Obtaining a credit card these days has become so easy that even a young adult just starting out into the working world may be holding up to 5-10 credit cards within a year into employment. Hence, it is no surprise that many people are depending on their credit cards for their financial needs and ending up with a debt they cannot manage. Many people are just not taking heed to the actual planning of their finances apart from paying the bills and saving or spending what is left over.
Hence, it is imperative that the young individual should be educated early in life of the necessity of financial planning so as not to fall into credit card debts and ruining their future. Financial freedom is a worthy target, the quicker you start on it, the better your life will be.
Consulting a financial advisor may be an option. But if budget is a problem, you may consider following the following steps in financial planning in ensuring that your road to financial freedom is a successful one:-
Step 1 – computing your present net worth to know your present financial standing
This include listing out your all the assets and liabilities. Assets will include your bank balance, investment in stocks, mutual funds, gold, property, insurances, vehicles etc. Liabilities are the loans to repay (home loan, personal loan, credit card debt, car loan). This will help you arrive at your present net worth. Your personal net worth statement is the personal, human equivalent of a company balance sheet. Computing this net worth statement will help to identify how much debts or investible funds that you have, giving you a clear picture of what you have and what you owe. As a first step towards correcting the financial situation it is always better to get rid of costly debts such as credit card bills, personal loans, car loans etc. as soon as possible.
Step 2 – prepare cash flow statement for monthly / yearly budget
Your cash flow statement helps you to see how and where you spend your money. It will provide you with a guideline on how to spend your money in order to plan your debt elimination and start saving for the future. With a budget, you are able to recognize the areas in which you can save money in order to improve your financial situation month by month.
Step 3 - identifying your financial needs
The first two steps above assessed your current financial positions. The next step then is to identify your financial needs. For most young couples, the most common needs would be: home ownership, tertiary education funding for their children and retirement.
This step would require you to estimate the funding and time required to achieve these goals.
Step 4 – drawing up your investment plans
Eradicating your debts and a saving problem will start you off to the road to financial freedom. But putting your savings into banks with low yield is not the wisest thing to do as over the long term as it will not hedge you against rate of inflation.
To achieve your financial these goals, you will to stomach some level of risk in embarking on a investment program. However, before embarking upon this you advisable that:-
1. To determine your personal risk tolerance and to establish the preferred asset allocation.
2. To ensure that a 6 to 9 months emergency buffer fund is in place otherwise any mishap will cause you to plunder into your investment funds too early for it to gain momentum.
3. If you are considering self managed direct investment, then educate yourself with enough knowledge before starting investing and to ensure that you have the time to monitor the dynamic investment conditions of the market. Alternatively, do engage a professional for sound advice.
Step 5 – insurance for protecting your investment program.
Any financial plan is required to be protected against any foreseeable risks. Hence, you need to have proper insurance to cover any emergencies that could suddenly pop up that will derail your financial and investment program.
Different types of life insurance meet different needs. Good health insurance and a comprehensive life insurance should be top priorities. Property insurance will help to cover all hazards in your area. If you can afford it, disability insurance is always a good idea.
Step 6 – estate planning & writing of will
No financial plan can be considered as complete without planning your estate. A comprehensive financial plan is one which includes wealth accumulation, wealth preservation and lastly wealth distribution.
The writing of a will is a prerequisite in any financial plan and is advisable. The scariest thing for any dependent survivors of an individual who passed away without a will is the agony of having the courts to decide the division of the individual estate and waiting for months for the letter of administration to be issued.
Seeking Financial Freedom? Work On The Financial Planning Process For The Road To Financial Freedom
Step 1 – Computing Your Net Worth
Every financial planner will tell you that knowing your current net worth is the first fundamental step in financial planning. Taking stock of who you are and where you stand will help you to determine your financial goals and dreams and towards a realistic and practical financial plan.
You need to put down in paper all your current assets and liabilities to complete your net worth statement. Your current assets will include your home, bank accounts, saving accounts, real estate investments, stocks, bonds, cars, and everything else that you possessed. Your liabilities will include the mortgage on your home, real estate loans, loans on retirement funds, car loans and any other debts you have.
