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Anne Hutchings discussed the importance of planning
for the future in a recent article she wrote for Chemist & Druggist. The
article is reproduced below.
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What does your financial
future hold? |
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What are your plans for the future? Whatever they are, to
implement them effectively will require proper financial management. This
article is about planning financially for the future. You can split your
financial goals into a number of headings, for example:
 | Short term – The next 12 months |
| Medium term – The next five years |
| Longer term - The next 10 to 20 years |
| Retirement |
Using the above time scales as a guideline,
the first step is to consider what you want to achieve in the future and
record it. You should not isolate your financial goals from your other
life ambitions. For example, you may have business, personal and financial
goals. I recommend a simple format for recording your goals. In the
following examples I will concentrate on financial and business goals but
you can use the same format for all your goals:
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Financial Goals |
Timescale
Date |
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The Goal, i.e. what you want achieve |
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Why you want it |
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What you need to achieve it
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Taking a
simple example; Eric has just got married and is planning his future. In the
short term he wants to buy a house, in the medium term he wants to acquire a
pharmacy and long term he wants to accumulate enough savings so that he can
retire in comfort.
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Financial Goals
Timescale: 12 Months
Date: 1st August 2003 |
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To buy a house in Brighton within walking distance of
the sea. It must have 3 bedrooms, large kitchen, small garden. Maximum
price £250,000. |
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I want the house so that I can settle down with my
wife and we will have sufficient room to start a family. We want to live
in Brighton because we have friends and family there etc |
I need to contact a mortgage broker to ensure that I
can raise the mortgage. Then contact all the Brighton estate agents
providing them with my requirements. I will also search for my ideal
property on the internet. I will make a short list of suitable
properties to visit and arrange viewings for the following weekend. Once
we have found a property and had an offer accepted we should review our
insurance cover to make sure that the mortgage payments will be
adequately covered if either of us was sick or were to die etc
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The above is just a brief example, when you prepare your summary I
suggest you include as much detail as possible.
Tip: The quickest way to achieving goals
is to take at least one positive action each day towards achieving the goal.
Financial planning is crucial. The alternative of ploughing through life
haphazardly is not very palatable and likely to leave you financially short
inhibiting your plans later in life.
Let’s continue with the example of Eric, he is currently a locum but his
medium term ambition was to acquire a pharmacy.
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Financial Goals
Timescale: 5 Years
Date: 1st August 2003 |
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To buy a pharmacy with a turnover of £500,000 and
potential for development. Maximum price £300,000. The pharmacy must be
within a 20 mile radius of Brighton. |
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I want to own a pharmacy because I believe I can
achieve a higher level of income than I would as a locum and therefore
provide a better standard of living for my wife and future children. I
also have a desire to build a successful chain of pharmacies in the
Brighton area. |
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I need to save towards the cost of the pharmacy so
that I can contribute 20% to the cost and borrow the remainder. My
current savings are £20,000, I will save at a rate of £10,000 per annum.
I will start looking for a suitable pharmacy in three years time by
which time I will have savings of £50,000
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If Eric is to achieve his goals they must be realistic. Therefore when he
was planning his new life style i.e. a new house and purchase of a pharmacy
he reviewed his current financial circumstances. The following list covers
some of the main areas:
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Current earnings as a locum and how these will
increase or decrease in the near future. |
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Whether he has sufficient savings for future
tax bills and when these bills will be payable. |
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What his current outgoings are and how these
will change with the new house purchase. |
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The financial circumstances of his wife Sue
and how much she can contribute towards their expenses. Sue is employed by
a computer company, earning £25,000 pa. And after tax and her personal
expenses she is confident she can contribute £10,000 pa towards the
mortgage and household bills |
A year later Eric has achieved two of his financial goals, the house
purchase and £10,000 savings towards the pharmacy. However, Sue is now about
to give birth to their first baby and Eric and Sue have decided that she
should give up work for the next two years to be with the baby and
thereafter just work part time.
Back to the drawing board
Eric now reviews their outgoings to reflect the loss
of Sue's earnings. Looking ahead he needs to also be prepared for the extra
costs of having a child.
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They work out a revised
budget for household and baby costs. |
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Eric reviews his medium
term plan to buy a pharmacy and decides this is the way forward for him to
secure long term financial security. |
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He decides to work longer
hours as a locum to make up some of the lost income, but this is a short
term option, he decides to bring forward the date for buying his first
pharmacy. |
He revises his goal:
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Financial Goals
Timescale: 1 Year
Date: 1st August 2004 |
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To buy a pharmacy with a turnover of £700,000 and
potential for development. Maximum price £450,000. The pharmacy must be
within a 20 mile radius of Brighton. |
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I want to own a pharmacy because I believe I can
achieve a higher level of income than I would as a locum and therefore
provide a better standard of living for my wife and future children. I
also have a desire to build a successful chain of pharmacies in the
Brighton area. |
| As my current savings are only £30,000; I will need to find a source of
capital in addition to bank borrowings. I need an outside investor such
as family or a business partner to provide funds for this venture.
I will draw up a five-year business plan of how the first pharmacy will
be expanded into a total of 3 pharmacies in the next 5 years. I will
present the plan to potential investors with a view to securing the
additional finance for my first pharmacy. I will start my search for a
suitable pharmacy. |
As you will see from the above Eric has now moved the goal posts he is
looking for a larger pharmacy but with a partner.
Eric may or may not succeed in his goal but by writing
it down, focusing on it and with perseverance and determination he is far
more likely to succeed then someone who had no plans or written goal.
This article has just covered Eric's short to medium
term goals but the same principle applies to longer term goals. Write them
down review them frequently and be prepared to amend them to fit your
changing circumstances.
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