We have often been told and reminded that financial planning is absolutely necessary if you wish to have a blissful retirement without having to worry about your finances during your golden years. If you are new to the concept of financial planning, then it will help your understanding of the financial planning basics by discussing the following six financial resolutions which you should seek to make your financial planning work towards your retirement needs.
Firstly, financial planning is about getting your spending under control. It takes sheer will power and discipline to budget but it is the sure way to ensure that your fund inflow is greater than your fund outflow. This is the first financial planning basics that you should know and your first financial resolution that you will have to make if you are really keen on your retirement planning goals. Ensuring that you have cash surplus rather than cash deficit is an important principle of financial planning for only when you have cash surplus are you able to move on to investing your savings for better returns.
For those who are in debts, however, the next logical financial resolution is to pay off your debts. Credit card debts are a common bane amongst the younger generation due to the easy availability of the credit cards and the easy repayment terms imposed by the credit card companies. Just as the power compounding interest can help your savings grow; it can do great damage to your debt liabilities if your debt is not paid off early.
Once you are debt free and your cash inflow is higher than your cash outflow, you would be ready to resolve to put aside an emergency fund to be used in the event of any emergencies, such as medical treatment or loss of job. As this fund has to be liquid, parking the funds in fixed deposits and savings accounts would be the logical option.
Your next resolution would obviously be to set up an investment fund for all your financial needs such as your children education and retirement fund. Due to the very low prevailing interest rates for savings and fixed deposits, it is simply imperative that investment into the financial market is necessary to ensure that that the rate of return of your savings will be higher than the rate of inflation. Failure to do so will see the value of your savings shrinking when you retire.
Protecting your family is another important financial planning basic that you must be aware of. The important role of life insurance cannot be forsaken for having the right protection will mean that your family will still be financially provided if any unexpected events happen to you. Just like life insurance, due to the ever rising cost of health care, health insurance policies for your whole family are necessary financial planning requirement.
The one other financial resolution that you must make is to ensure that you make a will. Making a will is necessary to avoid any delay in the distribution of your assets to your family in the event of unexpected death.
The six financial resolutions described above basically explain the financial planning basics. They are certainly worthwhile resolutions to keep and honored if you are planning to achieve your financial freedom.
Seeking Financial Freedom? Work On The Financial Planning Process For The Road To Financial Freedom
Financial Planning Advice for Couples
High divorce rates used to be a common phenomenal in the west. This phenomenal has now caught up with Asians as well, and the divorce rates in Asia and many parts of the world too are now just as high as in the west. It has been found that one major factor leading to the high divorce rate is the issue of money or rather the lack of it. Many couples do not talk about money and money management before they get married. They were too preoccupied with the topic of love, intimacy and the enjoyment of been together; they were also busy with their wedding plan.
The sad truth is that after marriage, couples continued to avoid the topic of financial planning and money management. It appears that money is a taboo subject which often led to unpleasantness, arguments and misunderstandings between the spouses. The challenge therefore is for married couples to break through this barrier to seek financial planning advice and to learn money management together as a couple to work towards marital bliss and in the process work towards their financial goals and retirement.
Married couples must learn the basics of financial planning, which includes managing money together. Seeking the service and advice of a professional financial advisor will ease the financial planning process but if cost is an issue, working the steps listed below together as a couple will certainly be useful in their quest for a better control of the finances and a better understanding of each other.
1. First and foremost, know each other financial health. Many a time, couples do not reveal their finances to each other, thus creating an atmosphere of distrust and misunderstanding, which sometimes is amplified by the interfering in-laws. Having an open book will help the financial planning process easier.
2. Working through the budget for household expenses is of utmost importance. Joint contribution and responsibilities towards household expenses, especially if both are working spouses can create better harmony and understanding in the house. Do discuss each other spending habits but avoid criticism. Avoid dictating each other spending habits unless it is truly excessive. Joint contribution to a common fund for expenses and investments and having an allowance for each other for their other expenses would be the best arrangement to avoid unnecessary conflict.
3. Discuss the common financial goals such as tertiary education for the children, buying a bigger house, travelling round the world or early retirement. Knowing your common goals will help you lay out a workable and realistic financial and investment plan. As mentioned above, having a joint education fund as well as a joint retirement fund is probably the right direction to take. The financial needs analysis helps to provide the couple a clear picture of the financial path they need to take.
4. The low interest environmental that is prevailing all over the world today makes investment into the financial market a necessary option if you are seeking financial freedom. Leaving your money as low interest deposits in the bank will expose you to the perils of inflation and insufficient funds for your retirement years. Therefore having the right financial education and a firm commitment by both spouses towards a long term investment plan is imperative in achieving the financial objectives.
