Topic 4 – Monitoring & Adapting Personal Financial Plans

What is a financial plan?

In general usage, a financial plan is a comprehensive evaluation of an individual's current pay and future financial state by using current known variables to predict future income, asset values
and withdrawal plans.
The steps involved in drawing up a budget:
Attitudes to Financial Planning 1. Identify and list all sources of 3. Decide on the time period that
income you will use in the cash-flow chart
The following are some questions that
These sources include wages, It is useful to choose the length of time
individuals can ask themselves to work
allowances from parents or guardians, between receiving your regular sources
out their attitudes to financial planning
state benefits, interest on savings and of income. So a student who receives a
and so what characteristics their
investments, and money received for weekly allowance may use a week as the
personal financial plan should include.
birthdays or other celebrations. It is time period, whereas someone with a
These characteristics will apply whatever
helpful to list regular wages separately full-time job who is paid monthly will use
their level of income and expenditure,
from wages that are earned less a month as the time period.
but may lead to different financial
frequently. This makes completing a
objectives for those with lower or higher 4. Fill in the figures for all of the
cash-flow chart easier.
levels of income and wealth. various income sources and types of
2. Identify and list all items of
a) What are your main needs and expenditure in the cash-flow chart
expenditure.
Establishing clear, measurable wants in life? Some items of future income and
It is helpful to list all mandatory items
objectives Are you satisfied with a basic level of expenditure may be uncertain at the
first and then the optional items. This
Before drawing up a financial plan, you consumption or do you like your moment, eg wages from a seasonal job
makes it easier to see what spending
need to know yourself – ie you need to luxuries? Do you have any particular picking fruit, or how much next
must be met and what you might change
have a good idea of your own needs, needs or strong wants that you feel you summer’s holiday is going to cost. Make
when you are using the cash-flow chart
wants, priorities, attitudes and aspirations, must finance whatever happens? a realistic estimate for these items for
to manage your funds. Once again, you
so that you can develop a personal b) What is your attitude to spending now and add this to your chart, but
cannot rely on guesswork, or expect
financial plan that reflects your own money? make sure that you keep a record of how
simply to remember how much you
personality and situation. You need to be Are you easily tempted into making much you actually earn and spend,
spend and what you spend it on. To
aware of any financial constraints that purchases or are you careful? When you because this will allow you to make more
compile an accurate assessment of your
cannot be changed, because you will have want or need something, do you feel a accurate estimates in the future.
expenditure, you have to keep a record
to work around them. You also need to strong desire to have it now, or are you of what you spend – ideally, every day. 5. Now you can calculate the total
think about where you are in the life cycle willing to wait until you can afford it? Bank account statements will help you to income and total expenditure for
and what life events you may encounter. c) What is your attitude to saving? identify the regular payments going out each time period
The next step is to think carefully about by direct debit and standing orders, and Write the figures in the appropriate fields
Do you feel safer if you have a bit of
your financial objectives. This may mean credit card statements will similarly and calculate the balances to see
money put away? Do you feel tempted
deciding how important it is for you to earn detail how much you spent, where you whether your cash-flow forecast is
to spend the money that you have
the highest income that you can. Are spent it and what you spent it on. You predicting a surplus (ie income more
saved, or does it give you satisfaction to
you prepared to work in a demanding, should keep receipts for purchases that than expenditure) or a deficit (ie income
see your savings growing?
high-pressure job, working long hours to you make using cash, debit cards and less than expenditure).
d) What is your attitude to
earn a high income? Would you be willing
borrowing and being in debt?
to manage on a low income for several Monitoring Plans
years while studying for whatever Do you hope to improve your standard of
qualifications you need to pursue a highly living as you get older? Are you Once they are firmly established, it is
paid career? impatient to start earning as much as vitally important that you monitor your
possible, or are you willing to invest time financial plans to check how closely real
in further or higher education, or in life matches your income and
Work-life balance training, such as an apprenticeship? expenditure forecasts as you live
f) What is your attitude to risk? through the time period of your plan.
Keeping weekly, or even daily, records of
Are you happy to risk your money, even your actual income and expenditure. The
if you do not have much, in the hope of difference between the expected and
gaining more? Or does it worry you to actual figures is known as the ‘budget
think that you might lose what you variance’.
have?
cheques.
Opportunity Costs
Keeping an accurate record of the
 Topic 4 – Monitoring & Adapting Personal Financial Plans
What is a financial plan?
In general usage, a financial plan is a comprehensive evaluation of an individual's current pay and future financial state by using current known variables to predict future income, asset values
and withdrawal plans.
plan Opportunity costs are defined as the
It is important to keep accurate records value of what you have to give up to
of your financial plans. Different people Envelope Budgeting consume something else, eg the value of
will do this in different ways and each the summer holiday that you have
The idea is that the individual will set
will come across some problems from foregone because you would rather keep
aside a number of envelopes and on the
time to time. your subscription TV channels, or the
front of each write the name of a
Organised People value of the gym membership that you
different bill or other item of expenditure
have cancelled so that you can afford
Those who always keep receipts and (over the short or medium terms), along
the loan repayments on your new
other financial documents, and who keep with the average monthly payment.
furniture.
records of how much they earn and When the individual receives some
spend – will not find it hard to compile income (eg they get paid), they will
divide the available money between the Financial planning with interlocking
detailed financial cash-flow plans,
envelopes; if there is sufficient money, time periods
whether they use one of the financial
enclosed in each envelope will now be To be effective, personal financial plans
apps listed, simpler budgeting
enough to pay for the item of spending should cover short-term, medium-term,
spreadsheets, or even simply a pencil
detailed on its front. When the time longterm and very long-term time
and paper.
comes to pay each bill, the money is periods; the plans for each period should
Unorganised People all interlock. The short-term plan, in
taken out of the appropriate envelope to
People who are less organised may pay for that bill. If there is money left particular, should be sufficiently flexible
simply jot down a few figures on the over after all of the available cash has to accommodate changing future needs,
back of an envelope every week or been allocated, the surplus is then used wants and aspirations.
Methods of monitoring month to see how much they have spent ◆ The short term might mean one or two
to cover ‘pocket money’ spending and
The simplest way in which to monitor your and how much money they have left unexpected bills. This system should weeks, or it might mean several months.
budget is to keep receipts for all of your until they receive their next allowance or therefore stop individuals from spending ◆ Someone planning to get married in
purchases and use them, together with salary payment. money that they will need to pay their two or three years’ time might consider
bank account statements, to keep a People who do not forward plan bills. themselves to be making long-term
written record of your income and plans, but a person putting money into a
They may simply check their current high-risk investment product would need
expenditure, writing the actual figures in a
account balance when they think of it, or Zero-based Budgeting to be prepared to keep their money in
column next to your forecast figures on
when they need to use their debit card The aim is to ensure that every penny of that investment for at least ten years.
your cash-flow forecast using a
to withdraw cash or pay for an item. your income is spent purposefully and ◆ Students in their last year of school or
spreadsheet program (such as Excel). With
Some will simply keep using their debit wisely. you have to draw up a detailed college might see the school year as the
a spreadsheet, you can enter the projected
card until a card payment is refused cash flow forecast allocating every single medium term and everything after that
and actual income and expenditure data
because they have used up that month’s penny of your expected income to a as the long term.
into the relevant boxes; if you have set up
money. This approach to personal different expenditure envelope. The ◆ People in full-time employment may
your spreadsheet well, it will then
financial planning is very ‘hit and miss’. envelopes need to cover all of your view the next few years as the medium
automatically calculate totals, sub-totals,
There is no planning for emergencies – expected spending, preferably over a term, with the long term happening in
balances and variance.
or even foresight that they will occur – so period spanning the next 12 months. So five or ten years’ time – or even longer.
Popular software, online websites and apps
these people have to do a lot of you will have envelopes for all of your The key when defining the ‘short’,
include:
‘firefighting’ (ie they simply deal with mandatory and essential spending, and ‘medium’ and ‘long’ terms is to find the
Free
problems as they arise). for all your expected discretionary time period that is meaningful to your
Money Advice Service Budget Planner
Money Dashboard spending, right down to allocations for own circumstances.
Debt Advice Foundation Budget Planner sweets and snacks, newspapers and
Money Saving Expert’s Budget Planner magazines, takeaways, cinema outings,
Paid-for etc.
You Need a Budget
Moneydance
Good Budget Key ideas in this topic
These and other similar systems allow you ◆ The necessity of monitoring personal
to manage and monitor your finances ‘live’
 Topic 4 – Monitoring & Adapting Personal Financial Plans
What is a financial plan?
In general usage, a financial plan is a comprehensive evaluation of an individual's current pay and future financial state by using current known variables to predict future income, asset values
and withdrawal plans.
online; some will sync your financial budgets and longer-term plans in
information through wi-fi connections, so maintaining sustainable personal
that it is available on different platforms finances
(ie PC, smartphone and tablet). This ◆ The various methods of monitoring
enables you, for example, to use your finances, including free online services
phone when you are out shopping to and smartphone apps
update your record of actual expenditure ◆ The need to adapt personal financial
every time you make a purchase. plans in response to changes in external
Each system or tool is designed to be user- and personal circumstances if plans are
friendly and easy to use, and they do not to be kept on track
require any previous financial knowledge.
There are usually comprehensive
instructions and ‘how to’ video tutorials
available to help you to understand how
they work, and some also offer online
advice and support.