Why is computing and tallying your net worth so important in financial planning? The two situations below will help to explain why making your net worth statement is such an important aspect of the financial planning process:-
1. If your net worth shows that you are technically a bankrupt.
This probably implies that your outstanding debts on the house mortgage, real estate loans, car loans and any other debts have outstripped your assets. Hence, your first priority in seeking financial freedom is to seek ways to reduce and retire these debts through managing your budget which will include having to change and make adjustment to your lifestyle to reduce unnecessary expenses.
2. If your net worth show that is positive.
This will probably implies that you may have some spare funds for your investment planning, or in a enviable position will be able to commence generating a special fund for investment planning. This can be done through a well planned budget diligently carried out with the utmost discipline. Investment planning is one important aspect of financial planning which cannot be overlooked. Putting spare funds into fixed deposit accounts for the short may be fine but for the long term, low yielding financial instruments are not the wisest thing to do.
Hence, knowing your current net worth is the first basic step in the financial planning exercise, imperative in your journey towards achieving financial planning. Listing your net worth statement in a spreadsheet will facilitate the monthly or yearly monitoring and tracking of your net worth.
You need to put down in paper all your current assets and liabilities to complete your net worth statement. Your current assets will include your home, bank accounts, saving accounts, real estate investments, stocks, bonds, cars, and everything else that you possessed. Your liabilities will include the mortgage on your home, real estate loans, loans on retirement funds, car loans and any other debts you have.
Why is computing and tallying your net worth so important in financial planning? The two situations below will help to explain why making your net worth statement is such an important aspect of the financial planning process:-
1. If your net worth shows that you are technically a bankrupt.
This probably implies that your outstanding debts on the house mortgage, real estate loans, car loans and any other debts have outstripped your assets. Hence, your first priority in seeking financial freedom is to seek ways to reduce and retire these debts through managing your budget which will include having to change and make adjustment to your lifestyle to reduce unnecessary expenses.
2. If your net worth show that is positive.
This will probably implies that you may have some spare funds for your investment planning, or in a enviable position will be able to commence generating a special fund for investment planning. This can be done through a well planned budget diligently carried out with the utmost discipline. Investment planning is one important aspect of financial planning which cannot be overlooked. Putting spare funds into fixed deposit accounts for the short may be fine but for the long term, low yielding financial instruments are not the wisest thing to do.
Hence, knowing your current net worth is the first basic step in the financial planning exercise, imperative in your journey towards achieving financial planning. Listing your net worth statement in a spreadsheet will facilitate the monthly or yearly monitoring and tracking of your net worth.
Step 2 – The Cash Flow Statement
After tallying your assets against your liabilities in the exercise to compute your net worth, the next important second step in the financial planning process would be to prepare and analyze your cash flow statement. The following paragraphs explain why the cash flow statement analysis exercise is an essential element in the financial planning process.
The analysis and monitoring of your cash flow and the organizing of your budget to ensure a positive cash flow position will enable you to take whatever excess cash over your expenditure to allocate it to your savings fund and investment plan to improve your net worth.
Common daily expenditures would include your utilities bills (electricity, water & telephone), groceries bills and transportation bills among others. But the real bane to any financial plan at the initial stage of financial planning of a young individual would be to the monthly repayments to offset any housing loan, car loan or in the worse scenario credit cards debts that may have resulted due a high living lifestyle beyond his or her means.
If in this scenario, the first priority at this financial planning stage would be to tackle these loans / debts head on by adhering to the following strategy:-
1. Tally the total monthly repayment required to pay off your loans / debts. Then budget your monthly expenses to include this monthly repayment required without going into deficit. Keep paying this same amount but reallocating when some loans get paid off.
2. If you have additional cash for the month, always pay off the loan with highest interest rate or the smallest loan first.
3. If they are any need to delay making payment due a lack of cash for the month, do so with the one with the lowest interest rate.
If you are in a better enviable debt free position, then your priority would be a budget which includes a monthly allocation for an emergency buffer fund. This fund is necessary to take care of 6-9 months expenditure in the event you lose your job or in the event of any unforeseen and unwarranted event occurring. During this period, unnecessary expenses should be avoided and delayed gratification need to be the order of the day.
With the emergency buffer in place, only then will you have a clear mind to proceed on the path to seek investment opportunities that abound in the financial market. The allocation earlier set aside in your budget for the emergency buffer can now be channeled to the various investment instruments available in the market such as fixed deposits, bonds and the equities market.
Hence, the preparation followed by the analysis of your cash flow statement will help you decide on the move to the next important step in the financial planning process, i.e. seeking investment opportunities to improve your net worth and to achieve your financial goals.