5. Insurances play an important role in any financial plan, more so if the contributions are necessary from both spouses. Any unforeseen mishaps can make an enormous dent to the financial and investment plan if the contribution is reduced to only one source. The purchases of life insurances for both party, medical insurances and other insurances are necessary in managing risks that may wreck havoc to the serenity and security of a happy marriage.
6. Just like insurance, a financial plan is not complete with estate planning. It is an essential element for the security of your loved ones.
The statistics of the rate of divorce mentioned above is certainly alarming. If money issue is a major factor, then the emphasis on the right financial planning advice and the learning of money management for married couple cannot be more correct and accurate to bring the statistics down.
The sad truth is that after marriage, couples continued to avoid the topic of financial planning and money management. It appears that money is a taboo subject which often led to unpleasantness, arguments and misunderstandings between the spouses. The challenge therefore is for married couples to break through this barrier to seek financial planning advice and to learn money management together as a couple to work towards marital bliss and in the process work towards their financial goals and retirement.
Married couples must learn the basics of financial planning, which includes managing money together. Seeking the service and advice of a professional financial advisor will ease the financial planning process but if cost is an issue, working the steps listed below together as a couple will certainly be useful in their quest for a better control of the finances and a better understanding of each other.
1. First and foremost, know each other financial health. Many a time, couples do not reveal their finances to each other, thus creating an atmosphere of distrust and misunderstanding, which sometimes is amplified by the interfering in-laws. Having an open book will help the financial planning process easier.
2. Working through the budget for household expenses is of utmost importance. Joint contribution and responsibilities towards household expenses, especially if both are working spouses can create better harmony and understanding in the house. Do discuss each other spending habits but avoid criticism. Avoid dictating each other spending habits unless it is truly excessive. Joint contribution to a common fund for expenses and investments and having an allowance for each other for their other expenses would be the best arrangement to avoid unnecessary conflict.
3. Discuss the common financial goals such as tertiary education for the children, buying a bigger house, travelling round the world or early retirement. Knowing your common goals will help you lay out a workable and realistic financial and investment plan. As mentioned above, having a joint education fund as well as a joint retirement fund is probably the right direction to take. The financial needs analysis helps to provide the couple a clear picture of the financial path they need to take.
4. The low interest environmental that is prevailing all over the world today makes investment into the financial market a necessary option if you are seeking financial freedom. Leaving your money as low interest deposits in the bank will expose you to the perils of inflation and insufficient funds for your retirement years. Therefore having the right financial education and a firm commitment by both spouses towards a long term investment plan is imperative in achieving the financial objectives.
5. Insurances play an important role in any financial plan, more so if the contributions are necessary from both spouses. Any unforeseen mishaps can make an enormous dent to the financial and investment plan if the contribution is reduced to only one source. The purchases of life insurances for both party, medical insurances and other insurances are necessary in managing risks that may wreck havoc to the serenity and security of a happy marriage.
6. Just like insurance, a financial plan is not complete with estate planning. It is an essential element for the security of your loved ones.
The statistics of the rate of divorce mentioned above is certainly alarming. If money issue is a major factor, then the emphasis on the right financial planning advice and the learning of money management for married couple cannot be more correct and accurate to bring the statistics down.
Choosing A Mutual Fund
Not all mutual funds are made equal; some great ones have historical returns which are consistently higher than the others. Funds managed by legendary financial gurus such as Peter Lynch needs no introduction. There are also some funds which gives only average and below average yearly returns. Hence, it is certainly important to know some mutual fund basics even before venturing into any investment in mutual funds. It is imperative that the task of choosing the right mutual fund is carried out first by checking out and asking questions on the background of the mutual fund company, their track records and experience.
Some suggested questions that are listed below will help to guide you in checking out on the basics of the mutual fund that you may be interested in and in making the decision to choose the right mutual fund company to invest in:-
1. Check out if the mutual fund company has been registered with the National Securities Commission.
2. As mentioned above, check out how long the mutual fund company has been in business and its historical track records. Check out with the mutual fund agent on the performance benchmark for comparison against other mutual fund companies. This will help to ensure that the mutual fund that you are choosing has a good track record.
3. Check out the mutual fund investment strategy, such as its asset allocation strategy and the companies that the mutual fund has invested in. One of the main reasons for investing in a mutual fund is investment diversification. It will certainly defeat your purpose if the mutual fund is only invested in companies related to only one or two industries.
4. Check out on the different types of funds run by the mutual fund company that are available for you to choose to suit your risks profile. Some funds may be focused on only growth stocks and therefore may be too aggressive and volatile for you.
5. Check out on the mutual fund fees charges imposed, such as sales charge, administrative and management fees, etc.
6. Check out on the”cooling off period” given to investor to reconsider the decision after the initial investment in the company. You may for some reason change your mind and want a full refund off your initial investment.
