(Disclaimer: following sample serves only to explain how one does financial planning. All cost mentioned in the sample is fictional and it does not reflect the real condition. This sample is designed for those who just or are about to start their working life)
- Setting Financial Goals
Benny has been dating his girlfriend for 2 years and he hopes he can marry her in 3 years. After a rough calculation, he estimated that a simple wedding will need RM30, 000. Benny also plans to have his own house at 30 years old, which mean he will need to have money to pay for deposit when he is about 28 years old. At the moment, he assumes he’d need at least RM20, 000 for deposit and the rest he may go for KWSP.
So Benny’s 3~5 years financial goal is clear now. He needs to save at least RM50, 000.
- Listing Out Expenses
Throughout the coming 5 years, he assumes his monthly expenses will increase by an average of RM200 every year. So his monthly expenses would become RM2, 400 in 2nd year, RM2, 600, RM2, 800 and RM3, 000 for 3rd, 4th and 5th year.
- Listing Out Income
With this assumption, his monthly income would become RM3, 300 in 2nd year, RM3, 600, RM3, 900 and RM4, 200 for 3rd, 4th and 5th year. His ideal saving becomes as follows
|Year||Calculation||Yearly Saving||Cumulative Saving|
|1||12 x (2670-2200)||RM5,640||RM5, 640|
|2||12 x (2937-2400)||RM6, 444||RM12, 084|
|3||12 x (3204-2600)||RM7, 248||RM19, 332|
|4||12 x (3471-2800)||RM8, 052||RM27, 384|
|5||12 x (3738-3000)||RM8, 856||RM36, 240|
Benny almost cries out as he realizes that with this planning, he still could not save up to RM30, 000 in the 3rd year for his marriage and another RM20, 000 in the 5th year for his house.
- Adjusting Expenses
|2||RM 14, 484|
|5||RM 42, 240|
Benny thinks this is the best he can do. Any further reduction in expenses will lower his living quality. But now, the difference for his 3 years financial goal and the saving assumption has reduced to about RM7, 000. For his 5 years financial goal, there is almost no difference.
- Adjusting Income
So now, he has made himself a viable financial planning to achieve his 3~5 years financial goal. He feels relieved now. At least he knows if he wishes to get what he wants after 3~5 years, he needs to ensure he follows this plan.
Sadly, Benny forgot to take investing into consideration as part of his financial planning….
If you are reading this article and find it helpful,
Visit www.investforlife.com.my to join us.