Listen to This Article Enhance your reading experience by listening to this article.

A good financial plan essentially consists of how much money you will need to make, spend, save and invest to attain your wealth creation goals.

A solid plan will guide your financial decision making and give you lucidity in life.  Hence, as you set resolutions for the new year, make a solid financial plan instead of simply listing the assets that you want to acquire. This, in the long run, will assist you in monitoring progress towards your goals.

Here are some common financial planning slip-ups and how to avoid them.

Failing to specify investments’ objectives Individuals commonly invest for return maximisation or tax saving purposes. When investing, set a particular objective and keep it in mind.

For example, instead of just looking for good returns, you could specify that you want the investment to yield 10 per cent per annum or so. This will not only help you track its’ performance but also give you exact income figures for your overall financial plan.

Snubbing emergency funds: The level of economic turbulence over the last few years since the Covid 19 pandemic outbreak has made an emergency fund more imperative than ever.

Surprisingly, in a survey conducted in 2022 by Enwealth Financial Services dubbed Savings and investments behavior among Kenyans, only 37 percent of respondents reported having established an emergency fund in 2021 in spite of the preceding instability.

 It may pinch to have an extra deduction on that paycheck but it can be a lifesaver. Rule of the thumb is to put away money that can cover you for at least six months if you lost your current income.

Overlooking the essence of insurance: Effective financial planning includes preparing for unexpected events and ensuring that even in such situations, you are still able to reach your goals. Hence, taking up necessary insurance is essential. Whether it is a natural disaster or an accident that could cause you a financial crisis, it is important to be prepared. 

Failing to account for inflation when making retirement plans:

The constantly rising inflation rate has many worried that the value of their savings will continue to be eroded as prices increase. Check your retirement investments to ensure that they are protected from such harm. In addition, look at your budget and identify areas where you could make adjustments on your spending to go into your pension savings for a comfortable retirement. 

Underestimating the power of compounding:  Compounding has been crowned the 7th wonder of the world. It is a powerful money-making technique that many persons underestimate. Principally when compounding, the interest earned in one investment period will proceed to earn interest in the consecutive investment periods as long as you do not make a withdrawal. Thus, your money grows from both the starting capital and the earnings accumulated over time. 

Poor debt, savings, and investments balance: Finding the right balance between these three components is a major step in the wealth creation journey. First, prioritize the loan repayments and stay committed to making remittances step by step until you get out of the debt.

If you have trouble making the payment, consider refinancing from a more favorable lender.  At the same time, work to make contributions to your savings account, however small. In the long run, you will accumulate adequate capital to make an income generating investment. 

To sum it up, base your financial plan on both long term and short-term goals.  Enhance your financial knowledge to make sensible financial decisions. This way, you will be able to align your future plans accordingly. 

Angeline Waundo-Gulavi is the Business Development & Training Manager, Enwealth Financial Services Ltd