PERSONAL STRATEGY IMPLEMENTATION STRATEGIES-INITIATIVES
Strategy implementation initiatives are tactics, methods, or ideas that that if practised can help to bring about success in personal strategy execution. Successful personal business planning revolves around the acquisition of knowledge and having an understanding of the use of certain techniques and strategies to come up with and implement plans. Acquiring necessary knowledge and ability to understand the use of the methods is a prerequisite for successful preparation and implementation of a personal strategic plan. Below are some knowledge, attributes, initiatives and methods that are useful to know and apply to generate and successfully implement a personal strategic plan. These are:
Business education is about strategic thinking, business planning, budgeting, costing, pricing, inventory or stock management, record keeping, general business management, hiring and firing, marketing, selling, advertising and legal requirements of a business etc. Business education is basically about how to start and run a business and you would need to acquire knowledge in these areas if one of your goals is to start your own business. However, you will at least need to learn about business planning, budgeting and recordkeeping to be able to develop and implement a personal business plan.
This is the ability to understand financial matters. More specifically, it refers to the set of knowledge and skills that allow an individual to make informed and effective financial decisions through their understanding of finances. Financial literacy is mainly used in connection with personal finance matters and ability to properly make decisions about certain personal finance areas like earnings, spending, cash flow, setting goals, saving, borrowing, debt management, investing to acquire assets to generate more income, insurance, tax planning, retirement planning and estate planning. Financial literacy also involves intimate knowledge of financial concepts like compound interest, financial planning, the mechanics of a credit card, advantageous savings methods, consumer rights, time value of money, etc. The absence of financial literacy can lead to making poor financial decisions that can have adverse effects on the financial health of an individual. The advantages or disadvantages of the variable or fixed interest rates in investment are examples of an aspect that will be easier to appreciate if an individual is financially literate. A financially literate person is not only able to do all these things but is also likely to have no problematic credit card debt or mortgages, have savings or a ready emergency fund, maintain an investment portfolio for his or her retirement needs and does not live on one income alone. Understanding these concepts and being able to apply them is an added advantage for personal business planning.
Personal financial planning
Personal financial planning is the exercise that an individual or a household performs regularly to manage their finances through methods like budgeting, saving, investing and spending money over a given period, taking into consideration various current and future income, needs and likely events that can affect the plans. It can be as basic as an individual or a couple preparing a budget to identify income and to allocate this to recurrent expenses and saving for emergencies, school fees or buying a car or a house in the future. It can also be as complex as consulting an expert to advise on all these matters of income, spending, saving and investing for the current and the future. It is an ongoing process to help an individual or a household to make and implement sensible decisions about money that can help them achieve their goals. Personal financial planning can therefore be viewed as the management of money and financial decisions for a person or family. It involves the use of the principles and techniques of corporate finance in an individual’s money affairs, especially the methods of allocation of financial resources. Its objective is to secure financial security and independence so that an individual or a family can meet expected expenses and withstand monetary emergencies. The process involves assessing and evaluating and making prudent financial decisions about budgeting, saving, investing, insurance, tax planning, retirement planning and estate planning.
Most individuals work in conjunction with an investment or tax professional and use current net income and net worth, future tax liabilities, current expenses, and future retirement expenses and desired lifestyle developing the financial plan. These will be used along with estimates of future asset growth to determine if a person’s financial goals can be met in the future, or what steps need to be taken to ensure that they are met. The main essentials of personal financial planning that should be taken into account include:
- Financial literacy: This is about the acquisition of necessary knowledge to have the ability to manage and make informed decisions on personal finance matters efficiently. The finance matters include the setting of goals, budgeting, banking, saving and investing, debt management, insurances, real estate, retirement planning, tax planning and risk management.
- Financial position: Financial position is the position of what you own (assets) and what you owe (liabilities) at a certain or any point in time and the difference between these, which can be positive or negative, is the net worth. If the net worth is negative, it means liabilities are more than assets (you owe more than you own) and there may need to decide what to do about this. A more important aspect of this element of financial planning is cash flow. Cash flow is expected regular income minus expected regular and other expenses over the same period. As is the case for assets and liabilities, the cash flow can also be positive or negative. If it is negative, it means expected income will not cover expected expenses and you need to plan for how to deal with the foreseen gap. You can increase income, cut expenses or borrow.
