Hello Grasshoppa,
Why Do You Need Financial Planning? Coming out of huge debt many years back & still have budget issues every now & then, I personally think that financial planning is important no matter how much money you have.
Common advice that we always hear from many people is as below :
1. Buy Insurance
2. Have at least 3-6 months cash savings of your salary
3. Invest your money (Property, Stocks, Mutual Fund)
4. Spend wisely
5. Avoid getting yourself into any form of bad debts (Personal Loans, Credit Card)
Personally I agree with all that since there are many people in our lives that will stress the importance of the above points from insurance agent, financial planner, our friends, our family & others. All 5 items above are something that I did not do at my early age except getting my first property & invest in mutual fund at 23 years old. Aside from that, I did not buy my insurance until I’m 28 years old, no cash savings until I get myself out of debt, spend like no tomorrow & get myself into huge debt.
Why Is Financial Planning Important?
I remembered at very early age, a friend of mine / insurance agent approached me to sell me insurance & he told me some stories about this rich man where he can’t afford to pay RM300,000 medical fees for his surgery. He pointed out how important to have insurance to cover such sudden cost. A young me have a thought that it’s not that bad, we can always rely on Government Hospital. LOL. Recently I visited a buddy of mine at Government Hospital & it was chaotic. In order to perform surgery, they have a waiting list & he have to wait for 3 months. Thank God I have insurance now.
At my young age, one thing that I did not understand about insurance is that they have few packages available to suit your budget. If you have budget issue, you can always stick to the lower tier package. Anything can happen any day & anytime. It is important to have one to get yourself insured to avoid any unfortunate situation.
Having 3-6 months cash savings may be a bit hard to some of us at first. It is never easy. What our old senior always tell us, keep 10-20% of your salary a month for emergency. Assume your salary is RM5000 & in order for you to keep 6 months of your salary (RM30,000), you need to save for 30 month with 20% of your salary to reach RM30,000.
I got to admit it’s hard to keep this amount but all I can say is, it’s possible. You can checkout my past article on “4 Effective Ways To Save Money From Your Daily & Monthly Spending” to learn how to save more money. Now you might be thinking why do I need to save 6 months salary, my question to you is why not? You may need for emergencies such as car repairs, car insurance renewals, house deposits, investment opportunity & others. You may not know when you need to use it. It’s safe to just have it. BTW, I’m talking about minimum CASH savings.
I used to feel tempted to spend whenever I see my bank account have lots of money so I will usually hide my money. Not under my bed but in a bank account where I will have hard time finding the bank. Currently I’m putting my cash savings in BSN because it’s hard to find & they still charge RM0.10 transfer fee. Many banks have waived the transfer fee but not BSN. Also recently I have tried Unfixed Deposit by CIMB where you can withdraw your money anytime & by the end of the tenure, they will only pay you interest according to the final amount in your Unfixed Deposit.
One of my favorite quotes from Baron Rothschild is “Invest When There’s Blood In The Streets”. It’s not a violent quote but it means that invest when the market is down. Having emergency fund will definitely give you an edge during bad market. Some smart investors actually profited from market downturn. Imagine buying stocks & property at below market rates. Why not?
I bought my first house & invest in mutual fund at 23 years old but I sold it for 2 reasons. Sold my Public Mutual Fund for my Phuket holiday & sold my house to pay off a portion of my debt. You can read my Early Financial Mistakes HERE.
Conclusion :
Do you think you need Financial Planning now? The hardest part is to start but want to know what is even harder than starting to plan? The answer is NOT PLANNING ANYTHING. You can always start your financial planning with a minimum amount & move on with bigger amount once you are comfortable. Your Basic Financial Planning should be as below :
1. Buy Insurance
2. Have at least 3-6 months cash savings of your salary
3. Invest your money (Property, Stocks, Robo-Advisor, P2P Financing)
4. Spend wisely
5. Avoid getting yourself into any form of bad debts (Personal Loans, Credit Card)
OSS!