7. Check out on the procedure for redeeming your investments, especially how long the period after your request for redemption before you can get back your money. You may need your money urgently.
8. Check out how regular you will receive your statement of your investment status. The key to successful investment is the regular monitoring of your investment.
Lastly, ensure that you read and vet through the company’s prospectus. The basics of the mutual fund company can be found in the prospectus of the company. In addition to this, the answers by your mutual fund agent to the questions above can help and guide you in your decision to choose the right mutual fund to invest in.
Some suggested questions that are listed below will help to guide you in checking out on the basics of the mutual fund that you may be interested in and in making the decision to choose the right mutual fund company to invest in:-
1. Check out if the mutual fund company has been registered with the National Securities Commission.
2. As mentioned above, check out how long the mutual fund company has been in business and its historical track records. Check out with the mutual fund agent on the performance benchmark for comparison against other mutual fund companies. This will help to ensure that the mutual fund that you are choosing has a good track record.
3. Check out the mutual fund investment strategy, such as its asset allocation strategy and the companies that the mutual fund has invested in. One of the main reasons for investing in a mutual fund is investment diversification. It will certainly defeat your purpose if the mutual fund is only invested in companies related to only one or two industries.
4. Check out on the different types of funds run by the mutual fund company that are available for you to choose to suit your risks profile. Some funds may be focused on only growth stocks and therefore may be too aggressive and volatile for you.
5. Check out on the mutual fund fees charges imposed, such as sales charge, administrative and management fees, etc.
6. Check out on the”cooling off period” given to investor to reconsider the decision after the initial investment in the company. You may for some reason change your mind and want a full refund off your initial investment.
7. Check out on the procedure for redeeming your investments, especially how long the period after your request for redemption before you can get back your money. You may need your money urgently.
8. Check out how regular you will receive your statement of your investment status. The key to successful investment is the regular monitoring of your investment.
Lastly, ensure that you read and vet through the company’s prospectus. The basics of the mutual fund company can be found in the prospectus of the company. In addition to this, the answers by your mutual fund agent to the questions above can help and guide you in your decision to choose the right mutual fund to invest in.
Life after Retirement – Ideas for Retirees
Can life after retirement be exciting and interesting? It is an irony that many retirees after striving and working hard so many years to gain financial independence are complaining about boredom and a loss in direction in their lives. Retirement really should be the time to be enjoying the fruits of one’s years of labor and hard work, to relax, to catch up with friends and fellow retirees and pursue a lifelong interest that one has wanted to do but could not find the time during to their hectic working life.
There really are many options and ideas for retirees to consider to turn this phase of their lives into an exciting and meaningful one. Some suggestions include:
1. Be a guardian and a companion to your grandchildren. Many people, especially men did not have the opportunity to bond with their children during their growing years due to their own hectic working life. Children are always a joy to be with. They are often innocent, inquisitive and active. I for one believe that spending time with children will add years to your life. They are God’s great creation.
2. Be a tutor to your grandchildren. Yes, keep your mind active, look back to your grandchildren’s textbooks and be a tutor to them. It’s a great way to keep away the Alzheimer’s disease and to spend quality time with them.
3. Be a tutor to other children. If you do not have any grandchildren, consider tutoring as a home based business for some pocket money for your expenditure. Or consider it as a charity work with a nearby Orphanage’s Home. As mentioned above, it is a great way to keep your mind active.
4. Be a Consultant with your old firm. If the above ideas are not for you, consider the option of being re-employed with your old firm as a Consultant. Your experience may still be an asset and invaluable to your former boss. Your salary may be less but it is certainly will be less stressful than previously when you were a full time employee.
5. Going back to school to strive for a diploma or degree in the field of your interest is also another great way of keeping your mind active.
6. Becoming a volunteer at places such as schools, libraries, religious and other charitable organizations and meeting up with other charitable souls can do wonders and meaning to your life.
7. Going back to full time employment. Of course the one ultimate option to some who are workaholic in nature is to go back into full time employment. For these people, work is matter of choice rather than desperation, other they will find a huge void in their lives.
As highlighted above, there are certainly many meaningful ideas for retirees for them to indulge in during their life after retirement. The retirement years should be the time of your life and there is certainly little time to be bored. As the saying goes, “don’t simply retire from something, have something to retire to”, and you will find your life after retirement to be joyful and meaningful.
There really are many options and ideas for retirees to consider to turn this phase of their lives into an exciting and meaningful one. Some suggestions include:
1. Be a guardian and a companion to your grandchildren. Many people, especially men did not have the opportunity to bond with their children during their growing years due to their own hectic working life. Children are always a joy to be with. They are often innocent, inquisitive and active. I for one believe that spending time with children will add years to your life. They are God’s great creation.
