Financial Planning

Understanding the Importance of Financial Planning

What is Financial Planning?

Financial planning is an umbrella term that covers the various aspects of one’s financials. It covers 3 main aspects which are wealth accumulation, wealth preservation and wealth distribution.

Financial Palanning

Financial planning is important for everyone, regardless of age, social class, education level, and so on. It is for everyone!

While many presume that financial planning is about re-assessing our spending habits to increase savings, it is much more than that. There are 7 pillars of financial planning:

Financial Planning Pillars

Every individual has their own balance sheet and income statement. This is the most basic foundation block which we constantly need to assess and re-evaluate.

It is simply doing an assessment of our cash inflow (income sources) against our cash outflows (expenses). A wise individual will always have a net positive cashflow, whereas a lack of discipline person may end up spending more than their earning which means there will be no extra money set aside for savings or investments.

In a larger picture especially for the affluent and wealthy individuals and families, it is about the assets versus the liabilities they have. If there are inadequate assets to cover liabilities, any mishap or unexpected event can increase exposure to inability to meet liabilities fully which may affect the the rest of the family in terms of lifestyle or livelihood.

Financial planning is about planning ahead to protect yourself and your loved ones and ensuring that there is constant income that flows into your account.

Aside from the regular expenses that one has each month such as home expenses, food expenses, car loan(s), house loan(s), children’s education (where applicable), a financially wise person would have an amount or percentage (%) set aside each month allocated for savings and investments.

When it comes to investments, there are several factors that determine the type of  investment vehicles used and investment strategy deployed which make up one’s investment portfolio (this is a non-exhaustive list and in no particular order):

  1. Risk appetite
  2. Goals
  3. Timeline or horizon
  4. Fund availability
  5. Stage of life – single, married, retired, widowed, etc
  6. Investor’s availability or monitoring preference (active or passive)

The extent of risk and diversification in one’s investment portfolio along with asset performance will define the income the investments generate as gains or even losses.

As the old adage says, “Do not put all your eggs in one basket,” which means do not concentrate all of your resources in one area, because if that endeavor fails, you will be left with nothing.

Putting all the money in shares or even cryptocurrencies may be risky yet profitable, while putting too much in debt instruments or even in Fixed Deposits may yield very little returns. Simply put, the performance of investments directly affects liquidity which is tied to your financial position. Wise and prudent diversification of assets is important as it helps to hold the value of your wealth.

Insurance is a financial planning tool that may often be overlooked especially in the Asian context or one that is often just pushed by an insurance agent without proper use case that is relevant to the individual’s situation, needs, status and financial plans.

With proper advisory and consultation taking into consideration a person’s circumstances, the relevant financial risk can be addressed and mitigated through this tool and it becomes an added asset class into your asset portfolio. A smart and wise individual will always engage an experienced financial consultant to perform periodic restructuring review of their insurance plans. This is to ensure that the right coverage and protection is intact and up-to-date to insulate himself/ herself, business(es) and loved ones from overexposure of liabilities in event of mishap or unexpected event.

For the affluent and wealthy individuals and families, the periodic restructuring review is essential to ensure that they will have sufficient liquidity and cash access which is creditor proof, probate proof and tax proof enabling the family to sustain their lifestyle. Periodic restructuring should take place when there is a life change such as income increase, getting married, new baby, etc.

We have experienced restructuring consultants who are able to look through your policies to optimize them in the best manner while taking care of your concerns and needs. Inquire with us to know more!

For any individual who is raising children, education planning is an aspect worth looking into as early as possible. When children reach the age of 18, the usual route is to enter college or university to pursue their Bachelor’s Degree and this can be a hefty bill especially for parents/ guardian(s) who are preparing to send their children abroad.

Every parent/ guardian wishes for their children to be successful and providing the means to receive quality education sets their future on a brighter track. No one would want their child to miss out on an excellent educational opportunity due to financial constraints. As education costs continue to increase, there is more reason to start proper financial planning. This is to ensure that there will be sufficient funds to provide for children’s education. 

In case there is financial deficit, it can be tackled by setting aside an amount of money regularly and years in advance, preferably as soon as the child is born. By investing it through safer financial planning tools, it can mature in time for the child’s graduation and higher education studies. In that manner, educational plans can be fulfilled and the child’s future is secured. That’s a parent/ guardian responsibility done well!

Our team of consultants are experienced with helping many parents and guardians alike with education planning and we are ready to assist you. Be proactive in taking the first step towards a better and brighter future for the next generation by inquiring with us!

 

Taxes are income to governments. In Malaysia, any outstanding taxes owing must be settled before the estate of a person is disbursed. There are 2 types of taxes governed by Income Tax Act 1967 that you need to be aware of:

  1. Personal taxes
  2. Business taxes

At the present moment, there is no wealth and inheritance tax in Malaysia which makes it more straightforward for one to plan financially. However, there are recent talks in 2022 that the re-introduction of inheritance tax in Malaysia may be revisited.

