STI: Mastering the basics of financial planning

Oct 26, 2004

Mastering the basics of financial planning

IN CONJUNCTION with Family Festival 2004, MoneySENSE and various financial industry associations will bring you a series of educational messages about money management and personal finance to families.

In the first of a four-part series here, we share some practical tips on how you can embark on financial planning.

But first, is financial planning only for the rich?

Many people have the misconception that financial planning is solely about buying insurance policies and investments.

To put it simply, financial planning is about each of us making an effort to meet our life goals, through the proper management of our personal finances.

It is about solving financial problems and achieving financial goals by carefully developing and implementing a plan that takes into account a person or family's current situation and future goals.

Financial planning consists of six areas:

Cash flow management: This deals with how you allocate your income to meet daily expenses, and how you set aside money and other assets to meet future financial goals.

Risk management: It means making sure that you have enough family income to handle unforeseen circumstances such as premature death, disability or illness.

Investment planning: This involves putting your assets in a combination of different financial instruments that help you to meet your investment goals and allow you to grow your wealth.

Retirement planning: This focuses on building up wealth during your working years to achieve financial independence when you retire.

Tax planning: This deals with minimising your taxes through the use of various tax benefits and incentives.

Estate planning: This allows you to plan for the transfer of your assets to your beneficiaries with minimal hassle and estate taxes.

The first step in financial planning involves identifying your financial objectives and goals.

At different stages of your life, you will have different needs and face different challenges.

It is important to identify your priorities so as to set realistic goals and use your financial resources efficiently.

Make sure you review your priorities regularly, especially at key stages of your life, and every time your family circumstances change.

These include starting work, getting married, buying a home, making an investment, having children or reaching retirement.

In our next article in a fortnight's time, we will zoom in on a specific area: how to calculate the insurance coverage you would need to protect your family income.

To find out more, visit www.mas.gov.sg

This article is provided by the Monetary Authority of Singapore as part of the MoneySENSE national financial education programme.