PERSONAL FINANCIAL PLANNING

Name: Norizan Md Akim

Student ID: 2009258598
Subject: Finance 745
Lecturer: Dr. Rokiah Hassan
Topic: Personal Finance Planning
Name: Norizan Md Akim
Student ID: 2009258598
Subject: Finance 745
Lecturer: Dr. Rokiah Hassan

If you plan to fail, you fail to plan. This is exactly the case of a person who does not have a solid financial
planning, and losing here means ending up with mountain of debt, frequent calls from collectors, living
from one pay check to another and ultimately, no saving for emergencies. It is extremely difficult to
achieve peace of mind when a person is not financially stable and surrounded with debt, and it is not
impossible that is could affect our relationship with people.

There are many definitions available on the web or books concerning financial planning, but basically it is
about planning ahead to achieve our life dream or goal in the future. In order to achieve this goal, a
strategic action should be implemented now, taking into consideration on how we budget, save, clear our
debts, decide on protection & education plan and investment activity.

Life dream or goal differs from one individual to another. It could be a vacation to a particular place,
purchasing house or car or simply a peaceful and comfortable living in our retirement years. While money
is not everything, it is certainly the engine that brings us to our basic needs. Therefore a smart person will
think and estimates the amount of money he require for this purpose and how much he need to
progressively save or invest now to end up with the amount that he desires.

There are many ways to do financial planning. Many banks offer this facility, and there are also certified
financial planners especially those involved with insurance or unit trusts. We could also use search engine
to find thousands of websites offering free service on how to create a financial plan. We just need to
choose the method that we are comfortable with and stick to it religiously - as discipline plays a huge role
in ensuring the success of our plan. Nevertheless, if we reached a situation where professional
intervention is required, then we could resort to non-profit agency like AKPK, where they offer
personalized financial plan at no cost, and extra negotiating poour to talk to the financial service provider
that we have problem with.
Finally, we should see this approach as positive, not fun-limiting process. While it is true that we have to
live within means and stop ourselves from unnecessary spending now, but if we have enough money in
the saving, it will guarantee lots of fun in the long run.

The next segment is looking at how to devise a financial plan.

a. Understanding our current financial status

First and foremost, we have to access our current financial status. This is like biting into the reality, where
we identify our sources of income and asset against our liabilities. The steps are:

 Divide your financial life into six categories: assets, liabilities, property and casualty risk (house,
car, personal injury and so on), personal risk (life, health, disability and so on), education (for
children, if applicable) and retirement.

 Put a dollar figure to each category.

 Add up all assets, and then add up all liabilities.

 Subtract liabilities from assets to calculate your net worth.

 Evaluate your lifestyle if the net worth is negative, and investigate ways to pay off debt. Some
other ways to think of if the net worth is negative, is to increase your income (e.g. doing part time
job) or reduce spending.
Source: www.akpk.org.my

b. Setting financial goal

Having financial goal will help you to determine where our money will come from and what it will go
towards. A financial goal should specific and achievable. Having a clear specific goal is a good
motivation for us to continue implementing our financial plan. It is strongly recommended that we write
our goal (another source of motivation, if we get to see it every day!) and ideally the goal should be
divided in three column, which short term, mid -term and long-term. In writing the goals, we have to take
into consideration of aiming to have enough money in case of emergencies. This will require us to set up
an emergency fund, which can be a source of relief during unexpected situations.
c. Creating a budget

Creating a budget may not sound like the most exciting thing in the world to do, but it is vital in keeping
our financial house in order. Before we begin to create our budget it is important to realize that in order to
be successful we have to provide as much detailed information as possible. Ultimately, the end result will
be able to show where our money is coming from, how much is there and where it is all going.

Here's How:

1. Gather every financial statement we can. This includes bank statements, investment accounts,
recent utility bills and any information regarding a source of income or expense. The key for this
process is to create a monthly average so the more information we can dig up the better.

2. Record all of our sources of income. If we are self-employed or have any outside sources of
income be sure to record these as well. If our income is in the form of a regular paycheck where
taxes are automatically deducted then using the net income, or take home pay, amount is fine.
Record this total income as a monthly amount.

3. Create a list of monthly expenses. Write down a list of all the expected expenses we plan on
incurring over the course of a month. This includes a mortgage payment, car payments, auto
insurance, groceries, utilities, entertainment, dry cleaning, auto insurance, retirement or college
savings and essentially everything we spend money on.

4. Break expenses into two categories: fixed and variable. Fixed expenses are those that stay
relatively the same each month and are required parts of our way of living. They included expenses
such as our mortgage or rent, car payments, cable and/or internet service, trash pickup, credit card
payments and so on. These expenses for the most part are essential yet not likely to change in the
budget.

Variable expenses are the type that will change from month to month and include items such as
groceries, gasoline, entertainment, eating out and gifts to name a few. This category will be
important when making adjustments.

5. Total our monthly income and monthly expenses. If our end result shows more income than
expenses we are off to a good start. This means we can prioritize this excess to areas of our budget
 such as retirement savings or paying more on credit cards to eliminate that debt faster. If we are
showing a higher expense column than income it means some changes will have to be made.

6. Make adjustments to expenses. If we have accurately identified and listed all of our expenses
the ultimate goal would be to have our income and expense columns to be equal. This means all of
our income is accounted for and budgeted for a specific expense.

If we are in a situation where expenses are higher than income we should look at our variable
expenses to find areas to cut. Since these expenses are typically essential it should be easy to shave a
few dollars in a few areas to bring we closer to our income.

7. Review our budget monthly. It is important to review our budget on a regular basis to make sure
we are staying on track. After the first month take a minute to sit down and compare the actual
expenses versus what we had created in the budget. This will show we where we did well and where
we may need to improve

Once we are comfortable with the budget and able to see positive surplus after budgeting, then we could
advanced in a more complex financial planning, i.e. considering insurance protection plan, education plan
for our children and wealth maximization via unit trust purchase, or via multitude of investment tools
available now in the market. Depending what our goals are, we should be able to decide on the best
financial product and be comfortable of the risk that could arise.

In a nutshell, a personal financial planning should put us into perspective on our current financial
situation and jump-start a pro-active and progressive plan either to put us on the right track or maintain as
is, which will help us to realize our dream in the future. As the quotation is AKPK website indicates “The
more you know, the better you’re in control of your finances”.

Sources:

1. www.akpk.org.my
2. http://financialplan.about.com/od/budgetingyourmoney/ht/createbudget.htm
3. http://www.ehow.com/how_12568_create-financial-.html