else but there is nothing to show in the output.
I would like to believe many of you are not among those waiting for life to happen, having gone through a goal-setting exercise in January 2012 to put down specific, measurable, achievable, realistic, and time bound (SMART) goals that are ripe for mid-year review.
Goals give purpose to your financial plan and give guidance on how to work harder and smarter. Your financial plan impacts your financial goals, your current savings and earnings, your career and possible future earnings, your family circumstance and your savings personality.
Financial success is linked to your total assets, total income and expenses, total liabilities resulting in a net worth position. Your mid-term review means analysing your assets, liabilities and cash flow, risk management, investments or tax strategies, adjusting to the changing circumstances and portfolio rebalancing.
Evaluating performance depends on the current financial situation, the external economic environment and its impact on performance, internal information at your disposal, life style positioning and of course your specific goals.
The advantage of living in two countries gives you an additional opportunity for geographical diversification outside of the generic asset allocation. You have to decolonise your mind as Ngugi wa Thiongo says, and realise that losing money is the same whether it is lost in the EU region or in Gorongoza in Mozambique. To date you probably have lost a significant portion of your savings due to the perception and shenanigans in Greece and Spain.
I believe in the next 10 years Zimbabwe is going to be the next big thing. It would be a tragedy after toiling in the Diaspora for so many years for the sons and daughters of the soil to watch from the terraces as spectators of Chinese, Iranians, and western nationals participating and enjoying the returns of this economic growth.
When you review your plan, you should be concerned about building assets which have value and available to meet debts, commitments, investments and legacies. Your asset management strategy is then monitoring and maintaining those things that are of value to you. Depreciation, the reduction in the value of an asset with the passage of time (say due to wear and tear), affects your financial plan.
Some financial planning myths are that it should be done when you are much older, once done does not need an update, and is only for people with lots of money. Once you come over the poverty line, you need a plan. Hedging allows you to reduce the risk of loss caused by price fluctuation. When you buy and hold an asset for capital gains you need to watch the rate of return which is the percentage of change in an investment, including appreciation or depreciation and dividends or interest, over a given time period.
Your personal risk appetite is the degree of uncertainty that you are willing to accept in respect of negative changes to your business or assets while your risk profile is a description of the characteristics of a risks, mapping the change in the likelihood and impact of the risk on your plan.You need to review your risk tolerance and the time horizon for each of your investment goals.
In other words, has your comfort level with the volatility of the market and your investments changed? This means now is the ideal time to review the status of your finances, in order to give yourself the best possible chance of achieving your medium to longer-term objectives.
The economic environment changes constantly and you need to adapt to the changed scenario such as changes in income, tax and interest rate. The trick is to acknowledge the environmental constrains then work around them to do what you have to.
When you do the mid-term review you need to be alert to trends in your area and make sure you are adapting to those trends. Whether you are an individual or a small business, you need to review your financial plan.
A number of small business owners know their field, but not enough about cash flow, tax advantaged investments, retirement savings, or how to save for organic growth and general wealth management.
Financial planning is affected by inflation rates, income growth rates, or investments rates which keep on changing with the change in the economic factors. Listed entities declare quarterly results or half-yearly results to help the shareholders and management to understand the progress and growth rate of the company, strengths and scope of improvements. Similarly, at individual level a financial plan review helps you to make the necessary changes looking at the micro and macro environment.
During your review do a net worth statement which is a list of your assets and debts, and compare it to the previous period statement to determine if you are gaining or losing ground. Your review should establish your tolerance for risk and volatility; compares your current portfolio to your risk tolerance and goals; examines the portfolio’s allocation, diversification and the overlap among investments; give investments expenses and your costs; recommend changes in overall allocations for portfolio optimisation.
Your financial plan is a dynamic, life-long, ever evolving plan. There is never a better time to take action and implement your goals as now. It is easier to measure written down goals and usually what can be measured will get done.
If there is a deficit between what you planned to do in 2012 and what you have actually done, the period post your mid-term review should be followed by a drastic adjustment to steer your personal ship in the direction you want.
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