2. Be a tutor to your grandchildren. Yes, keep your mind active, look back to your grandchildren’s textbooks and be a tutor to them. It’s a great way to keep away the Alzheimer’s disease and to spend quality time with them.
3. Be a tutor to other children. If you do not have any grandchildren, consider tutoring as a home based business for some pocket money for your expenditure. Or consider it as a charity work with a nearby Orphanage’s Home. As mentioned above, it is a great way to keep your mind active.
4. Be a Consultant with your old firm. If the above ideas are not for you, consider the option of being re-employed with your old firm as a Consultant. Your experience may still be an asset and invaluable to your former boss. Your salary may be less but it is certainly will be less stressful than previously when you were a full time employee.
5. Going back to school to strive for a diploma or degree in the field of your interest is also another great way of keeping your mind active.
6. Becoming a volunteer at places such as schools, libraries, religious and other charitable organizations and meeting up with other charitable souls can do wonders and meaning to your life.
7. Going back to full time employment. Of course the one ultimate option to some who are workaholic in nature is to go back into full time employment. For these people, work is matter of choice rather than desperation, other they will find a huge void in their lives.
As highlighted above, there are certainly many meaningful ideas for retirees for them to indulge in during their life after retirement. The retirement years should be the time of your life and there is certainly little time to be bored. As the saying goes, “don’t simply retire from something, have something to retire to”, and you will find your life after retirement to be joyful and meaningful.
Value Investing Strategy –Benjamin Graham Investment Strategy to Identify Undervalued Stocks
The central theme about the value investing strategy, so well documented in the Benjamin Graham classic bestseller, “The Intelligent Investor” is about searching and identifying undervalued stocks to buy from the stock market. Although this book was written well over half a century ago, it still remains one of the most important investment books ever written for investors who believed in the fundamental analysis technique for stock selection, in particular, for undervalued stocks.
In his book, the great guru, Benjamin Graham argued that the value investing strategy to identify the undervalued stocks to buy can be carried out based on a just a few simple principles and criteria. Some of his criteria for stock picks for undervalued stocks are interpreted and simplified below:-
1. Firstly, the investor should ensure that the stock price is below two third of the tangible book value of the stock. The tangible book value is the value of the total assets of the company less the total liabilities of the company.
2. The investor should also ensure that the stock price is below two third of the net current assets of the company. The net current assets are the assets of the company that can be immediately converted into cash less the total debt of the company.
3. Thirdly, ensure that the total debt is less than the tangible book value. The rule is that the current ratio, i.e. the current assets divided by the current liabilities must be more than two.
4. The investor should check and ensure that the historical earnings to price yield is higher than the bond yield. The company must also have a history of stable earnings.
5. The company’s earnings must show a rising trend and the earnings must have doubled over the last ten years.
6. One other criteria is to ensure that the company’s dividend yield is at least two third of the bond yield.
Historical records have shown that many fund managers have benefited from the value investing strategy outlined by Benjamin Graham, and so many glowing tributes from successful well known investors, including the greatest investor of all times, Mr. Warren Buffet have been given to this investing strategy.
Therefore, it is without doubt we should be educating ourselves on the above mentioned principles to acquire that important ability to search and identify the undervalued stocks to buy. Needless to say, by applying this proven investment strategy, the probability of success in profiting from the stock market is certainly enhanced.
In his book, the great guru, Benjamin Graham argued that the value investing strategy to identify the undervalued stocks to buy can be carried out based on a just a few simple principles and criteria. Some of his criteria for stock picks for undervalued stocks are interpreted and simplified below:-
1. Firstly, the investor should ensure that the stock price is below two third of the tangible book value of the stock. The tangible book value is the value of the total assets of the company less the total liabilities of the company.
2. The investor should also ensure that the stock price is below two third of the net current assets of the company. The net current assets are the assets of the company that can be immediately converted into cash less the total debt of the company.
3. Thirdly, ensure that the total debt is less than the tangible book value. The rule is that the current ratio, i.e. the current assets divided by the current liabilities must be more than two.
4. The investor should check and ensure that the historical earnings to price yield is higher than the bond yield. The company must also have a history of stable earnings.
5. The company’s earnings must show a rising trend and the earnings must have doubled over the last ten years.
6. One other criteria is to ensure that the company’s dividend yield is at least two third of the bond yield.
Historical records have shown that many fund managers have benefited from the value investing strategy outlined by Benjamin Graham, and so many glowing tributes from successful well known investors, including the greatest investor of all times, Mr. Warren Buffet have been given to this investing strategy.
Therefore, it is without doubt we should be educating ourselves on the above mentioned principles to acquire that important ability to search and identify the undervalued stocks to buy. Needless to say, by applying this proven investment strategy, the probability of success in profiting from the stock market is certainly enhanced.
