Financial Planning in General
Q1. What is Financial Planning?
Financial Planning is the process of meeting your life goals through the proper management of your finances. These goals may include buying a home, saving for your child’s education, starting a business or planning for comfortable retirement.
Q2. What is the role of a Financial Planner?
A financial planner is someone who uses the financial planning process to draw-up a plan with an objective to meet your life goals. The planner takes a “big picture” view of your financial situation and make financial planning recommendations that are right for you. He takes into consideration all of your needs – budgeting, saving, taxes, investments, insurance and retirement planning. He can also work with you on a single financial issue but within the context of your overall financial situation.
This makes the financial planner different more comprehensive in his approach than other financial advisors who may be trained only on specific areas of your financial needs.
This makes the financial planner different more comprehensive in his approach than other financial advisors who may be trained only on specific areas of your financial needs.
Q3. What is the Financial Planning Process?
This Process consists of six steps:
i. Establishing and defining the client-planner relationshipThe financial planner should explain clearly or document the services to be provided to you and define both his and your responsibilities. The planner should explain fully how he will be paid and by whom. You and the planner should agree on how long the professional relationship should last and on how decisions will be made.
ii. Gathering client data, including goalsThe financial planner should ask for information about your financial situation. You and the planner should mutually define your personal and financial goals, understand your time frame for results and discuss, if relevant, how you feel about risk. The financial planner should gather all the necessary documents before giving you the advice you need.
iii. Analysing and evaluating your financial status
The financial planner should analyse your information to assess your current situation and determine what you must do to meet your goals. Depending on what services you have asked for, this could include analysing your assets, liabilities, cash flow, current insurance coverage, investments and tax strategies.
The financial planner should analyse your information to assess your current situation and determine what you must do to meet your goals. Depending on what services you have asked for, this could include analysing your assets, liabilities, cash flow, current insurance coverage, investments and tax strategies.
iv. Developing and presenting financial planning recommendations and/or alternatives
The financial planner should offer financial planning recommendations that address your goals, based on the information you provide. The planner should go through the recommendations with you to help you understand them to help you make informed decisions. The planner should also listen to your concerns and revise the recommendations accordingly.
The financial planner should offer financial planning recommendations that address your goals, based on the information you provide. The planner should go through the recommendations with you to help you understand them to help you make informed decisions. The planner should also listen to your concerns and revise the recommendations accordingly.
v. Implementing the financial planning recommendation
You and the planner should agree on how the recommendations will be carried out. The planner may carry out the recommendations or serve as your “coach”, coordinating the whole process with you and your other professionals like your lawyers or stockbrokers.
vi. Monitoring the financial planning recommendationsYou and the planner should agree on who will monitor your progress towards your goals. If the planner is in charge of the process, he should report to you on a time basis mutually agreed upon to review your situation and adjust the recommendations, if needed, to complement the changes in your life.
Differences Between Private Retirement Scheme and Deferred Annuity
ReplyDeleteFor PRS, it’s an investment plan issued by asset management companies, where a contribution is similar to unit trust cash investment. After contribution, your money will be separated into two accounts, sub-account A (70%) and sub-account B (30%).
As for deferred annuity, it’s basically an insurance plan issued by insurance companies and will invest the money for you and guaranteeing a stream of income to you after certain years.
1– Income / Return
The return for PRS is depends on the performance of the fund(s) that you chose, meaning no guaranteed minimum return. Meanwhile, for deferred annuity plan, you may entitle for some guaranteed income for certain period depending on how much and how long contributions you made and also your entry age.
2– Partial withdrawal / Partial surrender
You can partially withdraw up to the amount available inside your PRS sub-account B, after your first year contribution. As for deferred annuity plan, you are not allowed to partially surrender the plan. However, if you really want to cash out some money from your plan, you can request for premium reduction. By doing so, provided your policy has acquired cash value, you may get back some money calculated based on the amount reduced in annual premium. Please be mindful that once revised, the guaranteed income (if any) will also be revised and reduced accordingly.
3-Flexibility to transfer / change plan
Another unique for PRS is the existence of Private Pension Administrator (PPA) which was formed to monitor and administer the entire scheme together with an consolidated PRS statement also provided by PPA. Because of this structure, PRS contributors can switch or transfer freely and conveniently with minimal cost from one PRS provider to another.
However, this is not available for deferred annuity plan. Policyholders cannot change their annuity plan from one insurance company to another.
4– Service charge
This is very important because whatever amount you saved from these charges will enhanced your retirement funds savings straightaway. For PRS, all PRS providers are given the flexibility to charge contributors a service charge of between 0%-3%. It was considered very attractive comparing to normal unit trust fund service charge of 5%-7%. Some providers even charge 0% service charge for PRS. You may shop around for the best PRS deal.
Meanwhile, for deferred annuity, it’s all factored inside the premium amount. If we break it down and compare with the same service charge applied, insurance companies generally charges a 5% service fees before allocating balance amount into the underlying funds chosen.
5– Tax Penalty on withdrawal amount before payout period / retirement age
Yes. As mentioned above, an 8% tax penalty will be imposed for premature withdrawal as highlighted. It will only be deducted from the amount you wish to withdraw from PRS sub-account B.
As for deferred annuity, the 8% tax penalty will be calculated based on the total premiums paid which were eligible for tax relief earlier. Such tax penalty deducted will be paid to Inland Revenue Board (IRB) by the PRS provider or insurance company. Anyway, there are some exemptions from the 8% tax penalty whereby contributors can withdraw partial or full amount due to the following reasons such as death, total and permanent disablement, suffering from serious disease or permanent departure from Malaysia (only for PRS).
