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Financial Planning is Only for the Rich, Myth or Truth?

Financial planning has oftentimes been regarded as something only reserved for the rich and only what the rich people can afford to do. Is this a fair observation? Is it true that if you are not rich, you should drop the idea of financial planning altogether?

Generally, people tend to measure ‘rich’ or ‘poor’ by looking at the amount of wealth a person has.

Regardless of our experiences or background, we basically build wealth via the following means for example – inheritance, employment or entrepreneurship.

I am sure you have seen some people who got rich by being employed and those who obtained wealth by venturing into businesses or those who inherited something. This means that there are plenty of ways to get rich. However, not many are able to remain rich so the question begats itself on why this is so.

Firstly, let us understand what it means by financial planning. According to the Financial Planning Standard Board (FPSB), financial planning is a “process of developing strategies to help people manage their financial affairs to meet life goals.”

As such, we need to have a process to manage our financial affairs to ensure that at the end of the day, we will have the financial muscle to help us achieve our life goals. Financial muscle in this context simply means having enough savings and an ability to achieve our goals that can ultimately be quantified.

Generally, financial planning is supposed to cover the followings areas:

Cash flow and Debt Management;

Risk Management and Insurance Planning;

Investment Planning;

Retirement Planning;

Education Planning;

Tax Planning;

Estate Planning.

The better approach to manage our personal finance is to have a comprehensive financial plan that covers all of the above. In addition,  the strategies that are formed for each of these areas have to be able to support the life goals and aspirations of the person.

If you really believe that financial planning is only a privilege reserved for the rich, are you saying that the not-so-rich have no life goals that need to be met? The idea that financial planning is only for the rich is much akin to the question of whether the chicken or egg comes first.

Contrary to the popular belief that we only can manage our financial affairs once we have surplus, ironically, people who have surplus are those who have done proper planning beforehand.

Those who have started managing their cash flow and debt obligations would end up being in a better position of having surplus. Without having surplus, it would be impossible for one to have savings. If one has handled the risk management process correctly, then one’s savings will be protected.

In the event of financial losses, a person who has invested the savings in a way that is right and in line with his risk capacity will see his wealth grow and become inflation-proof in the long run.

This issue combined with savvy tax planning will minimise the “leakages” and maximize the retention of income.

Eventually, this will enable the person to pursue life goals that are inevitable such as retirement and education planning.

Real estate planning allows the smooth distribution of estate and wealth to be possible, preventing the next generation to be trapped in financial struggles of having to pay off debts and protect the wealth that was built by the deceased which ensures that the family does not backtrack in the event of death.

Based on the statistics published by Agensi Kaunseling dan Pengurusan Kredit (AKPK), reasons people requested for their help are generally of the following nature:-

Apparently, nearly 75% of reasons are due to improper management of money and poor financial planning.

If one has managed his or her financial affairs comprehensively, then it is rather hard for events such as losing a job, slowdown in business, or even high medical expenses to drag one down in life, making one poor ultimately.

One misconception is that when we embrace financial planning, we will have to accept a frugal lifestyle. Instead, the whole point of financial planning is to put the aspirations and life goals of a person at the core. Thus, it would be counterintuitive if you will have to live a frugal lifestyle.

If you embrace financial planning, what you essentially will have to do is to look at your personal finances in totality and then make decisions that are smarter and less attached to your desires and emotions for instant gratification. It does not involve you having to eat less or not go out with your friends at all.

In addition, there are a few ways to build wealth. Apart from inheritance, employment and entrepreneurship, sound financial planning is another way to sustain wealth. Unlike the other ways, financial planning is up to us and it is a process we have full control over.

Also, you do not require the help of any Financial Planning Professional in order to start taking control of your personal finances and financial affairs. All it takes in my opinion, is for us to have awareness and determination to follow the approach. One of the critical qualities is for us to have a strong financial foundation. After all, the future requires cash reserves to tide us through.

The challenge faced by many however, is that they hardly can come up with any cash flow surplus at the end of the month, hence taking away the ability to be in the driver’s seat. After some time, people would rather believe that only the rich can do so since they are perceived to have ability to save money.

What people may not realise however, is that we all have the same ability to accumulate wealth to some degree. The difference perhaps, is the approach towards spending which is why some who earn high income and are rich can also get into financial trouble.

The best, simplest approach I know of is to save a fixed portion of your income before you even get to spend it.

This doesn’t have to be done manually nor does it have to be via the help of an insurance savings plan.

Instead, just open another savings account and set up a standing instruction to transfer a portion of the salary from the receiving account to the savings account monthly to start building up your savings and reservoir via this method.

Since there is a lack of facts depicting financial planning is a privilege reserved only for the rich, I would rather believe that it is a myth. So, d

o not procrastinate. Start saving for your future today!

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