Family financial planning refers to managing family members' financial goals and wealth. This includes a series of steps or specific goals set for spending and saving future income. Nowadays, more and more people realize its necessity; due to higher awareness as well as wider range of investment products available in the market. Yet, financial related troubles remain high, and in fact, showing an incremental trend in our society. Learning on managing one's family financial becomes crucial amidst economic uncertainty.
To make the illustration simple, our income always split into 2 main areas : spending & saving. The art of financial planning plays an important role in managing both. Here are goals that we should never miss out in our planning.
1. Retirement
- with higher population ageing rate, our life expectancy has increased. The latest data shows life expectancy increases to 75-80. In other words, we expect to live a longer life than our parents. With the increasing cost of living, and longer life expectancy; we must seriously plan for our post-retirement expenses. How much money we need to save for retirement? Is our EPF and savings enough to last us for 20 years or more after we retired? Saving for retirement can be achieved effectively through other retirement schemes than EPF, including insurance and unit trusts. We need to allocate at least 20% of our income for retirement plans, not including your contribution to EPF. There is a plan called Private Retirement Scheme which will be available soon. I'll post the update in my blog once the detail is available to me.
2. Education
- cost of education serves another big portion in our financial planning chart. I can't tell you how much will it cost as it depends on the course, country and tenure of the course. If it's out of Malaysia, we need to count in the currency factor. Parents will find their head spinning when talking about cost of education. I can assure you there is an easy way to handle this. How? By using the right products. Practice a regular saving on either insurance or unit trusts will make the job easier. I'd say unit trust serves a better choice as it has no cost going for other products than invest your money in funds as well as no term line. Your education saving should take up another 10% of your income.
3. Property/mortgage
- everyone needs a shelter and a vehicle, that's why we need to plan for our mortgage. Normally this will be taken care of by mortgage officer when you purchase a property/vehicle. In my point of view, mortgage loan should not exceed 20% of your income. That's why we should choose the property that fits our ability. Investment into second/ subsequent property only after your retirement plan is well taken care of.
4. Risk management
- insurance products serves as a risk management tool. There are different products design for specific purposes. You need to understand your needs as well as the product well before committing to a policy. For me, if you are looking at investment, please head to unit trust. Here, another 10% of your income is taken up.
5. Investment/savings
- invest in a mixed of short term and long term products is important to prepare as contingency/emergency fund or short term needs. Try to allocate 5-10% in unit trust, fixed deposits, government's fund or equities.
6. Expenditure
- balance after taken up by saving purpose, should goes into your expenditure. Household expenses should below 30%. How to manage your expenses is another big topic. Thus, I'm not going into it here. The correct way in managing your financial should put saving in the first place. Spend the remaining only after your saving plans are well taken care of. This will help to avoid predicament of running behind your expenses. That's is the reason why I put this as last point. :-)
With the variety of investment products available in the market as well as easy access to financial planning related info., all of us stand a higher chance to succeed in our financial planning.
Regarding college fund, if you are starting it late, don't procrastinate. There are always ways to fix it. You can choose to save more now (let say 30% instead of 10% as the dateline is drawing near) OR tell your kids that THEY will be paying for their own education!
ReplyDeleteGet a job during school holidays and save the money. Then head to local university for lower expenses. If possible, get them a study loan.
If they choose to study abroad, let them know that you are only responsible for 1st year expenses. They will find a job to support themselves.
@ I've been telling this few times to Ian. I want to set the expectation clear in order to have their mind setting on the right path and reduced dependency in later years. :-)