Adapting plans to changing

circumstances
It is harder to plan for the long term
because there are so many unknown
variables that might affect your plans.
There are personal factors, such as
changes in someone’s wants and
aspirations, or changes in their needs, eg
leaving home to rent with friends or
starting a family. There are some factors
over which they have only limited control,
eg being able to work only at certain times
to fit in with studies or a shortage of local
jobs.

Adapting plans in order to fulfil

longer-term goals
Different people have different approaches
to setting themselves goals and achieving
aspirations. If, however, someone has a
longer-term goal that requires money to
finance it, it is best that they plan for that
goal rather than leave things to chance.
The key is to act now to make some
provision for the future. Individuals do not
know what will happen to them in the
future, but if they have some money saved
or a plan to work their way out of debt,
their life choices are less constrained by
their finances. There must be a certain
amount of flexibility in a budget because
 Topic 4 – Monitoring & Adapting Personal Financial Plans
What is a financial plan?
In general usage, a financial plan is a comprehensive evaluation of an individual's current pay and future financial state by using current known variables to predict future income, asset values
and withdrawal plans.
changes in circumstances mean that
things will not go according to plan; the
longer the term of your budget, the more
likelihood there is that the actual outcome
will be different from what you had hoped.
If you keep an eye on how things are
going, then it is easier for you to make
adjustments so that you can still achieve
your long-term aspirations. People’s typical
long-term goals will, of course, depend on
their stage in the life cycle.