Planning your funds to mitigate personal risks

By Ken Monyoncho

The decline in life expectancy rates in developing countries underscores the need for a financial plan once individuals secure employment.

Since life expectancy in Kenya is around 50 years and you have intention to live beyond, you need to plan ahead.

As a profession, financial planning did not exist 30 years ago. However, this new science is reason for the success of many an individual who could have developed one without knowing.

But, most of us still work without a financial roadmap. You have no plan today probably because of the contribution from your parents who never saw a future.

But, today, things are different and the need for financial planning is overwhelming.

Financial experts cite a number of reasons for the need to plan. Firstly, to protect your family against financial risks: The key risks include injury, illness and or death. Financially speaking, life seems to come to an end and a new strategy to start again must be found.

A proper financial plan will ensure the aggrieved family does not sell any assets to mitigate these risks.

Secondly, to eliminate personal debt: Consumers are slowly reaching a level where "they are running out of money before they run out of the month".

Running out of money

In other words, you have to borrow to ensure that the month is over.

But can you imagine running out of money before your life is over?

To avoid ugly situations eliminate your debts. Therefore, setting up a plan on how to manage your finances will be imperative.

Thirdly, to pay for the cost of raising children: As a parent you are expected to provide for everything including your children’s careers. We will be expected not only to pay for their fees through University but also support them when they marry.

In Africa, the father or uncles used to pay bride price for their sons. A large chunk of your budget line is for children.

No matter how good your income is, it is not wise to say life will take care of itself. In life, it is not how much money you earn that counts but how much you keep.

Look back at your parents or grand-parents life.

How did they plan? How much money did they live behind?

Pensioner’s life

Fourthly, to be able to retire when you want: With the new retirement age extended, assume that you retire at 65, but live another 20 years.

Assume again, you will take three meals a day at Sh400 per day for the period.

You will have eaten approximately 30,000 meals or approximately Sh1.2 million worth of meals. This excludes other expenses such as transport and medical among others.

Where will all these money come from if you don’t plan.

Lastly, to leave an inheritance for your children: Our great parents had a system of ensuring that their children inherited their wealth.

This would either be in form of livestock, land and crops among others. Those who were lucky would inherit their parents’ houses when they pass on.

Today, however, children support their parents to a large extent.

Transfer of wealth is thus reversed. Instead of it going from parent to child it is from child to parent.

The reasons aforementioned require one to create a financial plan.