The analysis and monitoring of your cash flow and the organizing of your budget to ensure a positive cash flow position will enable you to take whatever excess cash over your expenditure to allocate it to your savings fund and investment plan to improve your net worth.
Common daily expenditures would include your utilities bills (electricity, water & telephone), groceries bills and transportation bills among others. But the real bane to any financial plan at the initial stage of financial planning of a young individual would be to the monthly repayments to offset any housing loan, car loan or in the worse scenario credit cards debts that may have resulted due a high living lifestyle beyond his or her means.
If in this scenario, the first priority at this financial planning stage would be to tackle these loans / debts head on by adhering to the following strategy:-
1. Tally the total monthly repayment required to pay off your loans / debts. Then budget your monthly expenses to include this monthly repayment required without going into deficit. Keep paying this same amount but reallocating when some loans get paid off.
2. If you have additional cash for the month, always pay off the loan with highest interest rate or the smallest loan first.
3. If they are any need to delay making payment due a lack of cash for the month, do so with the one with the lowest interest rate.
If you are in a better enviable debt free position, then your priority would be a budget which includes a monthly allocation for an emergency buffer fund. This fund is necessary to take care of 6-9 months expenditure in the event you lose your job or in the event of any unforeseen and unwarranted event occurring. During this period, unnecessary expenses should be avoided and delayed gratification need to be the order of the day.
With the emergency buffer in place, only then will you have a clear mind to proceed on the path to seek investment opportunities that abound in the financial market. The allocation earlier set aside in your budget for the emergency buffer can now be channeled to the various investment instruments available in the market such as fixed deposits, bonds and the equities market.
Hence, the preparation followed by the analysis of your cash flow statement will help you decide on the move to the next important step in the financial planning process, i.e. seeking investment opportunities to improve your net worth and to achieve your financial goals.
Step 3 - Identify Your Financial Needs
Carrying out a financial need analysis by identifying your financial needs is the third fundamental step in the financial planning process. For many people, the most pressing needs are to have the available funds for home ownership, the tertiary education funding for their children, and for their very own retirement in that order.
Perhaps the first financial responsibility a newly married couple will has to undertake after leaving the safety nest of their parents homes, is in the planning for a new home. They will have to calculate their sources available – savings, fixed deposit, unit trust, stocks & shares, insurance, of their accounts before they were married and to calculate the amount comfortable to be set aside monthly. They will have to estimate the down payment required when identifying their dream home.
Every responsible parents wish to provide the best education for their children. They believe a good education will be an asset for life for their children, in helping them to get better paying jobs and in establishing financial security for their future. They also believed that higher education raises the personal status of their children.
College education costs are increasing faster than inflation. It is believed that college tuition costs are increasing at an average rate of 6% annually. Relying on study loans may be an option but if you don’t want to rely on study loans, then naturally enough, setting up a tertiary education fund is a must. The earlier you start, the easier it becomes. In view of this, financial planning for the education fund must start early as soon a child is born, for time is your greatest ally.
In planning for the education fund, you will need to identify the total savings time before your child attends college and to estimate the future education fees required. In additional to savings, an investment plan will need to be in place to overcome inflation and ever rising costs of education. Unexpected events do happen, hence, it is sensible to take precaution by including some life insurance with your investment so that your children’s education is guaranteed regardless.
The most pertinent worry among the retirees and those near retirement age will be if they will enough money to live on at retirement and 10 or 20 years thereafter, can they afford to maintain the lifestyle, enjoying their favorite sports, wine and dine with their loved ones, and to be able to travel and leisure after they’ve stopped working. In addition, increasing expenses may be incurred during retirement due to medical fees which will absorb the largest portion of their retirement savings. Other expenses during the retirement may include house renovation and repairs to the existing house, maintenance and repairs to an old car or in the worse scenario new car as replacement when the old faithful is beyond repair, and gifts to grandchildren.
It is estimated that to maintain your current lifestyle, you may need at least 80% of your last earned salary. The most damaging woes to a retiree however will be the rate of inflation, the most deadly money killer over time. At an inflation rate of 4%, it can be computed that if the current expenses is $50,000 per annum to day, this will balloon to $109,556 per annum in 20 years time, almost a two fold increase.