Financial Education for Children
Isn’t it an irony that we teach our children to read and write but disregard the importance of a financial education for them? Isn’t imparting and teaching money management skills and knowledge to our children just as important for them to be ready to face the reality of the real world we live in?
Due to the ease of obtaining credit cards these days, there are now more reports of youths in their twenties and early thirties in position of debts than ever before. It is due to such a scenario that it is imperative that children of today are taught to be financially literate with the right money management skills.
The following steps could be taken to educate your children on basic money management:-
1. Start off by setting up a savings account for them. Give them an allowance, an amount slightly more than their daily estimated expenditure so that they put into their piggy bank that little extra daily. Explain to them that they should put aside say perhaps 10 to 20% of the allowance given. Set them a target to open an account in the nearby bank and later a target monthly savings. Even if that little amount is just ten cent per day, you will be surprise how quickly their savings will grow. The children themselves will be pleasantly surprised. Reward them if they meet their monthly target. This way, good saving habits can be inculcated into them early in life.
2. Introduce them to the game of Monopoly and other cash flow games that are available in the market. These games are a good way to educate them on the basic principles of budgeting and the understanding of incomes and expenditures for purchases.
3. Encourage them to take up part time jobs during their school break to earn some income and extra pocket money.
There are many books written to guide and assist you on a financial education for your children but since this subject is not a syllabus in the most school curriculum, it will be up to you to take the necessary initiatives in teaching the necessary money management skills to them to pave the way for them to gain financial independence early in life.
Due to the ease of obtaining credit cards these days, there are now more reports of youths in their twenties and early thirties in position of debts than ever before. It is due to such a scenario that it is imperative that children of today are taught to be financially literate with the right money management skills.
The following steps could be taken to educate your children on basic money management:-
1. Start off by setting up a savings account for them. Give them an allowance, an amount slightly more than their daily estimated expenditure so that they put into their piggy bank that little extra daily. Explain to them that they should put aside say perhaps 10 to 20% of the allowance given. Set them a target to open an account in the nearby bank and later a target monthly savings. Even if that little amount is just ten cent per day, you will be surprise how quickly their savings will grow. The children themselves will be pleasantly surprised. Reward them if they meet their monthly target. This way, good saving habits can be inculcated into them early in life.
2. Introduce them to the game of Monopoly and other cash flow games that are available in the market. These games are a good way to educate them on the basic principles of budgeting and the understanding of incomes and expenditures for purchases.
3. Encourage them to take up part time jobs during their school break to earn some income and extra pocket money.
There are many books written to guide and assist you on a financial education for your children but since this subject is not a syllabus in the most school curriculum, it will be up to you to take the necessary initiatives in teaching the necessary money management skills to them to pave the way for them to gain financial independence early in life.
Value Averaging Investment Strategy
To avoid getting trapped into following the herd mentality of the market, it pays to check out the investment strategy known as value averaging, a systematic investment strategy for a higher rate of return. Although this value averaging strategy has been around for some time, it is probably true to say that many investors are not aware of its existence. Due to better promotion by financial planners and mutual fund agents, the dollar cost averaging strategy has always been the better known and more popular investment technique among investors.
It is always a wonder to me that despite the promotion of safe and tested investment strategies such as the dollar cost averaging and value averaging, there are still so many sob stories in the financial market of retail investors losing heavily in the stock markets, investors who had allowed themselves to be trapped into following the psychology of the market by buying high due to the greed factor and then selling low due to the fear factor.
Value averaging may be the lesser known version of the investment strategies, but it would be advantageous to know that research has shown that this strategy gives a higher investment rate of return than dollar cost averaging for the reasons listed below:-
1. One major reason is that this value averaging investment strategy takes dollar cost averaging one step further. Besides buying low, this strategy also gives signals to sell when the market soars. This strategy systematically shows you how to make the buying and selling of your investments nearly automatic, therefore relieving you of the need for market timing and stock picking skills.
2. Due to the buying and selling mechanism of this strategy, for investment over a longer time period, the total cost per share with this technique is therefore always lower. Generally therefore, it has been shown to have a higher rate of return than the other investment strategies.
It is my belief that understanding and implementing the available investment techniques are vital in the financial education process. Value averaging as a systematic investment strategy therefore should not be excluded as a financial topic in schools and colleges. Taking advantage of its tested and proven ability to generate a better investment rate of return will certainly go a long way in helping you to achieve your financial planning objectives.
It is always a wonder to me that despite the promotion of safe and tested investment strategies such as the dollar cost averaging and value averaging, there are still so many sob stories in the financial market of retail investors losing heavily in the stock markets, investors who had allowed themselves to be trapped into following the psychology of the market by buying high due to the greed factor and then selling low due to the fear factor.
