What is a Financial Plan?
A financial plan is a document containing a person’s current financial situation and long-term financial goals, including methods to achieve those goals. A financial plan may be created by yourself, or with the help of a professional financial planner.
In How to Create Your Own Financial Plan – Part 1, we mentioned that, you can create your own financial plan by following these 5 steps:
- Gathering your data
- Analyzing and evaluating your financial status
- Developing your financial plan
- Implementing the financial plan
- Monitoring and review
If you followed step 1 (Gathering your data), you would have gathered all the information available about your assets, liabilities, cashflow, insurance, health, goals and priorities, etc.
If you followed step 2 (Analyzing and evaluating your financial status), you would have analyzed your data and evaluated the probability of reaching the stated goals by continuing your present activities. You may do it independently using an online calculator, or engage a professional financial planner to do it for you. In Singapore, most financial planners provide consultation free-of-charge.
3. Developing your financial plan
After completing steps 1 and 2, you may discover that you have difficulty achieving some of your stated needs, priorities, and goals. If so, it is recommended that you develop a financial plan to improve the probability of reaching them.
There is no fixed template for a financial plan. It can be an independent action, or a combination of actions which may need to be implemented collectively. Your financial plan may include your retirement strategy, risk management, long-term investment plan, estate plan, and more.
Critical Factors to consider when developing your financial plan, may include:
- Advantages and disadvantages
- Personal and economic assumptions
- Risks and/or time sensitivity
4. Implementing the financial plan
Next you need to look into products or services that reasonably address your needs. They must be suitable to your current financial situation, and consistent with your needs, priorities, and goals. If you are doing it yourself, you can find them by researching online. The downside is you’ll probably spend a lot of time on product or service comparison.
Alternatively, you can consult a financial planner, who will use his or her professional judgment in selecting the products and services that are your interest. Different practitioners may have different opinions, and it is important that you choose someone who is professional, reliable, and trustworthy.
5. Monitoring and review
Last but not the least, you must monitor and review your financial plan periodically. Modifications may be required, if there are changes the following:
- Changes in personal circumstances
- Are there any changes in your job/income status?
- Are there any changes in your health status?
- Are there any changes in your family? (eg. birth of a child, marriage/divorce)
- Are there any changes in your assets/liabilities (eg. purchased a new property, car, shares, etc)
- Changes in external environment
- Are there any changes in the economic and market sphere? Should I consider making a fund switch (for Investment-linked Plans)?
- Are there any changes in laws, rules and regulations like CPF rules, tax laws?
- Product related matters
- Is the products you have still relevant to your needs?
- Is your coverage still sufficient, or do I need to add a rider, or buy a new plan?
- Are there any new products in the market, that can better cater to your needs?
Unfortunately, most people do not have the discipline to do this consistently, which is why they prefer to engage professional financial planners to help them. A financial planner can help you establish a client file, and a system for periodic review and revision.
If you need to engage a professional financial planner, contact your trusted FLA Organization financial planner today!