- Sufficient financial cover: This is about establishing how necessary recurrent expenses are to be covered to leave an amount for saving for example emergencies.
- Accumulating cash for achieving goals: This is about setting investment goals and planning how money is to be saved and invested to allow for the achievement of goals like buying a car, a house or an investment for generating additional income.
- Retirement planning: This element is about planning for preoccupation activities in retirement and creating retirement income to be able to retire from the active generation of income when desired or when formal retirement comes and be able to have planned preoccupation hobbies and passive income to live on while in retirement
Importance of Saving and Investing
Saving is the exercise of regularly putting some money aside usually in an interest-earning account or instrument for meeting short-term goals and as a foundation for long-term goals. Investing, on the other hand, is the practice of buying assets with the expectation of earning regular income or capital gains from them over a longer-term horizon such as three or more years.
Often you hear older people tell younger ones to limit their costs and save money. The question then is why save money? At a personal level, the importance of saving money is that as we cannot predict the future, it is necessary to put some money aside to have a safety net in the event of unforeseen emergencies that require money. Saving something instead of spending all your income every month not only allows you to have money for emergencies but also money for meeting other goals that you may have.
One main way of achieving goals in life, particular financial goals, is the practice of saving part of your monthly income. When you save, you can use the money to meet goals such as having money for emergencies, buying high-ticket household necessities like a TV or a car, buying necessary assets for generating multiple sources of income such as a second house for renting, multiplying your money through profitable investments or saving and investing for your retirement goals. This act of saving can provide financial independence, security and peace of mind in the knowledge that you have a realistic chance of taking care of the unknown in the future.
Savings and investment are two fundamental financial measures by which a person’s physical quality of life and standard of living can be gauged. Saving money will help a person and his family to attain a secure life than a person who does not have savings. The practice of saving money is a way of shielding an individual or a family against natural misfortunes that come in everyday life. Saving is an integral part of personal strategic planning and is indeed a good strategy for attaining goals.
Saving and investing presupposes that money is placed or deployed in interest-bearing ventures that produce positive returns taking into account expenses, inflation and time value of money. Ventures include bank deposits, bonds, Treasury bills, shares, real estate etc. Inflation is a sustained increase in the general price level of goods and services and consequent fall in the purchasing value of money in an economy over some time like a month or a year. Time value of money is the idea that money on hand at the moment is worth more than the same amount in the future due to money’s ability to earn income. This is true so long as money can be invested to earn interest. How much this is worth, depends on available interest rates. If you invest US$100 at 5% interest rate, this amount will grow to US$105 in a year. Of importance here is to note that money must not be left idle. If it is not invested to earn money, it will not grow but instead, its value will be eroded by inflation.
Goal setting and implementation, like life in general, requires discipline. Discipline is the most important attribute needed to achieve any excellence or outstanding performance in any field including goal setting and implementation. Discipline is the ability to suppress base desires, impulses, emotions, bad habits and sway of others and use reason and logic to determine the best course of action and carry those actions through. It is being able to decline instant delight and gratification in favour of long-term satisfaction and fulfilment from achieving higher and more meaningful and sustainable objectives. A disciplined person follows certain rules and standards including time management and can take timely decisions, take measures and carry out plans despite obstacles, setbacks, discomfort or any other difficulties that may arise along the way. Discipline does not mean limiting or denying oneself the basics, enjoyment or relaxation to achieve something. It only means setting goals and focusing your energies and mind on the goals and unrelenting or wavering until the goals are attained. Implementation of goals like any business venture that is started invariably encounters all sorts of hurdles that have to be overcome to succeed. Without discipline, the hurdles will prevail and ultimately derail saving plans. A holistic discipline that can ensure attainment of desired objectives involves using facts and structured logic in making decisions, staying focused and on course, determination and adhering to plans, goals and budget including a time management budget. Working with goals and budget and sticking to these is one of the hallmarks of discipline and being disciplined is one of the strategies of achieving goals.
