WHAT do you do when you want to get somewhere? You probably ask yourself - what is the best way to get there? Will there be traffic jams? Is it better to take the LRT or bus, or should I get someone to drive me instead?
There are therefore many options open for you to choose from.
To get the best option, evaluate the ones available to you. Think about what you need to do, ask yourself questions and then make your decision. These are steps in the process known as planning. Planning can be for the short, medium or long term.
It is the same in financial planning, except that the time frame is over a longer period. Ideally, you should be looking as far ahead as your retirement years.
Financial planning involves asking questions about your future, your dreams and goals. It is thinking about what you want to do in your life, such as getting married, buying a car or a house, having children and planning for their education.
To achieve your life dreams and goals, you need to plan from the financial aspect. In financial planning, you look at how you will be budgeting, saving and spending your money over time.
Steps in financial planning
There are five steps in financial planning:
1. Assessing where you are now in financial terms
2. Setting goals
3. Creating a financial plan
4. Implementing the plan
5. Monitoring and reassessing
We will discuss more on this in later articles.
Benefits of financial planning
Many people think that financial planning is a hassle and that it stops them from doing fun things. If you consistently live on a budget surely you would have to give up fun activities now, wouldn't you? Think about it, if you have to save, you can always budget your money in such a way that you have some for going out with friends and having a good time. If you set a good financial planning habit, you can always ensure you have enough for more fun in the future!
With your own financial plan, you will:
* have more control of your financial affairs and be able to avoid excessive spending, unmanageable debts, bankruptcy or dependence on others;
* have better personal relationships with people around you, such as your family, friends and colleagues, because you are happy with your life and you are not going around borrowing money to make ends meet or expecting handouts from others;
* have a sense of freedom from financial worries because you have planned for the future, anticipated your expenses and achieved your personal goals in life;
* be more effective in obtaining, using and protecting your financial resources throughout your lifetime, not only for yourself but also for the people you love.
In other words when you have a good personal financial plan, you will be more informed about your future needs and the resources that you have. You will also have peace of mind knowing that you are in control.
Life stages and personal financial goals
In your adult life, you will go through various stages, from starting a career to retiring, from being single to getting married, having children and sometimes being single again. At various phases in your life, you have different priorities, responsibilities and financial goals.
Each stage of your life presents different investment opportunities and challenges. Discipline and perserverance play a key role in mantaining a reliable financial strategy. As your life changes, so do your needs and goals. Sound financial planning can prepare you to meet them successfully.
When you are in your twenties, you will be looking at money and spending differently from when you are into your fifties. For example, when you are single, you probably want to have enough money to make a downpaymet for a car or to go on holiday with your friends. After you get married, you may want to buy a house and start having a family. Later, when you have children, you would want to plan for their education and may be even start a retirement fund.
As your needs are different your financial priorities will adjust to meet your varied needs at different points of your life. Therefore, what you do with your money as you go through adult life depends on your financial goals. We will be looking at how you can achieve your financial goals in subsequent articles.
Excerpt from the book "Money Sense" published by Agensi Kaunseling dan Pengurusan Kredit 2008.
YOUR PERSONAL FINANCIAL PLANNING PROCESS
* Assess your cirrent financial situation
* Develop your personal financial goals
* Determine what actions to take.
- Budgeting and spending plans as well as tracking how you spend your money are important tools.
* Evaluate the alternatives that will meet your financial goals
- Knowing your needs and wants
- Making choices and substitutes
- Delaying gratification
* Create your financial plan and make it work
- Financial products and services
- Building wealth
- Protecting wit insurance
- Managing debts
- Tax planning
* Regularly review and revise your financial plan
- Based on life changing situations