Building a Financial Plan in a VUCA Economy
takeaway points from a session
Hello and welcome to another issue of this newsletter.
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The future was never certain, but never in the world’s history has the future be this volatile, uncertain, complex and ambiguous.(VUCA)
As time goes on, the uncertainty will only increase.
Some few centuries ago, your life was already determined by the family you were born in. If your parents were blacksmiths, you joined the family business and become one. If they were farmers, you’d grow up to become one too. In very rare cases would one deviate from the family’s vocation.
Fast-forward to the 20th century, the industrial age meant you’d go to school, graduate and get a job at a big corporation, spend all your working life there, grow through the ranks and retire comfortably.
Soon after, companies did not take care of you when you retired, you had to sort yourself. This led to people prioritizing their self and switching companies and job roles.
Then came the internet, which enabled people to work from anywhere and with anyone across the globe. This resulted in the creator economy, starting from freelancers to part-time workers to full-time creators.
With AI the landscape is changing again, individuals can now with the power of AI agents do what was not fathomable to the mind some 10 years ago.
One can see that the only thing that is persistent is change. But looking closely, one would notice that the speed at which change happens is also increasing exponentially.
One thing is clear, the world today is much volatile, uncertain, complex and ambiguous (VUCA). And it will increasingly continue to be so.
Welcome to the VUCA world
The new world has made it imperative that individuals and households take charge of their all aspect of their lives - education, health, finances etc.
As always, this newsletter attempt to look at things through the personal finance lens, and this brings us to building a Financial Plan.
The Financial Plan
To build a financial plan in a world of uncertainty, you have to be flexible.
To be flexible means you are not stuck with a plan that used to work but not any more. Building a plan in the VUCA world means a financial plan that can adapt to the changes, ambiguity and uncertainty that is happening.
Set Goals
Ask yourself these questions:
What do I want (to do)? These can be possessions I want to own, or experiences I want to have.
When do I want (to do) it?
What is the cost of what I want (to do)?
Control your Spending
Take stock of your expenses and review against the 50-30-20 rule. Find out if you are doing better or worse than you should be doing.
Set a budget, customise it to fit your situation, or style. Then stick to it.
Put a Plan together
Take Action
To achieve your financial goals, it is important to take some actions based on the goals you want to achieve. These goals, and other constraints such as the time horizon, will guide your decision to save or invest, amongst other decisions on your path towards your goals. Therefore, it is important to understand your required returns, your risk tolerance, time horizon and liquidity needs.
With this knowledge, you can now decide to:
Save: as a rule of thumb, 3–6 months worth of expenses should be set aside. This is your emergency fund, and should be accessible to you whenever the need arises.
Invest: This lets your money work for you towards your goals.
Insure: Protecting what matters; your health, family and your properties is important. These should not be left unprotected, as a loss due to an unexpected event can make one start from ground zero.
Review your Plan
If there is one thing you should take away from this essay, it’s that the world is always changing at an even faster rate. With this, you know that your plan, no matter how perfect it is on paper, will definitely need some tweaking in real life. With this in mind, you have to:
Review your plan: Look through your plan regularly, preferable monthly so that the changes are not drastic. You risk veering away from your goal by missing a little for a long time. Then you review your plan, you see where you are and how far off you are from the plan.
Adjust periodically: once you see a trend from your review, you can then adjust your plan. However, it is important to not always change the plan, or you risk not achieving any goal. It is better to wait it out a bit, will you keep reviewing your plan and your current position relative to the goal you set.
See you soon.
Extras
I wrote a beginners guide to stocks, which I think you should check it out. No jargon, simple and easy to understand.
In Nigeria, stocks has been in vogue, fuelled by the amazing returns the All Share Index has returned so far (37.35% Year-to-date), and if you want to buy your first stock, here is a beginners step-by-step guide on it too.
This article was a summary of a session I joined from the Lagos Business school titled: Thriving in Uncertainty: Managing Finances in a VUCA Economy Confirmation