CHAPTER 1

WHY EVERYONE NEEDS

FINANCIAL PLANNING

WHAT IS FINANCIAL PLANNING????

Involves Questions On Future,

Dreams And Goals
Need a financial plan because its easier to
spend than to save
Want a financial plan since it helps you
achieve financial goals;
Use financial planning, not to make more money,
but to achieve goals
Control your finances or they will
control you

WHY FINANCIAL PLANNING

Rising Life
expectancy
estimated to
increase from
77
to 85 in next
decade

Inflation
Cost of
Education /
Medical
increasing
exponentially
Financial
Planning
Protect
lifestyle of
family
Protection
against the
uncertainty

Balanced
Asset
Allocation
Investment
and Protection

FIVE BASIC STEPS TO

PERSONAL FINANCIAL PLANNING

Assess where you are

financially right now
Define your financial
goals
Develop a plan of action
Implement your plan
Review progress, reevaluate & revise plan

PERSONAL FINANCIAL PLANNING

PROCESS
Assess ur current
financial
situation

Develop ur
personal
financial
goals

Evaluate
the
alternative
s that will
meet ur
financial
goals

Determine
what
action to
take

Create ur
financial
plan and
execute it

Review and
revise

INFLUENCES OF FINANCIAL PLAN

Financial planning is
influenced by many
factors:

Life
Cycle
Needs

These factors can be

Lifestyle
Condition
expected and
s
unexpected

Values,
Goals
&
Personal
Choices

Major
Life
Events

BENEFITS OF FINANCIAL PLANNING

Better Control Of Your Financial
Affairs
Better Relationship With People
Around You
Freedom From Financial Worries
More Effective In Obtaining, Using &
Protecting Your Financial Resources

LIFE STAGE S AND FINANCIAL

GOALS
Stage 1: Basic Wealth Protection
In this stage, the individual should be focusing on
building financial security

Stage 2: Wealth Accumulation

In this stage, the household head has reached peak earning
years, is accumulating wealth, and approaching retirement.

Stage 3: Wealth Distribution

This stage involves the consumption of wealth, usually during
retirement

PERSONAL FINANCIAL MANAGEMENT

PYRAMID
Est
ate
Pla
nni
ng

Building Long
Term Wealth:
goal setting,
retirement
planning,
investments

Wealth Distribution
giving it to your
chosen
ones

Wealth Accumulation

Building Financial Security:

goal setting, savings plan,
home ownership, childrens
education
Risk and Tax Management: goal setting,
insurance, protection against economic
loss, income tax reduction
Credit and Debt Management: goal setting, credit
use, avoiding credit abuse, debt reduction
Cash Management: goal setting, emergency, cash reserve,
record keeping, spending plans, net worth, and incomeexpense statements

Basic Wealth
Protection

Life Cycle Events Activity

People in certain age groups tend to have
similar life cycle needs
What activities and events require financial
planning during each stage?
Secondary School Ages 13-17
Young Adult Ages 18-24
Adult With or Without Children Ages 25-34
Working Parent or Adult Ages 35-44
Midlife Ages 45-54
Pre-Retirement Ages 55-64
Retired Ages 65 and older

Conventional Financial Planning Needs

Secondary School Ages 13 17
Preparing for career
Evaluating future financial needs and
resources
Exploring financial systems banks,
etc

Conventional Financial Planning Needs cont

Young Adult Ages 18 24

Training for a career
Determine insurance needs
Establish credit
Establish savings
Create a spending plan
Develop a personal financial identity
Develop a personal financial system

Conventional Financial Planning Needs cont

Adult With or Without Children Ages 25 34
Child-bearing
Child-raising
Education fund for children
Expand career goals
Increase need for credit
Discuss and manage additional insurance needs
Create a will
Maximize financial management by all members
of household

Conventional Financial Planning Needs cont

Working Adult or Parent Ages 35 44

Upgrade career training
Childrens education fund
Develop protection needs for headof-household
Need for greater income due to
expanding needs
Establish retirement goal

Conventional Financial Planning Needs cont

Midlife Ages 45 54
Assist with higher education for
children
Investment
Retirement plans
Develop estate plans

Conventional Financial Planning Needs cont

Pre-Retirement Ages 55 64
Consolidate assets
Plan future security
Re-evaluate property transfer
Evaluate the need for part-time income or
doing volunteer work during retirement age
Evaluate expenses for retirement and
current housing
Meet responsibilities of ageing parents

Conventional Financial Planning Needs cont

Retired Ages 65 and older

Re-evaluate and adjust living conditions
Spend related to health and income
Adjust insurance programs for increasing
risks
Acquire assistance in management of
personal and financial affairs
Finalise estate plan
Finalise will or letter of last instructions

TIME VALUE OF MONEY

Money At Present Time Is Worth
More Than Same Amount Of
Money In The Future
POWER OF COMPOUND INTEREST
The Earlier You Start Saving, The
Greater Interest Accumulated
Compound Interest Is A Doubleedge Sword

Money Management Case Study

Ahmad

Siti

Zainal

Started saving early

in
career (18 yrs old)
Contributed
RM3000/yr
Contributed for 5
years

Started saving later

(22 yrs old)
Contributed
RM3000/yr
Contributed for
8years

Started saving later

(30 yrs old)
Contributed
RM3000/yr
Contributed for
26years

Who has more money at age 55 ?