The importance of the financial objectives set may change in time. That is why our strategy for allocating resources must be adapted to the new priorities. It is good to set a limited number of objectives and as long as we reach the short-term goals we replace them with other new objectives that may also be short-term or medium- or long-term.
In order to reach each set financial objective, we must decide what amount we will allocate to it monthly or periodically to achieve it. At this moment we have two variants, either we establish the amount that we can allocate monthly to the respective objective and according to its value we will find out how long we will reach it, or depending on its value and the time period in which we want to achieve the goal to find out how much we need to save each month.
The excel financial planning file is designed so that depending on the value of the objective and the period it is set to return the monthly amount you have to save. If you have already saved an amount allocated to a goal it will be subtracted from the total amount needed to reach the final goal.
For a precise calculation we have to take into account 2 factors. These are the inflation factor and the yield factor. Inflation factor is the estimated annual inflation value for the following years. Given that some goals are set for periods longer than one year, inflation affects the value of our savings and we must take this into account when making our calculations. The return factor is the estimated value of the return we think our investments will get.
A simplified calculation implies the omission of these factors, starting from the premise that the annual returns obtained from the investments made are at least equal to the annual value of the inflation and thus they cancel each other out.
An important aspect of setting and prioritizing goals is the fact that the savings we make in order to achieve our goals must be invested in order to deliver returns that will help us achieve our goals faster. In order to choose the financial instruments in which the savings must be invested, we must take into account both the risk profile of each one of us, as well as the age we have at the time of setting the strategy.
The younger we are, the more willing we are to accept a higher degree of risk, both due to the increased risk appetite and the long time we have available for the investments made. Instead, as we get older, it is advisable to reduce the share of risky investments in our portfolio for greater security.
Last but not least, we must periodically evaluate the results obtained and revise both the objectives and the strategy for achieving them according to the changes that have taken place during the course.
Every step of the financial planning process has its importance, which is why if you want to make your personal financial plan you must start as soon as possible to get as far as possible.