Besides these three most common financial needs, there may be other needs or desires. It is important to identify them. Only upon carrying out a financial needs analysis, will you be able 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.
Perhaps the first financial responsibility a newly married couple will has to undertake after leaving the safety nest of their parents homes, is in the planning for a new home. They will have to calculate their sources available – savings, fixed deposit, unit trust, stocks & shares, insurance, of their accounts before they were married and to calculate the amount comfortable to be set aside monthly. They will have to estimate the down payment required when identifying their dream home.
Every responsible parents wish to provide the best education for their children. They believe a good education will be an asset for life for their children, in helping them to get better paying jobs and in establishing financial security for their future. They also believed that higher education raises the personal status of their children.
College education costs are increasing faster than inflation. It is believed that college tuition costs are increasing at an average rate of 6% annually. Relying on study loans may be an option but if you don’t want to rely on study loans, then naturally enough, setting up a tertiary education fund is a must. The earlier you start, the easier it becomes. In view of this, financial planning for the education fund must start early as soon a child is born, for time is your greatest ally.
In planning for the education fund, you will need to identify the total savings time before your child attends college and to estimate the future education fees required. In additional to savings, an investment plan will need to be in place to overcome inflation and ever rising costs of education. Unexpected events do happen, hence, it is sensible to take precaution by including some life insurance with your investment so that your children’s education is guaranteed regardless.
The most pertinent worry among the retirees and those near retirement age will be if they will enough money to live on at retirement and 10 or 20 years thereafter, can they afford to maintain the lifestyle, enjoying their favorite sports, wine and dine with their loved ones, and to be able to travel and leisure after they’ve stopped working. In addition, increasing expenses may be incurred during retirement due to medical fees which will absorb the largest portion of their retirement savings. Other expenses during the retirement may include house renovation and repairs to the existing house, maintenance and repairs to an old car or in the worse scenario new car as replacement when the old faithful is beyond repair, and gifts to grandchildren.
It is estimated that to maintain your current lifestyle, you may need at least 80% of your last earned salary. The most damaging woes to a retiree however will be the rate of inflation, the most deadly money killer over time. At an inflation rate of 4%, it can be computed that if the current expenses is $50,000 per annum to day, this will balloon to $109,556 per annum in 20 years time, almost a two fold increase.
Besides these three most common financial needs, there may be other needs or desires. It is important to identify them. Only upon carrying out a financial needs analysis, will you be able 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.
Step 4 - Financial Investment Planning
Investment planning is indeed a vital fourth step in the financial planning process. The implementation of a sound and effective investment strategy is necessary to provide the financial security and expected returns to meet the objectives of a financial plan.
Like every thing in life, nothing is free. Risks and returns go hand in hand. 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, depending on the personality of the individual. Indeed, it would be 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.
Hence, investment planning entails firstly, determining your risk tolerance. Most investment planners have drawn up a Investor Risk Profile quiz to be taken by their client before recommending on the relevant investment plan for their clients. Investment program and the right asset allocation need to vary according to the risk tolerance of the individual.
Another very important consideration is to embark onto an investment plan only after you have obtained an emergency buffer of 6 to 9 months for your expenses in place. This buffer is extremely vital as otherwise the slightest mishap or an emergency situation can derail your investment plan and cause you to plunder your investment program too early for it to gather momentum.
Self managed direct investment should only be considered if you have sufficient knowledge and time to study and monitor the investment conditions. Engaging a professional financial planner would be a wiser option. Different investment products are available in the market and are recommended depending on the degree of risk an investor is willing to undertake. Low risks products would include savings and fixed deposit accounts, moderate risks products would include conservative mutual trust funds and blue chips, whereas high risk products would include small capped growth stocks, futures and options and other derivatives.
In order to meet the objectives of a financial plan, a sound and comprehensive investment plan should consider asset allocation and diversification in the investment portfolio. The investment plan should include a statement of expected return, a statement of expected level of risk and also the expected time zone horizon of the investment strategy.
Like every thing in life, nothing is free. Risks and returns go hand in hand. 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, depending on the personality of the individual. Indeed, it would be 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.
Hence, investment planning entails firstly, determining your risk tolerance. Most investment planners have drawn up a Investor Risk Profile quiz to be taken by their client before recommending on the relevant investment plan for their clients. Investment program and the right asset allocation need to vary according to the risk tolerance of the individual.
