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How to become your own financial planner

Updated 11 Sep 2017 – By Loanstreet


When was the last time you looked seriously at your financial situation and drafted a plan for your future? In Malaysia, we have plenty of bright young people who are talented and smart in what they are doing, however most of them do not realize how important financial planning is for their future.

Why is it important?

Financial planning allows you to transform your income into actual life goals. Have you ever longed for that multi-million dollar property but you could not afford to pay for it at this point of time? How can you actually amass enough wealth to be able to purchase something extravagant like this? Financial planning gives you a direction to work towards in achieving your goals.

When doing your financial planning, you might also discover something that you are currently lacking. For example, you might be surprised to realise that the rate of which your savings account is growing may not be enough to accommodate your requirements when you reach retirement age.

In short, a financial plan should be seen as a guide on how you should allocate your wealth and serve as a wake up call in how inefficient or inadequate your planning has been in the past.

Be your own financial planner

It is definitely possible to be your own financial planner. Here are a few simple steps that you can follow to create a financial plan for yourself or your loved ones.

1) Create a Balance Sheet

If you have ever had the opportunity to create a balance sheet for your work/company in the past, then you would be familiar with the workings. If not, now is the time to start to create one for yourself and your money.

Here is an example of what a balance sheet looks like:

How To Become Your Own Financial Planner

Now that you know where you are currently standing financially, it is also important to understand how much wealth you are able to reliably accrue every month.

2) Income and Expenses

How To Become Your Own Financial Planner

By subtracting your total monthly spending from your total net income, you can calculate how much cash you have left to allocate for savings or other means every month.

On top of that, you can also calculate your debt ratio by taking your total monthly commitments divided by your total monthly gross income. Your debt ratio is important for you to keep in mind because you might not want to be too heavily debt-laden as it will affect your loan application, thus affecting how you can proceed to achieve your goals!

3) Goals

Next, it is time for you to list down your goals:

How To Become Your Own Financial Planner

It is important for you to separate these 3 goals:

3a) Short term goals can often be achieved by just adjusting your spending.

3b) Long term goals are usually achieved after building up your savings for at least a few years.

3c) Retirement goals are areas which a lot of young people fail to consider. What makes this goal different from long term goals is that you will experience a loss of income when you are retired. Therefore, when planning for your retirement goals, you must keep this in mind.

Finally, it is about how you will achieve your goals.

4) Strategy

When conducting a strategy, there is no specific approach to this. However, we do have a general guideline for readers to follow. Your strategy should include these 4 core components:

  • Investment

  • Savings

  • Expenses

  • Insurance (not just the insurance product, but a backup plan if you fall short in any of the above categories)

By examining and planning around these 4 core components, you should be able to form a reliable strategy and direction to achieve your goals!

Should you do it solely by yourself?

While being your own financial planner can save you a fortune,  you may want to consider hiring a professional planner to do your financial planning for you. This is because some areas such as investments, taxes and insurance are often harder for us as the non-professionals to understand.

If you decide to create and manage your own financial plan, there are many resources online which can help you to do so. One such site which is very popular in Malaysia today is www.kclau.com where you can download free money tips, and they offer consumers independant financial advice on many areas of personal finance through Webinars and regular updates with their newsletters feeding you the essential knowledge to become your own Financial Planner.

Conclusion

Everyone should have a financial plan but it is even more important that the young adults have one now. The earlier you start your financial planning, the earlier you are starting to move towards your goals efficiently. Imagine owning a house by the age of 30 compared to owning a house by the age of 50, that is exactly the difference between starting a financial plan earlier or later in life.

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