Value averaging may be the lesser known version of the investment strategies, but it would be advantageous to know that research has shown that this strategy gives a higher investment rate of return than dollar cost averaging for the reasons listed below:-
1. One major reason is that this value averaging investment strategy takes dollar cost averaging one step further. Besides buying low, this strategy also gives signals to sell when the market soars. This strategy systematically shows you how to make the buying and selling of your investments nearly automatic, therefore relieving you of the need for market timing and stock picking skills.
2. Due to the buying and selling mechanism of this strategy, for investment over a longer time period, the total cost per share with this technique is therefore always lower. Generally therefore, it has been shown to have a higher rate of return than the other investment strategies.
It is my belief that understanding and implementing the available investment techniques are vital in the financial education process. Value averaging as a systematic investment strategy therefore should not be excluded as a financial topic in schools and colleges. Taking advantage of its tested and proven ability to generate a better investment rate of return will certainly go a long way in helping you to achieve your financial planning objectives.
Guide to Retirement Planning
Planning your own retirement can indeed be a daunting task. But it will be worth the effort if you if at the end of the day you are able to achieve your retirement goals. The five steps guide to the retirement planning process listed in the following paragraph may help to direct you towards your retirement goals.
1. Firstly, decide at what age you would wish to enter into semi-retirement and later full scale retirement. Estimate the length of your retirement period by computing against the present average lifespan for your gender. This can be done by checking the mortality tables provided by most insurance companies.
2. The second step is to identify your other financial needs such as tertiary education for your children, your dream home, etc. This will help you to estimate the financial quantum you required.
3. Carry out a net worth analysis of your present assets and liabilities followed by a cash flow statement analysis. If you are in an enviable position, you could move on to the next step to commence your investment planning to achieve your financial needs identified in step 2. Otherwise, you would need to draw up a debt management program to clear off all outstanding debts and start saving until you have a 6 to 9 months buffer for your daily expenditure before starting on your investment planning.
4. Step 4 includes knowing your investor’s risk profile. This step also includes educating yourself on the different investment options available. Otherwise you may engage a financial planner to draw up a long term investment program for you. Understand that to ensure the value of your hard earned savings is not beaten down by inflation and to achieve your retirement goals, investment risks has to be taken to ensure a superior rate of returns. This can be done by investing in investment vehicles such as a mutual fund.
5. The fifth step involves carrying out an insurance needs analysis. You will never know what happens tomorrow. Insurance is a wonderful tool to utilize to manage your investment risks until you achieve your financial goals.
The 5 steps guide to retirement planning process stated above are the basic fundamental procedure that you will need to follow. It will certainly require some discipline and sheer determination but like the saying goes, everybody will have to retire someday whether they like it or not. Hence, planning your retirement is a necessity rather than an option to ensure that you have enough in your retirement nest to see you through old age and quality lifestyle in your retirement years.
1. Firstly, decide at what age you would wish to enter into semi-retirement and later full scale retirement. Estimate the length of your retirement period by computing against the present average lifespan for your gender. This can be done by checking the mortality tables provided by most insurance companies.
2. The second step is to identify your other financial needs such as tertiary education for your children, your dream home, etc. This will help you to estimate the financial quantum you required.
3. Carry out a net worth analysis of your present assets and liabilities followed by a cash flow statement analysis. If you are in an enviable position, you could move on to the next step to commence your investment planning to achieve your financial needs identified in step 2. Otherwise, you would need to draw up a debt management program to clear off all outstanding debts and start saving until you have a 6 to 9 months buffer for your daily expenditure before starting on your investment planning.
4. Step 4 includes knowing your investor’s risk profile. This step also includes educating yourself on the different investment options available. Otherwise you may engage a financial planner to draw up a long term investment program for you. Understand that to ensure the value of your hard earned savings is not beaten down by inflation and to achieve your retirement goals, investment risks has to be taken to ensure a superior rate of returns. This can be done by investing in investment vehicles such as a mutual fund.
5. The fifth step involves carrying out an insurance needs analysis. You will never know what happens tomorrow. Insurance is a wonderful tool to utilize to manage your investment risks until you achieve your financial goals.
The 5 steps guide to retirement planning process stated above are the basic fundamental procedure that you will need to follow. It will certainly require some discipline and sheer determination but like the saying goes, everybody will have to retire someday whether they like it or not. Hence, planning your retirement is a necessity rather than an option to ensure that you have enough in your retirement nest to see you through old age and quality lifestyle in your retirement years.
Estate Financial Planning
No financial plan can be considered complete without consideration of planning your estate. A comprehensive financial plan is one which includes wealth accumulation, wealth preservation and lastly wealth distribution.
Estate planning involves wealth preservation and wealth distribution, or in simple language, it is the compilation of a person’s assets and liabilities and the steps taken to ensure the transfer and control of assets are managed to maximize the benefits to the deceased’s estates and beneficiaries, i.e. family. Contrary to what most people believe, estate planning is not just about the writing of a will, although it is a very important part of the process. Besides a well crafted will, a comprehensive estate planning process should also include objectives such as protecting assets from creditors, ensuring business continuity and canceling personal guarantee ship that cannot be achieved with just a will alone.