Another very important consideration is to embark onto an investment plan only after you have obtained an emergency buffer of 6 to 9 months for your expenses in place. This buffer is extremely vital as otherwise the slightest mishap or an emergency situation can derail your investment plan and cause you to plunder your investment program too early for it to gather momentum.
Self managed direct investment should only be considered if you have sufficient knowledge and time to study and monitor the investment conditions. Engaging a professional financial planner would be a wiser option. Different investment products are available in the market and are recommended depending on the degree of risk an investor is willing to undertake. Low risks products would include savings and fixed deposit accounts, moderate risks products would include conservative mutual trust funds and blue chips, whereas high risk products would include small capped growth stocks, futures and options and other derivatives.
In order to meet the objectives of a financial plan, a sound and comprehensive investment plan should consider asset allocation and diversification in the investment portfolio. The investment plan should include a statement of expected return, a statement of expected level of risk and also the expected time zone horizon of the investment strategy.
Step 5 - Insurance for Risk Management
Insurance certainly plays an important role in the financial planning process in the context of the managing of one’s investment risks. In financial planning, a logical step to improve and increase one’s net worth is to indulge in a careful and a well implemented investment plan. You would require time to be on your side and also the patience not to plunder into your investments long enough to allow them to grow through compounding.
However, we do know that unforeseen events do happen. It is therefore sensible and pertinent to take the necessary precaution in managing your investment risks by including some relevant insurance policies into your financial portfolio. Purchasing the right type of insurance is of paramount importance and certainly a necessity in ensuring and achieving success in your financial goals and objectives.
Two very important insurance policies recommended in your financial investment plan portfolio and the reasons for their recommendation are stated below:
1. Term Life Insurance with TPD (Total Permanent Disability) rider.
“Buy term and invest the difference in a diversified portfolio of long term investment instruments” is the call of most well meaning financial planners. The reason for it is that term life insurance is the cheapest form of life insurance in the market and the purest form of life insurance with a protection element only without any savings features built into it. Therefore, a term life insurance policy provides more protection coverage for a smaller annual premium. This will allow you to stretch your insurance dollars the furthest and to invest the difference in savings and investment vehicles that have higher long term historical returns. A term life insurance policy with a TPD rider will provide pure protection in the event of death and also in the event for total disability.
With the right amount of term life insurance in place, you will be able to allow sufficient time for your investment portfolio to mature to achieve your financial goals within the period before the term insurance policy expire.
2. Medical Insurance
A financial plan with the intention of managing your investment risks will not be complete without a medical insurance policy with critical illness coverage and hospitalization and surgical (H&S) coverage. A financial investment plan can be derail if one should suffer the tragedy of succumbing to any life threatening illness such as cancer, diabetes, etc causing the person to lose his job and income before the financial goal of his investment plan materialize. The cost of treatment which may be exorbitant from the hospital expenses and surgery needed would cause you to use up the emergency funds and in the worst scenario may require you to withdraw from investment program before it mature if a medical policy was not purchased earlier.
The quantum of amount of term and medical insurances required will depend on the individual needs and financial dreams of the individual.
There are other types of insurances for a more comprehensive financial program but the above two types of policies above are certainly vital in the managing of your investment risks. It certainly is a folly to ignore the importance of insurance in the financial planning process.
However, we do know that unforeseen events do happen. It is therefore sensible and pertinent to take the necessary precaution in managing your investment risks by including some relevant insurance policies into your financial portfolio. Purchasing the right type of insurance is of paramount importance and certainly a necessity in ensuring and achieving success in your financial goals and objectives.
Two very important insurance policies recommended in your financial investment plan portfolio and the reasons for their recommendation are stated below:
1. Term Life Insurance with TPD (Total Permanent Disability) rider.
“Buy term and invest the difference in a diversified portfolio of long term investment instruments” is the call of most well meaning financial planners. The reason for it is that term life insurance is the cheapest form of life insurance in the market and the purest form of life insurance with a protection element only without any savings features built into it. Therefore, a term life insurance policy provides more protection coverage for a smaller annual premium. This will allow you to stretch your insurance dollars the furthest and to invest the difference in savings and investment vehicles that have higher long term historical returns. A term life insurance policy with a TPD rider will provide pure protection in the event of death and also in the event for total disability.
With the right amount of term life insurance in place, you will be able to allow sufficient time for your investment portfolio to mature to achieve your financial goals within the period before the term insurance policy expire.
