Tuesday, June 17, 2008

Financial Planning Talk (1): What is Financial Planning?

Personal financial planning is the process of achieving financial freedom or our financial goals through the proper management of our finances. The aim of the personal financial planning is to evaluate our current finance status and decide which investment mode is suitable for us to achieve financial freedom. In simple word, personal financial planning helps us to achieve our financial goals from where we are today. Personal financial planning consists of six major components: cash flow management, insurance, investments, income tax management, retirement planning, and estate management.

The general guideline for personal financial planning consists of six steps. First, we need to assess our current financial status to understand better our current ability. The most common way of assessment is through our personal balance sheet and income statement. Thus, we have a clearer picture what kind of assets or liabilities that we have, and how much is our income, expenditure and net income. After that, we should set target or goals. In other word, the goal is the situation where we achieve financial freedom.

By knowing our current financial status and financial goals, we need to develop a proper financial plan. This financial plan should consist of cash flow management (budgeting), insurances, investments, estate management, income tax management, and retirement planning. After having a plan, there is the most important stage in a successful financial planning, which is implementation. Discipline is much needed to implement the plan effectively.

The world is changing while time past. Things change very fast, so that our plan also needs to be changed accordingly. Periodically monitoring the progress and revising the plan and goals can make sure we achieve financial freedom eventually.
So, do you have any financial plan? If no, you can think about it and come out one financial plan that suits you.


Yong said...

So, how to evaluate or know which plan is suitable for each individual? Example, if my current salary is RM24,000 per annum. What plan should I have and what is type of investment that I can invest now????

leekk8 said...

Very soon I will write more on this financial plan thing, so that you will have a guide how to prepare your own financial plan. Keep track on my post here always :)

Yong said...

Tat great!!!Definitely I will keep track on your post always.....