So by studying financial planing we can be a successful person in future because not everyone get a chance to study about how to manage their finance in daily life.
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ReplyDeleteFinancial planing is a comprehensive evaluation of an individual's current pay and future financial state by using current known variables to predict future income, asset values and withdrawal plans. This often includes a budget which organizes an individual's finances and sometimes includes a series of steps or specific goals for spending and saving in the future. This plan allocates future income to various types of expenses, such as rent or utilities, and also reserves some income for short-term and long-term savings. A financial plan is sometimes referred to as an investment plan, but in personal finance a financial plan can focus on other specific areas such as risk management, estates, college, or retirement.
ReplyDeleteCreating a financial plan helps you see the big picture and set long and short-term life goals, a crucial step in mapping out your financial future. When you have a financial plan, it's easier to make financial decisions and stay on track to meet your goals
ReplyDeleteHere are ten powerful reasons why financial planning is important.
ReplyDeleteIncome: It's possible to manage income more effectively through planning. Managing income helps you understand how much money you'll need for tax payments, other monthly expenditures and savings.
Cash Flow: Increase cash flows by carefully monitoring your spending patterns and expenses. Tax planning, prudent spending and careful budgeting will help you keep more of your hard earned cash.
Capital: An increase in cash flow, can lead to an increase in capital. Allowing you to consider investments to improve your overall financial well-being.
Family Security: Providing for your family's financial security is an important part of the financial planning process. Having the proper insurance coverage and policies in place can provide peace of mind for you and your loved ones.
Investment: A proper financial plan considers your personal circumstances, objectives and risk tolerance. It acts as a guide in helping choose the right types of investments to fit your needs, personality, and goals.
Standard of Living: The savings created from good planning can prove beneficial in difficult times. For example, you can make sure there is enough insurance coverage to replace any lost income should a family bread winner become unable to work.
Financial Understanding: Better financial understanding can be achieved when measurable financial goals are set, the effects of decisions understood, and results reviewed. Giving you a whole new approach to your budget and improving control over your financial lifestyle.
Assets: A nice 'cushion' in the form of assets is desirable. But many assets come with liabilities attached. So, it becomes important to determine the real value of an asset. The knowledge of settling or canceling the liabilities, comes with the understanding of your finances. The overall process helps build assets that don't become a burden in the future.
Savings: It used to be called saving for a rainy day. But sudden financial changes can still throw you off track. It is good to have some investments with high liquidity. These investments can be utilized in times of emergency or for educational purposes.
Ongoing Advice: Establishing a relationship with a financial advisor you can trust is critical to achieving your goals. Your financial advisor will meet with you to assess your current financial circumstances and develop a comprehensive plan customized for you.
Here is the reason why financial planning is important :-
ReplyDelete1) Helps you Evaluate your Financial Situation
2) Helps you Identify and prioritize organization needs and goals
3) Helps Build a Better Future
4) Helps You Reduce the Pressure of Emergency
5) Helps you Make the Right Investment
In general usage, a financial plan is a comprehensive evaluation of an individual's current pay and future financial state by using current known variables to predict future income, asset values and withdrawal plans.[1] This often includes a budget which organizes an individual's finances and sometimes includes a series of steps or specific goals for spending and saving in the future. This plan allocates future income to various types of expenses, such as rent or utilities, and also reserves some income for short-term and long-term savings.
ReplyDeleteA financial plan is a comprehensive evaluation of an investor's current and future financial state by using currently known variables to predict future cash flows, asset values and withdrawal plans. Most individuals work in conjunction with a financial planner and use current net worth, tax liabilities, asset allocation, and future retirement and estate plans in developing financial plans. These metrics are used along with estimates of asset growth to determine if a person's financial goals can be met in the future, or what steps need to be taken to ensure that they are.
ReplyDeleteElements of a Financial Plan
• Financial goals: A financial plan is based on an individual's or a family's clearly defined financial goals, including funding a college education for the children, buying a larger home, starting a business, retiring on time or leaving a legacy. Financial goals should be quantified and set to milestones for tracking.
• Personal net worth statement: A snapshot of assets and liabilities serves as a benchmark for measuring progress towards financial goals.
• Cash flow analysis: An income and spending plan determines how much can be set aside for debt repayment, savings and investing each month.
• Retirement strategy: The plan should include a strategy for achieving retirement independent of other financial priorities. The plan should include a strategy for accumulating the required retirement capital and its planned lifetime distribution.
• Comprehensive risk management plan: Identify all risk exposures and provide the necessary coverage to protect the family and its assets against financial loss. The risk management plan includes a full review of life and disability insurance, personal liability coverage, property and casualty coverage, and catastrophic coverage.
• Long-term investment plan: Include a customized asset allocation strategy based on specific investment objectives and a risk profile. This investment plan sets guidelines for selecting, buying and selling investments and establishing benchmarks for performance review.
• Tax reduction strategy: Identify ways to minimize taxes on personal income to the extent permissible by the tax code. The strategy should include identification of tax-favored investment vehicles that can reduce taxation of investment income.
• Estate plan: Create arrangements for the preservation and distribution of assets with attention to minimizing settlement costs and taxes. Review and update estate panning instruments, such as wills, inter-vivos trusts, power of attorney, medical directives, and marital trusts.
Financial Planning helps in reducing the uncertainties which can be a hindrance to growth of the company. This helps in ensuring stability an d profitability in concern
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