If you cannot keep records and file important documents, you properly do not have the discipline to set goals and implement them. Keeping of important records, particularly those of financial transactions, is central to personal strategic planning. Some of the important records that you should keep include real estate documents, the title for properties you own, receipts for valuable household items and their warranties (guarantees), tax-related documents, insurance policies, legal documents, certificates and testimonials, credit card records, bank statements, investment records and debt and borrowing records. You also need to batch and keep sales and purchase receipts and other records that you need to create and monitor your spending budget at least for a year and discard them once you have captured them in your budget and actual transactions record book.
Any receipts used to buy assets should bear your name or that of the business you own. This is because you use receipts to prove ownership of the assets in case of any claims or use as collateral to borrow money. Above all records of goals that have been set, the action plans that have been developed for implementation and evaluating results need to be kept too. Indeed a record of all your material financial transactions and the whole personal strategic plan need to be kept. All these records may be needed at one time or another in the course of personal strategic planning, and when preparing simple financial statements to track the achievement of goals or lack of it. Detailed records form the basis of planning, goal setting and implementation monitoring. Without them, there might not be any meaningful financial planning and implementation monitoring and neither you nor anyone else can tell what is happening.
In general terms, a debt is a duty or an obligation to pay money, deliver goods, or render service under an express or implied agreement. In financial terms, a debt is something, typically money, that is owed or due usually to a lender such as a bank. Debt per see is not a bad thing. It can allow an individual with good prospects of future income to invest now and realize those incomes in the present when they are still young rather taking time to save to invest and realizing the income later when older, assuming that the income opportunity will wait for the savings. It can also allow someone to acquire an expensive consumer item like a Television set and start the enjoyment right away while paying for the item slowly in an affordable manner. It is the use and management of debt that can be a problem. The starting point is to borrow only when necessary, when there is an opportunity to put the money into good use as per plans taking only reasonable risks to generate positive returns and when there is the ability to repay. If money is borrowed for a business, the ability of the venture to pay its way and the risks around the venture should be assessed carefully using financial appraisal tools. One of the worst mistakes one can make is to borrow and divert the money to consumption or other uses away from the original plan or from economic activities that generate positive returns taking into account expenses, time value of money and inflation. Borrowing money to gamble is a very unwise move.
Once the money is borrowed and used as planned, it should be repaid faithfully on schedule without fail. Failure to do this may result in default and accumulation of the debt through penalty interest to a level that it would be difficult to repay. Bank debts grow very quickly because of applied compound interest. Any amount borrowed can easily double within two or so years if it is not being serviced. Failure to pay a bank loan, for example, may affect your credit rating and you may not be able to borrow from a bank again or you would at very high-interest rates as you would be viewed as a risky borrower. Besides this, you may lose your valued collateral if the lender chooses to exercise their right to realize the security that you gave as collateral. Any loan repayment amount has two components to it. One part is the payment of the principal and this goes to reduce the loan borrowed and the other part is to pay the interest. For a business, both parts of the repayments are repaid out of profits of a business and for an individual; both obligations are paid out of personal income.
Once a debt has been incurred, it should be managed carefully to avoid it becoming a problem. One of the most effective ways of managing debt repayment is to capture both principal and interest obligations as part of the expenses in the monthly budget to be paid out of income. If repayment becomes a problem, the following are some ways that can be used to get out of debt:
- Take stock of all debts so you can know how many debts you have and their terms and draw up a plan of how to get out of debt.
- Negotiate some of the terms downwards if you can to reduce the cost.
- Decide which debts to pay first while paying the required minimum on the rest. You can start from the smallest to the largest as the small ones may be simpler to deal with. This way you get quick morale-boosting wins and some cash is freed to tackle the larger ones.
- If you can, pay more than the minimum required on all debts or some of them.
- Relook at your budget and prepare a bare-bones budget to free some cash for dealing with debts.