2. Medical Insurance
A financial plan with the intention of managing your investment risks will not be complete without a medical insurance policy with critical illness coverage and hospitalization and surgical (H&S) coverage. A financial investment plan can be derail if one should suffer the tragedy of succumbing to any life threatening illness such as cancer, diabetes, etc causing the person to lose his job and income before the financial goal of his investment plan materialize. The cost of treatment which may be exorbitant from the hospital expenses and surgery needed would cause you to use up the emergency funds and in the worst scenario may require you to withdraw from investment program before it mature if a medical policy was not purchased earlier.
The quantum of amount of term and medical insurances required will depend on the individual needs and financial dreams of the individual.
There are other types of insurances for a more comprehensive financial program but the above two types of policies above are certainly vital in the managing of your investment risks. It certainly is a folly to ignore the importance of insurance in the financial planning process.
Step 6 - Estate Financial Planning & Writing of Will
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.
An estate plan therefore should also include an assignment of power of attorney, a health care proxy and a trust. The assignment of the power of attorney gives someone you trust the ability to manage your financial affairs and make decision on your behalf, while a health care proxy, or medical power of attorney, gives someone the power to make decisions about your medical condition if you're unable to do so. A trust is another way of passing on money and other assets to heirs. In many ways trusts are more hassle-free than wills. They don't have to be processed in court, and therefore, avoid many costs and delays. They also get around some of the high taxes that can be attached to an inheritance.
Like the saying goes, only two things are certain in life, i.e. death and taxes. The scariest scenario for your beneficiaries would be if under unforeseen circumstances, they are left without a will and the distribution of your assets has to be decided by the courts. A well written will ensure that if anything should happen to you, your family will be taken care of in precisely the way you have determine. Your family will also not have to undergo the agony, delays and difficulties of the legal procedures at the courts in seeking their inheritance. The sad truth of the matter however, is that there are many people who do not have a will let alone practice estate planning.
One reason why many people had failed to include estate planning in the financial plan could be attributed to the reason that discussing death is a taboo to these people. Other reasons could be their misconception that estate planning is only for the rich or for the older folks. They may also be thinking that engaging estate planner would be expensive or that buying the correct amount of insurance would be sufficient.
The importance of estate planning cannot be emphasized enough for everyone who cares about his family. For a person without much assets, having a will is crucial so that their assets can be immediately distributed to their loved ones upon their. The children of older couples may already be financially stable and therefore are less likely to suffer if their parents did not plan their estate, whereas for the children of younger couples are still very much dependent on the assets left behind. Hence, the estate planning process should be done as early as possible and not be delayed till old age.
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.
An estate plan therefore should also include an assignment of power of attorney, a health care proxy and a trust. The assignment of the power of attorney gives someone you trust the ability to manage your financial affairs and make decision on your behalf, while a health care proxy, or medical power of attorney, gives someone the power to make decisions about your medical condition if you're unable to do so. A trust is another way of passing on money and other assets to heirs. In many ways trusts are more hassle-free than wills. They don't have to be processed in court, and therefore, avoid many costs and delays. They also get around some of the high taxes that can be attached to an inheritance.
Like the saying goes, only two things are certain in life, i.e. death and taxes. The scariest scenario for your beneficiaries would be if under unforeseen circumstances, they are left without a will and the distribution of your assets has to be decided by the courts. A well written will ensure that if anything should happen to you, your family will be taken care of in precisely the way you have determine. Your family will also not have to undergo the agony, delays and difficulties of the legal procedures at the courts in seeking their inheritance. The sad truth of the matter however, is that there are many people who do not have a will let alone practice estate planning.
One reason why many people had failed to include estate planning in the financial plan could be attributed to the reason that discussing death is a taboo to these people. Other reasons could be their misconception that estate planning is only for the rich or for the older folks. They may also be thinking that engaging estate planner would be expensive or that buying the correct amount of insurance would be sufficient.
The importance of estate planning cannot be emphasized enough for everyone who cares about his family. For a person without much assets, having a will is crucial so that their assets can be immediately distributed to their loved ones upon their. The children of older couples may already be financially stable and therefore are less likely to suffer if their parents did not plan their estate, whereas for the children of younger couples are still very much dependent on the assets left behind. Hence, the estate planning process should be done as early as possible and not be delayed till old age.
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