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.

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

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.

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.

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.

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.

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.

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.

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.

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.