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Financial planning, put simply, is the goal-setting,
forecasting, budgeting and action-programming of the
inflow, outflow and deployment of one’s financial
resources for a well-planned, happy and fulfilled life.
This is a dynamic activity undertaken in the context of
the person’s “stock” of time, energy and money, as well
as that of the changing external economic environment.
At the
onset of his career, perhaps fresh out of college and
just new on the job, the individual has a high
“inventory” of energy and enthusiasm in the sojourn
toward the direction of the limitless horizon of his
aspirations.
However,
corollary to this entering “the real world” is survival
in it. Hence, this is also the stage in life when he
struggles to make ends meet. The Time-Energy-Money Gauge
would register: Time: Full; Energy: Full; Money: Near
Empty.
Financial planning at this point entails maximizing time
and energy which are his greatest resources. He could
benefit from money-compounding or “interest earning
interest” on small savings set aside and growing on this
basis for the long haul, so to speak. Also, youth and
energy afford him to take relatively larger risks for
higher returns on small but many “investment” projects
(e.g. “growth” stocks for capital appreciation) as he
can bounce back easily from possible reversals.
When the
individual is in the prime of life and career, he would
have typically reaped the just rewards of the time and
energy “stock” spent on his chosen career, and his
“stock” of money would have already been built up to a
less stressful level.
A
reading of the Time-Energy-Money Gauge at this stage
would show: Time: Half-full; Energy: Half- full; Money:
Half-full. His goals, pertinent to this life chapter,
are now focused on the family (e.g. insurance
protection, educational funds accumulation) and perhaps
on an outlay for a charity that would give vent to his
altruistic leanings by helping the less fortunate in his
community. His outlook may be a combination of capital
gains/appreciation and fixed-income inflow.
As he
approaches/takes on senior citizenship, the individual
usually comes to the end of his assets-accumulation
binge and is just about ready to hang up his “boxing
gloves” in favor of his garden tools. The
Time-Energy-Money Gauge at this stage would reflect:
Time: Near Empty; Energy: Near Empty; Money: Full. His
priorities would be wealth transmission (e.g. estate
planning) and the assurance of steady fixed-income cash
(for his health-related expenditures) rather than the
potentially higher-return investments.
The
financial-planning external environment that one has to
deal with includes the current situation and outlook of
inflation, interest rates, exchange rates, tax
structures that would affect the current and expected
income/expense streams related to the preset financial
goals.
These
general ideal scenarios seem simple enough as to make
one consider taking action on one’s own. But as in most
cases, it is not easy for one to be objective, let alone
be equipped with sufficient financial savvy (not to
mention patience), to undertake the process of financial
planning. As can be surmised, the process is an
iterative one where goals and programs may have to be
assessed and reassessed according to one’s phase in life
and the “economic cycle” the external environment is in.
A comprehensive financial plan typically covers the
following areas:
1.
Budgeting: To assess discretionary versus
nondiscretionary expenses; to list down all cash sources
from both active and passive incomes; to assess the
needed savings to reduce and wipe out debts.
2.
Investment planning: To assess investment amounts needed
to generate cash-flow amounts required by predefined
goals.
3.
Insurance planning: To assess protection/survivorship
gaps to be filled up by insurance.
4.
Education planning: To assess programmed amounts to be
made available to meet education-related expenses.
5.
Retirement planning: To assess retirement-lifestyle
expenses and the low-risk funds needed to support the
same.
6.
Estate
planning: To determine the alternative modes of wealth
transmission with the end in view of providing funds to
those you will leave behind in an equitable and
least-cost manner.
7.
Tax
planning: To assess all tax obligations on all income
streams as well as for cost-effective estate planning.
This is
where the registered financial planner (RFP) can be most
useful, if not absolutely necessary. The RFP can guide
the individual in preparing a financial plan and helping
him make enlightened choices in advancing toward and
actually attaining the goals he had defined for himself.
The RFP has passed a rigorous training program and
certification examination under the auspices of the
Registered Financial Planners Institute of Ohio, the
USA, and adheres to the RFP code of ethics.
The RFPs
in the Philippines who belong to the Association of
Registered Financial Planners in the Philippines are
always available to assist any and all who require their
services. For the list of RFPs in the Philippines one
can access www.rfp-philippines.com.
****
Jesus P. Posadas is a registered financial planner (RFP)
admitted by the Registered Financial Planners Institute
of Ohio, the USA, and member of ARFPP (Association of
RFPs in the Philippines). For comments on the
aforementioned article, you can e-mail the author at
jessppos@pldtdsl.net and for RFP-related matters e-mail
RFP Philippines at info@rfp-philippines.com. Catch
“PESOS and SENSE: Weather Proofing Your Personal
Finance” on October 29, at the Makati Sports Club with
Chinkee Tan, J. Randell Tiongson, Efren Cruz and Francis
Kong. Join the 13th RFP Program (January 17 to March 7,
2009). Visit www.rfp-philippines.com or inquire at info@rfp-philippines.com/Tel.
634-2204. |
