- Date : 12/07/2020
- Read: 4 mins
Your job isn’t over once you have drawn up your financial plan. You need to evaluate it, execute it – and even rectify it if necessary.
Ever made a financial plan by yourself and wondered, “I don’t know if this is right” or “Is this actually going to work”? To do away with such doubts, apply the strategic tool of self SWOT analysis. SWOT is an acronym of its four important aspects – Strengths, Weaknesses, Opportunities, and Threats. It’s used by organisations and executives the world over to weigh and prepare for the uncertain business environment.
Strengths and weaknesses are internal factors, which means they depend on your personal characteristics, choices, and situation. You have a direct and complete influence over these factors. For instance, if you can stick to your budget and don’t fall prey to instant gratification, that’s a strength, and one that’s 100% dependent on you. Similarly, if you aren’t able to turn down social plans such as fine dining even if it’s out of your budget, that’s a weakness you should work on.
Related: 7 Pillars of financial planning
The basics of a financial plan are also its strengths. For instance, a solid emergency fund, little or no debt, consistent savings, etc. are some areas you should first focus on. It’s also important to ask yourself certain questions to make the best use of your strengths. Such as:
- Do I have any skills or hobbies that can become a side hustle to generate a second source of income?
- Can I successfully negotiate for higher pay at work?
- Do I have liquid funds lying idle that I can use towards making the best investment options?
Weaknesses in your financial plan and money behaviour are usually ongoing and recurring issues such as overspending. These things can be controlled and adjusted by you. But it’s essential to do more than simply list or acknowledge the weaknesses of your financial plan and behaviour; you should also come up with solutions. Here are some questions to ask yourself:
- Does my budget include unnecessary items that can be cut out?
- Am I taking loans for spending/consumption purposes such as credit card debt?
- Do I lack the knowledge required to achieve my financial goals?
Opportunities and threats belong to the external environment and are usually outside your control or direct influence. They can, however, be capitalised on or mitigated by taking timely and prudent action. A spike in the interest rate of home loans when you’re about to apply for a loan is an example of a threat. On the other hand, an increase in the rate of interest on bank fixed deposits can be an opportunity.
Financial opportunities are all about timing. Take stock market investments, for instance. If you have excess cash at your disposal when the market is right, you can invest it strategically. Or perhaps you have a first-mover advantage when it comes to starting a business. Here are some questions you can ask yourself to gauge any existing opportunities:
- Are there any skills that my industry/job role require me to upskill for?
- What are the best investment options that are performing well in the current market scenario?
- Is there a new product or service I can switch to that would help lower my expenses?
Both your professional and personal life can be full of uncertainties. Even the world at large is vulnerable to unforeseen events that could prove harmful. Threats are obstacles that you can’t predict accurately but are very much probable. It’s important to identify financial threats by asking the following questions:
- Do I have comprehensive and ample insurance coverage for my family, assets, and myself?
- What impact can the economic slowdown have on my finances?
- Are there any major expenses that may throw me off track?
By conducting this self-SWOT analysis of your financial plan, you should be able to consider things from different perspectives and make your planning stronger and more reliable. Besides this do you understand lifestyle inflation and how you can financially plan for it? Read it here.