The whats, whys and hows of personal financial planning

What do you do when you want to go somewhere?

You probably ask the following questions: What is the best way to go there? Will there be traffic jams? Is it better to take the LRT or bus? Should someone drive me there instead?

As you evaluate the options available to you, you ask questions about what you need to do and then make your decision -- these are the steps involved in the planning process. Planning can be for the short-term, medium-term or long-term.

It is the same in personal financial planning, except that the time frame is over a longer period. Ideally, you should be looking as far ahead as your retirement years.

Personal financial planning involves asking questions about your future, your dreams and goals. It is thinking about what you want to do in your life, such as getting married, buying a car or a house, having children and planning for their education.

To achieve your life dreams and goals, you need to plan from the financial aspect. In personal financial planning, you look at how you will be budgeting, saving and spending your money over time.

Steps in personal financial planning

There are five steps in financial planning:

1. Assessing where you are now in financial terms 2. Setting goals 3. Creating a financial plan 4. Implementing the plan 5. Monitoring and reassessing

Benefits of financial planning

Many people think that financial planning is a hassle and that it stops them from doing fun things. If you consistently live on a budget, surely you would have to sacrifice some fun activities now, wouldn’t you? Think about it, if you have to save, you can always budget your money in such a way that you have some money to go out with friends and having a good time.

If you set a good financial planning habit, you can always have more fun in the future!

With a personal financial plan, you will:

Have more control of your financial affairs and be able to avoid excessive spending, unmanageable debts, bankruptcy or dependence on others.

Have better personal relationships with people around you, such as your family, friends and colleagues, because you are happy with your life and not borrowing any money to make ends meet or expecting hand-outs from others.

Have a sense of freedom from financial worries because you have planned for the future, anticipated your expenses and achieved your personal goals in life.

Be more effective in obtaining, using and protecting your financial resources throughout your lifetime, not only for yourself but also for the people you love.

With a good personal financial plan, you will be more informed about your future needs and the resources that you have. You will also have peace of mind knowing that your financial situation is in control.

Life stages and financial goals

In your adult life, you will go through various stages, from starting a career to retiring, from being single to getting married, having children and sometimes being single again. At various phases in your life, you have different priorities, responsibilities and financial goals.

Each stage of your life presents different investment opportunities and challenges. Discipline and perseverance play a key role in maintaining a reliable financial strategy. As your life changes, so do your needs and goals. Sound financial planning can prepare you to meet them successfully.

When you are in your 20s, you will be looking at money and spending it differently from when you get into your 50s. For example, when you are single, you probably want to have enough money to make a down payment for a car or go on a holiday with your friends.

After you get married, you may want to buy a house. Later, when you have children, you would want to plan for their education and maybe even start a retirement fund.

You have to adjust your financial priorities to meet the varied needs at different points of your life. Therefore, how you spend your money as you go through your adult life depends on your financial goals.

Next week, AKPK will delve into understanding the value of money to better maximise its use.

The Credit Counselling and Debt Management Agency (AKPK) is an agency under Bank Negara Malaysia tasked to help individuals take control of their financial situation. For assistance, please contact AKPK’s Power Infoline at 0326167766 or visit www.akpk.org. my.