How many of us have engaged a personal trainer? So why do some of us opt to have a personal trainer rather than going to the gym regularly or playing tennis twice a week or just go for a daily jog?
Primarily because we recognise that - within us - we lack the ability or talent to reach the prize without proper support or assistance. We know that we may falter along the track and may never reach our physical goal of being healthy or toning up or getting ready for the upcoming marathon.
We need a trainer to keep us motivated, regimented and in good shape, and mostly, to ensure we never lose sight of our aspirations.
Our financial health is not different from our physical. Too often, we are led to believe that buying insurance policies alone would be sufficient for us to retire on or investing in unit trusts is the only necessary step to growing our wealth.
Often, client investment management focuses only on assets without considering other important areas, such as protection and savings. However, focusing on just one area is not looking at the complete picture as it may not encompass all your needs and goals.
If you are not wise when it comes to investing, then a shrewd move would be engaging a financial advisor to help you manage your wealth and let this person look at your fiscal scenario with comprehensiveness.
Your financial advisor, apart from putting together your balance sheet and reviewing your assets and liabilities, will look at these other areas as they will have a great impact on your financial plan.
How much to have a dream?
Would you be likely to jump on a train not knowing your final destination? If so, what would you pack and not bring along?
Simple analogy, but it emphasises that if you don't know where you are going, you won't know the best way of getting there.
Financial planning is no different; it is crucial to know your destination, that is your goals and aspirations, and when and how you want to get there.
The task of goal setting is primary and perhaps the hardest step. A competent financial planner would spend a lot of time understanding your goals first and drilling them down to the details.
You need to consider not only long-term goals such as retirement, but also short-term and medium term goals like owning your home and your child?s education plans. If you are married and have children or are planning a family, it is important that you have this discussion with your partner. You might be surprised by how different some of your aims can be and talking about it now will prevent shockers down the road.
Once you have identified your goals, you will be able to put a number to your aspirations; and be far more aware of the path you will be taking.
Money matters
There is no magic formula and it is not rocket science. However, the art of savings is one of the definite measures to create wealth.
Moreover, the earlier you start saving, the sooner the miracle of compound interest works for you.
Professors Richard Thaler and Shlomo Benartzi of the University of Chicago found these following behavioral insights:
Many people want to save but lack self-control;
Investors are very sensitive to perceived losses;
People procrastinate about making changes to their savings plan.
You can begin by mapping out your financial resources today and in the future.
Identify your current income and expenditure by doing a budget
Estimate your income and expenditure in the medium-term (three years) and longer-term (5-10 years)
Balance your current and future needs and goals
So once you have completed your budget, determine your surplus and make sure you lock it away each month in a regular savings plan.
Start by devising a budget so that you can identify areas where you can cut back. You will be surprised by how small changes to your lifestyle can make a huge impact on your bank balance. For instance, instead of daily $4 lattes, you could switch to the coffee in the office pantry.
Also, it might be a retro idea, but set up a regular savings account to further inculcate the art of saving money.
Once you have worked out with your financial planner how much you need to set aside a month, the next step is to be disciplined.
You cannot build your bank balance if you are weighed down with liabilities.
However, borrowing is not always bad; it can enhance your wealth creation strategy. For example, when you plan to own your home, a home mortgage is a necessary evil.
What is necessary is the self-control to manage debt well and work towards being liability free.
Together with your financial planner review your loans to see if refinancing is needed. If you have credit card debts, shop for the lowest credit card rates, then consolidate your credit card debts in one account and work towards paying it off as soon as possible.
Show me the money
When you have savings, review the opportunities to invest those savings to grow your wealth; and to accomplish this, you need to invest sensibly.
The first question a financial advisor might ask you is: "What is your risk tolerance?"
This is a catch 22 where the investment risk determines your future lifestyle, which should determine your investment risk.
A sound investment approach comes down to the four principles - quality, value, diversity and time.
Investing in a diverse range of quality investments at prices that represent good Value, and investing for sufficient time, will bring you the rewards you seek.
Your investment strategy is determined by how much return you need to achieve your goals. The return then determines the asset allocation (or mix of equities, bonds, property and cash) you need in your portfolio.
Forty to ninety per cent of our investment returns are attributed to asset allocation. It is vital that your planner establishes the right asset allocation strategy that suits your needs.
With that asset allocation, you might experience a certain level of volatility over the short term. However, if that keeps you up at night, you will have to go back and reassess your goals.
Me and my shadows
The necessity of insurance is that it protects your wealth and ensures that your family and loved ones maintain their standard of living should anything happen to you. The three areas to look at are life, health and income protection.
Life: Ensure you have adequate cover, that is, ensure your cover is equivalent to the amount of income from the year of death till the year of retirement minus your net assets discounted at an appropriate interest rate. This means that any personal liabilities that you might have are covered too.
Health: Buy medical and disability insurance so that should a catastrophe take place - be it an illness or an accident - the cost of caring for you is not a burden. Instead, proper financing is in place to look after you medical needs.
Income protection: The objective is to ensure you receive an income for the period of time you are unable to work due to illness and should you return to work in a different role and you have lost income in the process, then it may pay all or part of the difference, to protect your standard of living.
Will power
Who will inherit your assets after your death? If there is no Will in place, your property will be distributed according to law which may be against your personal wishes.
This article was contributed by Marion Chin, Vice President and a Licensed Financial Adviser Representative with ipac financial planning Singapore private limited, which is licensed with the MAS, Financial Adviser's Licence No FA100003-2.
For more information or tips on how to improve your financial situation, please send Marion your comments or questions at marion.chin@ipac.com.sg or visit www.ipac.com.sg. Alternatively, email a1admin@sph.com.sg with the article's title as subject heading.
In preparing this information, we did not take into account the investment objectives, financial situation or particular needs of any person. Before making an investment decision, you should speak to a financial adviser to consider whether this information is appropriate to your needs, objectives and circumstances.
A will allows you to determine precisely who will inherit what and how much and they, in return, will appreciate the fact that you have considered their needs.
You can determine Power of Attorney to the person who will handle your affairs after your death and who will act as guardian for any minor children. Your will will give you the right to express your preferences for burial or cremation and organ donation.
Income from tax
Taxes are inevitable. However, there are a number of simple tax shelters designed to promote savings and investment.
Whether you save with your employer's scheme or through a private arrangement or Supplementary Retirement Scheme (SRS), you get the benefit of full tax relief on contributions, no capital gains tax and an employer's contribution too. Moreover, the money is also safely locked away until you reach your retirement age, and will add to your retirement planning strategy.
To be fiscally robust and in control, you will need to review all the pieces of your finances - savings and debt management, investments, insurance, tax and estate planning - as a single entity; not separately or worse, focusing more on one area and neglecting the rest.
Undeniably, some of us will need a personal financial trainer to provide technical expertise, support and discipline to help our aspirations and the prize.
