Over the past years following my father’s journey as an insurance agent has supplied me the experience of talking to people about their finances. Although I am not an agent myself, my curiosity as an observer has led to a conclusion that when it comes to financing, there are only two common groups of people. One is those who planned their finance properly and stood by it. The other is those who do not even have a financial plan.
“Is a financial plan important to me?”
Well, I can tell you, it depends on your desire in reaching your financial goal or financial freedom. How badly do you want to reach it? Or how dangerous it is for you if you do not reach it?
It depends on how you value financial planning in your life.
Let’s imagine a scenario where you are a professional marathon runner. It is going to be hard to run for a marathon without a daily training plan. You cannot expect in six-months you are going to finish that 21K marathon without a proper training guide.
The same rule applies to our financial lives. You cannot expect that after 30 years of working, unless you have a plan, that you can retire, at the life stage that you wanted. So all the plan does is to guide you, track your progress until you reach that goal.
The ones who do not have a plan have the vague idea that things will work out for them if they put a little bit towards retirement each month. They may be tied to debt and may have no solid plan to purchase a house. Unfortunately, without a financial plan, it can be a lot more difficult to reach your financial goals, because you do not know which goal to work on next.
A financial plan helps you and guide you to achieve your dreams in life.
The fundamental of a financial plan can be illustrated by a checklist that looks like a pyramid.
Financial planning is just like trying to climb this pyramid. We need to cover what is on the lower spectrum first onto the top of it. Each element that you cover makes your base stronger in reaching your dreams and desire. However, skipping on the lower elements may harm your goal-reaching journey.
For instance, Cashflow Planning is the most fundamental action that must be taken care of firsthand. Cashflow is the amount of money in and out of your pocket or your business. This makes sure that you are generating an amount of income that later can be used for consumptions and savings.
After cashflow planning is taken care of, you can move up to Risk Managing, which is also a very important component covered in your journey. Say you may want to retire at a certain age, and you are working really hard to reach this goal, however you do not have some of your risks covered such as life and health insurance, personal accident and disability insurance, then you may not hit your dream, even with a perfect cashflow and investment plan. It is because your working years are your most important productivity years, and your most important asset is your working asset, your health. You would not want to put it at risk. After this covered, then you can go up to the next stage one by one until you reach your desired dreams, and you cannot reach your dreams before covering the components below it.
The idea of financial planning is to help you make sure that you have checked all of these components in the right way so ultimately, when you want to retire, or you want to pass your legacy, then you already have it.
“I am still way too young for this. I just started working and I am way behind from retirement. I don’t think I need to plan my finances.”
Are you sure? I would like to give you the truth. Financial planning does take into matter the time, but nothing is too early for making a financial plan.
The importance of personal financial planning cannot be overstated. The benefits are boundless. Even for the current or near situation that someone is about to face. Financial planning can be used to prepare near big events that you are about to experience.
Aren’t you going to marry the love of your life? Then you need to save for your wedding expenses.
Giving birth to a child? Yeah, that is not a small expense. Not to mention supporting their education.
If you are single, you may plan differently, but you should still have a plan.
How about that BMW that you always wanted? It is possible! Plan it!
Your dream house?
Tax advice for your business?
Tax advice for your own income tax?
And the list goes on…
If you prepare for these events now, you will be ready when they happen, and if the events never happen, you will be better off financially because you will be debt-free with cash in your bank account.
How should I start to plan my personal finance?
First of all, you need to be financially literate. It means enriching your knowledge and educate yourself to understand various topic of finances, which includes managing personal finance, money and investing.
“That sounds like a lot of work!” and I personally agree! Luckily, I know someone who can help you with that.
Marshall Wong from PlanNERD is an independent financial planner who’s objective is to give advices that are completely unbiased, as he is not affiliated by any company. Personal Finance has been his area of expertise and he is licensed by Bank Negara and Security Commission Malaysia to do legal financial planning. Click here if you want to learn more about his products and services.