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.
Financial Planning Basics – Work on These Financial Resolutions
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.
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.
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.
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