Proper income planning is important for a person to enjoy his/ her retirement. A person must determine the sort of lifestyle he/ she wishes to enjoy and how early they would like their retirement to be.

3 key benefits that you can enjoy when it comes to retirement planning:
1. Peace of mind for the future
2. Financial Independence
3. Early retirement

There are 2 types of retirement:
1. Voluntary retirement is a happy situation, the most ideal because you can decide when and how you would want to spend your retirement meaningfully and enjoyably!
2. Involuntary retirement is something out of your control. This may happen unexpectedly when you cannot work physically – most likely due to illness or accident. It is also a period of time where you need an income to support you! Why not plan for this in case it happens and in that way, you have more control because you have guaranteed income that pays you and there is no need to withdraw from your savings.

No matter how young or old a person is, planning for retirement is not an option but a necessity. No one would like to rely on someone else financially! We can always plan for voluntary retirement but we cannot prevent involuntary retirement from hitting us – as such, it is important to protect your income against involuntary retirement.

Estate planning is about planning for the generations. There are 7 aspects of estate planning to consider:

1. Legal
2. Tax
3. Inheritance
4. Charity
5. Retirement
6. Income
7. Asset transfer

It’s not just about having wills & setting up foundations and trusts. Estate planning is far more than that, it is about transferring the maximized version of your wealth to the next generation in such a manner that the next generation will be able to flourish from there, without squandering all that they inherit. Would you rather give a lumpsum or streams of income to your next generation?

Why Do I Need Financial Planning?

Did you realize that as we grow older and thanks to the advancement of technology (ease of access to shopping, Apple Pay, AliPay, etc) and social media such as Instagram and TikTok, there are more and more things that we yearn for and always want?

Everything we want has to do with the income we earn. With increasing income, we can get a better house, a better car, start a family, raise children, go for holidays and travel around the world and the list goes on! These are financial goals that we are all working towards.

Financial planning is about coming up with the effective strategies to help you achieve these financial goals. Financial planning is not only about you. It is about your family and your future generations. When you do financial planning right, your future generations can leverage the foundation you have created to achieve their goals faster. When you do it incorrectly, they suffer because they are forced to start from scratch. To be able to create such an opportunity for your future is a privilege!

Some might think and live by the motto of ‘You Only Live Once (YOLO)’. Now, while there is absolutely nothing wrong with wanting the best for ourselves at least once in our lifetime, we all hope that we will live for a long time so here are some questions to consider:

1. What sort of lifestyle do you want to live in the medium to long term?
2. Do you want to enjoy as much as you are enjoying right now?

The person who has the power to provide for a better future is YOU! Aside from enjoying now, why not start planning ahead as well? Let us make it easy for you to plan!

 

Benefits of Financial Planning

There are 3 key benefits of financial planning:

Haven’t you realized that life is an unpredictable journey with highs and lows? The future is filled with uncertainties. No one knows what is going to happen.

As we are working now, income continues to flow into our account which enables us to do the things we want to do, the things we love to do, it gives us the freedom.

How can you be sure that your income will be enough for your living expenses when you retire? Financial planning is important to ensure that in the future when you retire (voluntary or involuntary), you will have sufficient money for all the lifestyle choices you decide to undertake. It removes that uncertainty in the future so that you can retire comfortably after years of work. You can live a YOLO life and enjoy the best! What a great feeling to have!

No one likes to rely on someone else financially to sustain, maintain or live the lifestyle you like. From the day we start working, we are all working to earn income to be self-sufficient.

Beyond self-sufficiency, we then move to financial independence. Financial independence is a state when you have enough wealth without having to work for it. True financial independence cannot be achieved without prudent financial planning.

Here’s a thought to consider. Imagine you are 55, would you prefer to be self sufficient by continuing to work for the rest of your life or would you prefer to be financially independent and enjoy with your loved ones while money keeps coming in?

In the world of economics, there is the term called ‘opportunity cost’. Would you just want to enjoy now and forgo your future enjoyment?

Could we enjoy now and also be able to enjoy later? The answer is yes! Of course, there will be a sacrifice that you need to make for this to happen, but it’s worth it!

A well designed financial plan will allow one to retire early. The earlier financial planning is carried out, the easier it is to get there. In STORWEALTH, we make it easy for you.

With the power of compounding interest, early commitment to a financial plan allows you to retire early very easily. Everyone knows this, but not everyone is committed to their own future but that’s our individual responsibility and we are here to help!

Let us help empower you to realize your financial goals and dreams

Curious of how to begin or whether to know if you’re on the right track? Drop us a message! We’ll be happy to look into the area that matters most to you. Just a friendly chat, no obligations we promise!