Financial Planning – First Step to Build Your Wealth

A common misconception about financial planning is that people think only rich people require this.
This is absolutely wrong!
As long as we have money, we need to build ourselves a plan on how to use the money correctly!
If you are earning RM1, 000/monthly, plan how to use that RM1, 000 appropriately.
If you are earning RM10, 000/monthly, plan how to use that RM10, 000 appropriately.
In financial planning, there are 5 basic things that we need to do, which include setting goals, listing out expenses, listing out your income, adjust your expenses and adjust your income. The sequence of these 5 things varies considerably depends on individual. In the following, we will explain it one by one according to the sequence we listed.

  1. Setting Goals
This is the most important part in financial planning. We must know our goal, whether it is short, medium or long term, in order for us to understand our direction. Consider the following,
  1. Say if you are a student with only scholarship and no income, what is your target saving every year?
  2. Say if you are a fresh grad who just gets your first job offer with a monthly salary of RM2, 500, do you have a plan of getting married or buying a house in 5 years?
  • Say if you’re already been working for 5 years and your current salary is RM4, 500 plus just get married. Do you have a plan of having children or starting a small business in 3~5 years?

If we have no idea at all what and where should we be after 5~10 years, it is difficult for us to do financial planning. We must have a clear goal so that we can calculate how much money we need to save and generate to achieve that within the timeframe we set for ourselves.

  1. Listing Out Expenses
After we have a clear goal, the next step is to list out our expenses. Try not to think of how much do you earn now. We first focus on all the spending that we think we need. The following are some general expenses that we all need,
  1. Daily meal
  2. Transportation fee/car loand
  • House rental/House loan
  1. and data fee
  2. Insurance
  3. Money for parents
  • Etc….

  1. Listing Out Income
This is simple. We just need to list out all your earning sources including monthly salary, earning from part time jobs, interest from Fixed Deposit, dividend from investment and others.

  1. Adjusting Expenses
This is another important part in financial planning. After listing out all your expenses and earning, we may reach to 3 possible scenarios,
  • Expense is way lower than earning
  • Expense roughly same with earning
  • Expense is way higher than earning

If you are in first scenario, that would be good. You have surplus for more saving and investing. If you find that your expenses are too tight, you might consider loosening it in this scenario.

If you are in second scenario, you might want to re-check your expenses whether there are ways to cut down or not. Otherwise, your only solution would be to increase your income.

If you are unfortunately in third scenario, honestly, may be you are living a life that is not equivalent to your financial status. The only resolution is to improve your income.

Once we have identified our financial condition, we can now review how can we do and what should we do to achieve our financial goal.

  1. Adjusting Income
If we find that after adjusting our expenses, we can have surplus to save and achieve our financial goal, this step may serve as a support to further improve our progress. But if we don’t have surplus, which means we face deficit every month, we should seriously consider finding a part time job to increase our income. Otherwise, we will never be able to achieve our financial goal.

By carrying out these steps, we can now have a clear picture of our current financial status. Without doing so, we will lost track of our cash flow and will never find our way to achieve the financial goal we so dream of!

We will provide an example on financial planning in another article.