Estate planning involves wealth preservation and wealth distribution, or in simple language, it is the compilation of a person’s assets and liabilities and the steps taken to ensure the transfer and control of assets are managed to maximize the benefits to the deceased’s estates and beneficiaries, i.e. family. Contrary to what most people believe, estate planning is not just about the writing of a will, although it is a very important part of the process. Besides a well crafted will, a comprehensive estate planning process should also include objectives such as protecting assets from creditors, ensuring business continuity and canceling personal guarantee ship that cannot be achieved with just a will alone.
Financial Planning Stages Of Life
In financial planning, your working and productive years can be divided into different phases as follows:-
Phase 1 – the foundation years between age mid-20 to mid-30.
These are the years whereby you are starting on your working career and hence have Many years of earning power ahead. It is also the time where you may be planning to buy a home and starting a family. In investments, you may be willing to accept some fluctuations in investment results in pursuit of long term financial goals
Phase 2 – The acquisition years between mid-30 to mid-40
During this phase your income is still climbing and you may be willing to continue to accept some fluctuations in investment results in pursuit of long term financial goals. During these years you would also have established a tertiary education fund for children
Phase 3 – The accumulation years mid-40 to mid-50
Your family responsibilties will be winding down and you will begin to think of retirement. You will seeks less volatility in investment results by emphasing more income and capital preservation and less long term growth
Phase 4 – The reaping the reward years mid-50 to late retirement
You will probably be retired or about to retire. Your years of earning high income may be over and you will be planning retirement activities and assesses ability to set up trust funds for grandchildren. In investment, you seeks lower volatility in investment results
Phase 1 – the foundation years between age mid-20 to mid-30.
These are the years whereby you are starting on your working career and hence have Many years of earning power ahead. It is also the time where you may be planning to buy a home and starting a family. In investments, you may be willing to accept some fluctuations in investment results in pursuit of long term financial goals
Phase 2 – The acquisition years between mid-30 to mid-40
During this phase your income is still climbing and you may be willing to continue to accept some fluctuations in investment results in pursuit of long term financial goals. During these years you would also have established a tertiary education fund for children
Phase 3 – The accumulation years mid-40 to mid-50
Your family responsibilties will be winding down and you will begin to think of retirement. You will seeks less volatility in investment results by emphasing more income and capital preservation and less long term growth
Phase 4 – The reaping the reward years mid-50 to late retirement
You will probably be retired or about to retire. Your years of earning high income may be over and you will be planning retirement activities and assesses ability to set up trust funds for grandchildren. In investment, you seeks lower volatility in investment results
Asset Allocation Mix
To decide on the asset allocation mix, the two factors to consider are:
1. Your risk profile
2. Your financial planning time horizon
For example, if your time horizon to retirement is 10 years from now, and your risk profile is moderate, your asset allocation mix shall be:-
a. 20% in fixed deposits
b. 20% in low risks instruments such as income funds
c. 20% in medium risks instruments such as growth funds, and income stocks
d. 40% in high risk instruments such as growth funds and growth stocks.
1. Your risk profile
2. Your financial planning time horizon
For example, if your time horizon to retirement is 10 years from now, and your risk profile is moderate, your asset allocation mix shall be:-
a. 20% in fixed deposits
b. 20% in low risks instruments such as income funds
c. 20% in medium risks instruments such as growth funds, and income stocks
d. 40% in high risk instruments such as growth funds and growth stocks.
Investor Risk Profile
The Investor Risk Profile test quiz is test commonly used by fund manager to help their potential investors to identify strategies and asset allocation mixes in investment planning that match their needs and mindset relating to the risks prevalent in the financial market.
Some of the questions in the Investor profile test quiz may include :-
1. When you hear unexpected adverse or bad financial news, how would you react?
2. Do you believe luck is important in making your investment decisions?
3. If you could increase your chances of improving your returns by taking more risks, are you willing to take a lot more risks with all your money?
By taking the test, you will know your risk profile as to whether it is conservative, moderate or aggressive. Then based on the Financial Planning Time Horizon, you can decide on the assets allocation mix.
Some of the questions in the Investor profile test quiz may include :-
1. When you hear unexpected adverse or bad financial news, how would you react?
2. Do you believe luck is important in making your investment decisions?
3. If you could increase your chances of improving your returns by taking more risks, are you willing to take a lot more risks with all your money?
By taking the test, you will know your risk profile as to whether it is conservative, moderate or aggressive. Then based on the Financial Planning Time Horizon, you can decide on the assets allocation mix.
