A Beginner’s Guide to Financial Planning
June 18, 2024
Photo by NORTHFOLK on Unsplash

Why Do You Need a Financial Plan?

Everyone aspires to live their ideal life one day, whether it’s early retirement, pursuing the exciting path of entrepreneurship, or travelling the world. 

To turn them into reality, strategic financial management is key. 

A financial plan serves as a roadmap you follow to get from the current Point A to your envisioned goals at Point B, having money work for you rather than against you along the way.

While financial planning may initially overwhelm beginners, it is a critical step toward securing financial success and meeting your short to long-term goals. 

In this blog, we simplified the process of personal financial planning for those who are new to this journey. Read on to get started! 

Understanding Your Financial Plan

To craft your financial plan, an important first step is to gain a comprehensive understanding of where you want to be and where you’re currently at. 

This involves a two-fold process: goal setting and evaluating your current financial situation.

Setting Your Goals

Begin by envisioning your short-term and long-term financial goals. 

Here are some prompts to kick-start your investment journey: 

  • What do you want to achieve in the next few years? 
  • What about the next decade or more? 
  • What does your ideal lifestyle look like?

Whether it's buying a home, funding your child's education, or retiring comfortably, when you define your goals, you mark an endpoint on your roadmap that you can head towards. 

Consider applying the SMART criteria for goal-setting: Specific, Measurable, Achievable, Relevant, and Time-bound. This ensures your goals are clear, quantifiable, realistic, aligned with your values, and have a defined timeframe.

Well-defined goals provide a clear purpose for your financial decisions, guiding your investment choices, savings strategies, and overall financial behaviour.

Assessing Your Current Situation

Next, take a comprehensive look at your current financial status. 

This includes assessing your: 

  • Cashflow
    • Income: Salary, side income, and any other money inflows.
    • Expenses: Monthly bills, groceries, and discretionary spending.
  • Net Worth (Total liabilities - Total assets) 
    • Asset: Savings, investments, retirement funds, etc. 
    • Liability: Loans and credit card debt, etc. 

Knowing where you stand enables you to tailor your financial plan to address specific needs and challenges. It helps identify areas that require attention and determine your countermeasures such as debt reduction, expense management, or optimising investment strategies. 

From here, you can personalise your financial plan to bridge the gaps between your current standing and goals. 

5 Things to Consider in Your Financial Plans

In this section, we listed a few crucial building blocks that form the larger foundation of financial planning to give you a headstart.  

1. Emergency Funds

Establishing an emergency fund is like creating a financial safety net.

It ensures that unexpected expenses, such as medical emergencies or unfortunate layoffs, do not derail your progress toward your financial goals.

Given the high cost of living in Singapore, try aiming for three to six months' worth of living expenses. 

It adds a layer of stability, allowing you to stay on course with your planned savings and goals.

2. Debt Management

Dealing with debt is a common challenge for beginners in Singapore.

These liabilities might include credit card debt, student loans, and mortgages.

Prioritise paying off high-interest debts to effectively manage your financial situation. High cost of living aside, high-interest debts are another factor draining your financial resources. 

So, find ways to effectively reduce your debt, and soon you’ll be able to allocate more funds toward your goals.

3. Investment to Generate Funds

Smart investing has the potential to grow your wealth and generate additional income for your goals.

In Singapore's diverse financial landscape, whether it's through stocks, bonds, or other investment vehicles, allocating your funds wisely can generate consistent long-term returns that you contribute towards your financial goals.

By aligning your investment strategy with your risk tolerance and financial objectives, you maximise the impact on your long-term financial plan.

Check out our basic guide to investing to learn more about the different investments offered in Singapore.

4. Insurance Coverage

Insurance serves as a protective shield against unexpected financial challenges. 

There are three main types to consider:

  • Life Insurance: Provides financial support to loved ones in the event of your passing.
  • Health Insurance: Safeguards against medical expenses, such as MediShield Life that covers basic healthcare costs.
  • Property Insurance: Protects your home and assets from unforeseen events like fire or theft.

These insurances mitigate the financial impact on you due to unforeseen events such as illnesses, accidents, or property damages..

With an added layer of security, you can pursue your goals with confidence.

5. Tax Planning

Tax planning is a proactive approach to minimise your tax liability.

You can optimise your tax situation and leave more resources at your disposal by strategically managing your income, deductions, and credits.

Because reduced tax burdens free up more funds for savings, investments, and achieving your financial goals.

With smart tax planning, you can enhance the efficiency of your overall financial plan, charting a smoother route to your goals.

When Should You Start?

Embarking on the journey of financial planning for the first time may seem daunting, but it’s a big step towards reaching your ideal life and bigger goals.

If you want to get more serious with your financial future, consider talking to a financial advisor in Singapore who can provide personalised guidance and plans based on your financial goals.

Financial planning is a continuous process, and with each step, you gain greater control over your financial destiny.

The key is to start now, stay committed, and adapt your financial plan as your life evolves!

We hope this article helped you in your investment journey. Share this with a friend who might need it too.

👋 Need additional advice and support on navigating your financial planning? Book a complimentary consultation with us.

The views expressed in this media do not necessarily reflect the views of PFPFA Pte Ltd (“PFPFA”). The information provided herein is intended for general circulation and not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use will be contrary to local laws or regulation. You should also note that the information presented does not have regard to the specific investment objectives, financial situation or the particular needs of any specific individuals; and therefore, may not be appropriate to your individual needs. You should seek the advice of your financial adviser representative or a professional before making any commitment to purchase or invest in any investment product. 

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