“A man who does not plan long ahead will find trouble at his door.” ― Confucius, Chinese philosopher. With money, you would expect most of us to take the time to create a personal financial plan to manage our hard-earned money. For Malaysians, the reality is far from it.

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One newspaper reported:

“…. an astounding 90% of rural households do not have any savings at all. For urban households, 86% have zero savings! “
A survey conducted by Bank Negara Malaysia shows that many Malaysians still cannot make responsible financial decisions for their wellbeing.
The survey also showed that most Malaysians do not practise long-term financial planning, with only 40% considering themselves as ready for secured retirement.”
(Read more at https://www.thestar.com.my)

When talking about money, planning and managing the limited financial resources should be your utmost priority as everything we do involves the use of money. Here are the key reasons (in no particular order of importance) why you must establish your own personal financial plan so you have a greater chance of a better future with an improved standard of living.

Reason # 1. Achieve financial independence sooner

A well-designed and properly implemented financial plan will enable you to achieve financial freedom earlier than if you had not developed an action plan.

The main reason individuals produce a financial plan is to assist them in attaining their financial objectives. Note that successful individuals are not unexpectedly successful. They are constantly working, studying the market, and developing a solid game plans to help them achieve their goals. You will instantly be on top of others once you make the effort in building a financial plan.

Reason #2. Promote and speed up your level of financial literacy

The best approach to understand something is to do it. Taking part in the personalization of your personal financial plan (best to use a financial advisor to guide you) will speed up the learning curve.

Compelling yourself to figure out what you want in life (financial goals), to compare it to the current reality (where you are now) and to see the huge gap can be a great awakening. Add to that, expect to know what you need to do to close the gap … BUT you’ll learn how to manage your money! There will be many “aha!” moments.

Reason #3. Financially ready for unexpected events/emergencies

Life is filled with nasty surprises. Financial planning involves “expecting the unexpected,” particularly when a huge amount of money is to be spent. With cash, prevention is better than cure, and it is best to be prepared than to regret.

Creation of an emergency fund (usually a sum to cover your living costs for 3-6 months) will at least lessen the mental pressure caused by these emergencies, without interfering the main goals.

Reason #4. Care for your dependents’ well-being

The word “dependents” (ageing parents, a spouse with no income, or young children) already says it all. As the sole breadwinner, you want to ensure your loved ones who are depending on you, can continue living when you are no longer here.

Proper insurance coverage can give you and your loved ones peace of mind.

Reason #5. Budget better to improve your cash flow

By tracking expenditure habits and types, a budget can help you enhance your cash flow. Financial planning that involves cautious budgeting and prudent expenditure will assist you to keep more of your hard-earned money.

Reason #6. Better Risk Management (Managing the possibility of a financial loss)

Risk is the potential for loss. It may surface in many areas of our life, but it always has the same outcome: monetary loss. It’s because of the loss of a sole breadwinner income from death, disability, disease, legal proceedings or other uncontrolled situations.

The loss is sometimes insignificant. While other times it can cause great personal and monetary distress. There is no way of removing all risk, but there are methods that you and your family can take to prevent, minimize, or defend against risk.

Insurance offers an easy way to address financial losses because of a devastating risk.

In addition, if you plan properly, you will know with greater assurance the insurance coverage you require. Therefore, you don’t have to overpay for unnecessary insurance and won’t wind up with less than the necessary coverage.

Reason #7. Secure your retirement plans

Are you depending on your children to provide and care for you during retirement? If so, good for you! But it’s prudent to be cautious by planning your own retirement fund. Treat any financial support from your kids as a bonus.

It is common to want a nice retirement life while achieving your family objectives. If you’re planning a retirement after more than 10 years you should plan to invest from now because the magic of compounding is experienced if stayed invested for the long term.

Financial planning helps you create an adequate corpus for retirement when expenses continue but income seems to be drying. It is advisable to consider investing in your life’s goals.

Plan today, for a better tomorrow.

Reason #8. Anticipate effects of inflation

One major consideration in financial planning is the inclusion of inflation estimation, especially for retirement planning.  The largest destructor of buying power is inflation. It is a fall in the value of money. As inflation is the thief of purchasing power, adjustments needed for your plan if there is a shift in the inflation rate from the projected.

In order to sustain inflation in the future, today is the day one should be actively planning finances. Financial planning ensures you sustain inflation while keeping your goals unaffected.

Reason #9. Reveal financial mistakes you have been making

The financial planning process will reveal the financial errors you might have made and also offers simple solutions. Examples of financial mistakes:

  • Avoid unnecessary debts
  • Avoid over or underinsured
  • Frivolous spending
  • Living on borrowed money (excessive and unmanaged credit card usage)
  • Set a good example to your children

Reason #10. Visualize the future

By laying down all the current data, the action plans needed and all your financial goals; it gave you a helicopter view of your financial life for the next 10 – 20 years. The previously “unsure” future has now become clear as crystal. Isn’t that comforting?

Some milestones are very important in life. Whether it’s a car, your home, the schooling of your kids or their marriage; fulfilling these requirements is a duty. Financial planning is a mechanism of drawing up a correct financial plan in a particular period to achieve your monetary objectives. Planning early is better as investment alternatives can gain high yields over time. Investing your cash from now on will make such long-term objectives simpler to accomplish.

Reason #11. Improve your return on investment (ROI)

As financial planning takes into account various aspects such as investments, risk, liability, cash flow planning, your financial advisor could create a comprehensive investment plan that helps to improve or maximize the ROI on your portfolio.

Conclusion

Creating a financial plan will assist you to develop a financial resources management plan. This can help you remain on a budget, save extra income, plan for retirement, and make financial progress.

Having a strategy implies that instead of having money control you, you control it.

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So, have you created a Financial Plan? If not, please speak to a financial planner.