Investing is not financial planning By: Alvin T. Tabañag Recently, I received a message from a certain Manny (not Pacquiao). He wanted to know where he can invest his P50,000. As a standard reply, I asked why he is investing his money. All he could come up with was he just wants it to grow and that it was for his family’s future. Ok, fair enough. I inquired further if he has a list of financial goals, a budget, and a list of assets and liabilities. He answered no, no, and no. I didn’t ask any more questions and thought to myself, “you still have a lot planning to do, buddy, before you can secure your family’s future.” Many who are fixated with investing assume that it’s the most important thing in planning for your financial future. In fact, some are of the opinion that by investing they are already doing financial planning. Wrong! Investing is not financial planning. Investing is just one of the many areas that you consider in financial planning. And it’s not even the one that will impact your finances the most (more on this next week). Following are the areas that you need to look into if you do financial planning the right way. - Financial goal-setting - Assessment of financial condition - Saving, budgeting and expense management - Personal debt management - Insurance planning - College education planning - Investment planning - Retirement planning - Estate planning Proper financial planning requires that you look into all of the areas which apply to you. (You can skip college education planning if you don’t have children and estate planning if your estate is less than P2 million. If you plan to die sooner, you may also skip retirement planning.) If you ignore or overlook just one area you could end up with a financial plan that is not feasible and unrealistic; a plan that will not work! Consider what will happen if Manny focuses only on investing and nothing else. Let’s say he earns 10-20% return every year for the next ten years. Does it mean he’s well on his way to a secure future? Not by a long shot. To begin with, he will need a lot more to be on easy street. If he still has debts to pay, all his earnings will just be used to pay it off. Or worse, he could throw it all away by spending recklessly. If Manny or any member of his family gets hospitalized and he doesn’t have adequate health insurance, then he can forget about his investment because he will have to pull it out to pay for medical bills. So he goes back to scratch. And what if he no longer wakes up tomorrow? Will P50,000, or even P500,000 be enough to keep his bereaved family living comfortably in the next several months or years? I think not! It’s ok to start investing small amounts now so you can have a feel for it. But before you go all out, create a personal financial plan first which considers the different areas of your finances. Take note that these areas are interconnected. Any change in one area can impact several others. For example, if you increase payment for debt, you will have less money for savings and investment. Or if you put more money in your retirement savings, then you will have less funds for paying off debt and thus, end up paying more in interest. When you plan for one financial area it should be in consideration with other areas, so that your overall financial plan will be realistic and workable.
Posted on: Tue, 26 Nov 2013 06:41:49 +0000
Trending Topics
Recently Viewed Topics
© 2015