- Sell unneeded items and idle assets to repay debts.
- Use salary raises, bonuses and windfalls to pay debt instead of opening up expenditure or using them up for luxuries when you get windfalls.
- Find a side job or hustle to earn additional income to assist in paying debts.
- If you have credit card debt that has not become a problem yet, always pay the full amount due each month to avoid paying interest. If the debt has become a problem, then pay a bit more than is the amount each month to work on reducing the owing balance and eventually subduing or eliminating it.
- If you have a term loan like a mortgage that has an agreed payable amount over say 15 years, try to pay the amount required per month plus 10-20% of net or gross salary to accelerate repayment. This can easily reduce the repayment period by 40-50%.
One of the key goals of an individual that can lead to contentment and peace of mind is to have a retirement plan. Retirement plan of itself is a key strategy of realizing one of the major goals in life. Retirement planning is the process of planning for retirement, specifically making financial plans to be ready, financially and non-financially, for life after formal working life ends and the paycheque stops. The non-financial aspects include lifestyle choices such as how to spend time in retirement, where to live, what to be doing in retirement and when to completely quit working. One of the reasons for having a retirement plan is because even if you have a job or a business that brings you regular living income, these can, sooner or later and for various reasons come to a scheduled or an abrupt end and can happen sooner than expected. Nowadays permanent and pensionable employment is rare. The job you are holding currently can end abruptly and for good. When this happens, you need to have passive income that you can use to live on while looking for another occupation or in retirement. Passive income is regular income that flows to you without your active participation in generating it.
The process of retirement planning aims to assess readiness-to-retire given a desired retirement age and lifestyle, identify actions to improve readiness-to-retire if not ready yet, acquire financial planning knowledge necessary for retirement planning and encourage saving practices that can help achieve retirement goals. In some cases, employees are provided with a retirement plan by their employer and contributions to the plan are deducted from the employment paycheque, with some employers matching the employee’s contribution with its contribution. In many cases, people have to make their retirement plans, hence the need for starting a savings plan early enough. In specific terms, retirement should involve determining retirement income goals and the measures and decisions needed to attain those goals. It entails identifying sources of income, estimating expenses, implementing a savings program and managing investment assets. From time to time, future cash flows are computed to establish if the retirement income target is well on course to be achieved. The actual steps of planning for retirement are as follows:
- Defining the vision: This is about determining the lifestyle you will want to lead including where you will want to live and what you want to be doing in retirement. This vision will determine the amount of income that you will need to have in retirement.
- Develop a retirement budget: This involves the estimation of expenses that will be necessary to be met every month while in retirement and the assets that will be necessary to be in place then to generate the income. For example rental property, shares, an annuity or a mountain of cash that cannot be exhausted easily. These assets would need to be acquired during working life to be ready to generate the income required in retirement.
- Implementation of retirement pan: This is where a plan to earn income, save and invest to generate the resources needed to acquire the needed assets for generation of passive income in retirement. This then is where a personal business planning comes in to develop strategies and set goals and action plans for implementing the retirement plan and other related goals. Key among the strategies in this respect is a personal budget and discipline.
Start planning early in life
You need to start early in life before commitments and bad habits or unnecessary expenditure set in and get entrenched. Good habits are established early and bad habits, once they are entrenched, are hard to break. You should therefore start the discipline of planning and setting goals from your first income or even earlier. Starting to plan early is an advisable discipline for the following reasons:
- Bad habits: It is a fact of life that once disposable income is available, expenditure also rises in tandem. The expenditure that often rises is of the unnecessary type such indulgence in luxurious goods and over-entertainment. As you entrench habits, it becomes difficult later to change those habits. If you purpose to plan your life early before bad habits become part of your life, you completely lock out these habits before they take root and make it difficult for you to plan and follow plans in a disciplined manner.
- Inflation: Salaries tend to be fixed and lag behind inflation. Planning early so that you can do things like saving and investing that multiplies your income is necessary so that you can stay ahead of inflation income-wise and protect your purchasing power all the time.