Investment Planning
Investment planning is indeed a vital step in the financial planning process. The implementation of a sound and effective investment strategy is necessary to provide financial security and expected returns to meet the objectives of a financial plan.
Like every thing in life, nothing is free. If you want to be rich and financially secure during your retirement years, you have to stomach at least some level of risk in any kind of investment. The correct level of risk tolerance varies from individual to individual. Indeed, it is pointless to make an investment which might double in a short period of time if by virtue of holding that position that individual cannot sleep well and spend endless hours worrying about the state of his investment.
Like every thing in life, nothing is free. If you want to be rich and financially secure during your retirement years, you have to stomach at least some level of risk in any kind of investment. The correct level of risk tolerance varies from individual to individual. Indeed, it is pointless to make an investment which might double in a short period of time if by virtue of holding that position that individual cannot sleep well and spend endless hours worrying about the state of his investment.
Identifying Your Financial Needs
Identifying your financial needs is an important step in the financial planning process. For many people, the most pressing needs are to have available funds for the tertiary education funding for their children, home ownership and for their very own retirement.
Upon identifying your financial needs, the next step in the financial planning process will be to set up a financial planning strategy to meet your financial needs and objectives, taking into consideration your time horizon; savings plan, investment vehicles and investment planning to achieve the required rate of return of your investment, not forgetting risk management and insurance planning to hedge against unexpected and unforeseen events.
Upon identifying your financial needs, the next step in the financial planning process will be to set up a financial planning strategy to meet your financial needs and objectives, taking into consideration your time horizon; savings plan, investment vehicles and investment planning to achieve the required rate of return of your investment, not forgetting risk management and insurance planning to hedge against unexpected and unforeseen events.
Cash Flow Statement
To improve on your net worth, you need to ensure you are always in a positive cash flow position, taking control of your expenditure.
A cash flow statement is essential to monitor your financial situation. If in debt, take steps to retire the debts before embarking on a saving scheme. Only after your debts have been settled, work out a strategy to save at least 10 to 20% of your income by adjusting and controlling your expenditure. Your future wealth depends on these savings and the eventual investments of the saving fund.
A cash flow statement is essential to monitor your financial situation. If in debt, take steps to retire the debts before embarking on a saving scheme. Only after your debts have been settled, work out a strategy to save at least 10 to 20% of your income by adjusting and controlling your expenditure. Your future wealth depends on these savings and the eventual investments of the saving fund.
Analyzing Your Net Worth
Establishing your existing financial situation is the very first step in your financial planning exercise.
Details of all your assets held, loans, interest in trust, property, existing superannuation funds, actual and potential liabilities, income from all sources, and your present tax situation should be compiled and tabulated for your analysis.
Details of your daily living expenses, any likely commitments such as children tuition fees, parents's medical expenses, any intended purchases should tabulated and computed to estimate your current savings ability.
Your present net worth details should also include all existing insurance policies and coverage.
Details of all your assets held, loans, interest in trust, property, existing superannuation funds, actual and potential liabilities, income from all sources, and your present tax situation should be compiled and tabulated for your analysis.
Details of your daily living expenses, any likely commitments such as children tuition fees, parents's medical expenses, any intended purchases should tabulated and computed to estimate your current savings ability.
Your present net worth details should also include all existing insurance policies and coverage.
Financial Planning Process
The actual financial planning process is not a difficult and complicated procedure, provided you approach it in an orderly and comprehensive manner. A orderly and systematic financial plan shall include the following:-
- analyse your needs and objectives.
- match these with appropriate products and services in your investment planning.
- work out your financial plan
- implementing the plan
- provide ongoing review to ensure the chosen investment strategies continue to match your changing objectives.
- modify the investment solutions as required.
- analyse your needs and objectives.
- match these with appropriate products and services in your investment planning.
- work out your financial plan
- implementing the plan
- provide ongoing review to ensure the chosen investment strategies continue to match your changing objectives.
- modify the investment solutions as required.
Benefits Of Financial Planning
Financial Planning as mentioned in my earlier posts is the application of simple logical processes to analyse an individual’s current financial situation and then to identify actions to be taken to achieve future goals.
What are the benefits of financial planning. Below are some reasons which are the prime benefits for aomeone to start off the financial planning process at an early age:-
1. To have complete control of your financial situation
2. There will be a higher probability of achieving future goals when you start at an early age.
3. To have increasing wealth in the future.
4. To achieve greater security and peace of mind when you in control of your financial situation.
What are the benefits of financial planning. Below are some reasons which are the prime benefits for aomeone to start off the financial planning process at an early age:-
1. To have complete control of your financial situation
2. There will be a higher probability of achieving future goals when you start at an early age.
3. To have increasing wealth in the future.
4. To achieve greater security and peace of mind when you in control of your financial situation.
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