- Responsibilities: It is also a fact of life that as you grow older; your responsibilities grow too. When you get married, you will have more mouths to feed, you will need a bigger house and several other things including money for your children’s medical care and education. Yet it is not the case that when you marry, income will necessarily increase also. If you plan and will have for example been saving and investing before these responsibilities arrive, you will, firstly, be already used to saving and secondly your savings will allow you to take on these responsibilities without a lot of stress.
- Creating resources takes time: Since with so many current commitments and small earnings you can only afford to set aside small amounts, you need to start as early as possible to allow the small amounts time to grow. Money needs time to multiply as the longer it stays in an investment, the more it earns. At an interest rate of 10% per annum, for example, it takes 12 months for US$1.00 to grow to US$1.10 and much longer to double. In another example, if you wish to have US$10,000 in 10 years from now for say school fees, you would need to save US$58 at the end of each month at an interest rate of 7% pa for ten years. But if you waited for 5 years before starting to save, you would have to put aside US$140 monthly to achieve the target.
Pay Yourself First
Paying yourself first is a very good goal to set and it is a very good strategy for achieving goals. To help a person choose saving over spending money, money should not be viewed as what is remaining after current needs and wants have been satisfied. Pay yourself first is a popular and very effective saving habit and discipline that can help individuals have something to save. Paying yourself first means ritually setting aside a portion of your net or gross income (10-20% of net income is recommended) for saving each time a person is paid or gets some money before using any of the money on spending.
The principle is you spend what remains after saving and not saving what remains after spending. When you practice pay yourself first principle, you should set up an automatic way of doing this so that you do not even have to think about it as it just happens. You can get your employer to deduct a certain amount and put it in your bank savings account that you do not touch or you can set up an automatic transfer with your bank to transfer a specific amount every month to the interest-earning savings account once your income arrives. Most people who use this method find that they very quickly get used to living on a little less and soon they don’t miss the amount that they are paying themselves into their savings account.
To ensure that we understand what grit is all about, I will quote Angela Duckworth (2016), the psychologist and researcher who explained the term in her book: Grit, The Power of Passion and Perseverance. According to Angela, Grit is passion and perseverance for long-term and meaningful goals. It is the ability to persist in something you feel passionate about and persevere when you face obstacles. This kind of passion is not about intense emotions or infatuation. It is about having direction, commitment and stamina. When you have this kind of passion, you can stay committed to a task that may be difficult or boring.
Grit is also about perseverance. To persevere means to stick with it; to continue working hard even after experiencing difficulty or failure. Research indicates that the ability to be gritty—to stick with things that are important to you and bounce back from failure—is an essential component of success independent of and beyond what talent and intelligence contribute (Duckworth 2016).
Why is grit important?
Again, I quote Angela: Grit is important because it is a driver of achievement and success, independent of and beyond what talent and intelligence contribute. Being naturally smart and talented are great, but to truly do well and thrive, we need the ability to persevere. Without grit, talent may be nothing more than unmet potential. It is only with effort that talent becomes a skill that leads to success (Duckworth 2016).
According to Angela, Talent + Effort = Skill and Skill + Effort = Achievement. This means to achieve goals, you need to apply talent, ability, intelligence and knowledge to get skills. You then need to apply skills to get achievement, where the term “apply” equals effort that is supported by passion and perseverance. Grit is not about working hard, smart or with intensity alone. These are important and necessary. But you have to add stamina and staying the course as well, no matter the difficulties for as long as the goal is still relevant, achievable and worth pursuing. This is how goals are achieved. Ask any outstanding sports person like Tiger Woods of the USA or Eliud Kipchoge, the marathon runner of Kenya. Rome was not built in a day. Grit is built through interest (passion), purpose (goal), practice (action/effort) and hope (vision).
Take Care of Your Health
As you develop your strategic plan, one of the necessary strategies to have is about taking care of your health. The first resource you have is your health. Without it, the rest of the activities will not proceed well. Have goals and strategies to eat, drink, and exercise sensibly. Ensure to attend to your body promptly whenever it needs attention such as when you feel pain or unwell you should visit a doctor as early as possible.