Time, Energy and Money
Financial planning, put simply, is the goal setting, forecasting, budgeting and action-programming of the inflow, outflow and deployment of one’s financial resources for a well-planned, happy and fulfilled life.
Financial planning, put simply, is the goal setting, forecasting, budgeting and action-programming of the inflow, outflow and deployment of one’s financial resources for a well-planned, happy and fulfilled life. This is an activity done in the context of a person’s “stock” of time, energy and money, as well as that of the changing external economic environment.
At the onset of his career, perhaps fresh out of college and new on the job, an individual has a high “inventory” of energy and enthusiasm in the sojourn toward his aspirations. However, corollary to this entering “the real world” is survival in it. Hence, this is also the stage in life when he struggles to make ends meet. The Time-Energy-Money Gauge, would register: Time: Full; Energy: Full; Money: Near Empty. Financial planning, at this point in time, entails maximizing the time and energy, which are his greatest resources. He could benefit from money-compounding or “interest earning interest” on small savings set aside and growing on this basis for the long haul, so to speak. Also, youth and energy afford him to take relatively larger risks for higher returns on small but many “investment” projects (e.g., “growth” stocks for capital appreciation) as he can bounce back easily from possible reversals.
When the individual is in the prime of life and career, he would have typically reaped the just rewards of the time and energy “stock” spent on his chosen career and his “stock” of money would have already been built up to a less stressful level. A reading of the Time-Energy-Money Gauge at this stage would show: Time: Half full; Energy: Half full ; Money: Half full. His goals, pertinent to this life chapter, are now focused on the family (e.g., insurance protection, educational funds accumulation) and, perhaps, on an outlay for a charity that would give vent to his altruistic leanings by helping the less fortunate in his community. His outlook may be a combination of capital gains/appreciation and fixed-income inflow.
As he approaches senior citizenship, the individual usually comes to the end of his assets-accumulation binge and is just about ready to hang up his “boxing gloves” in favor of his garden tools. The Time-Energy-Money Gauge at this stage would reflect: Time: Near Empty; Energy: Near Empty; Money: Full. His priorities would be wealth transmission (e.g., estate planning) and the assurance of steady fixed-income cash (for his health-related expenditures) rather than the potentially higher-return investments.
The financial planning external environment that one has to deal with includes the current situation and outlook of inflation, interest rates, exchange rates, tax structures that would affect the current and expected income/expense streams related to the pre-set financial goals.
These general ideal scenarios seem simple enough as to make one consider taking action on one’s own. But as in most cases, it is not easy for one to be objective, let alone be equipped with sufficient financial savvy (not to mention patience), to undertake the process of financial planning. As can be surmised, the process is an iterative one where goals and programs may have to be assessed and reassessed according to one’s phase in life and the “economic cycle” the external environment presents. A comprehensive financial plan typically covers the following areas:
- Budgeting (to assess discretionary versus nondiscretionary expenses; to list down all cash sources from both active and passive incomes; to assess the needed savings to reduce and wipe out debts)
- Investment planning (to assess investment amounts needed to generate cash flow amounts required by predefined goals)
- Insurance planning (to assess protection/survivorship gaps to be filled up by insurance)
- Education planning (to assess programmed amounts to be made available to meet education-related expenses)
- Retirement planning (to assess retirement-lifestyle expenses and the low-risk funds needed to support the same)
- Estate planning (to determine the alternative modes of wealth transmission with the end-in-view of providing funds to those you will leave behind in an equitable and least-cost manner)
- Tax planning (to assess all tax obligations on all income streams, as well as for cost-effective estate planning)
This is where the registered financial planner (RFP) can be most useful, if not absolutely necessary. The RFP can guide the individual in preparing a financial plan and helping him make enlightened choices in advancing toward and actually attaining the goals he had defined for himself. The RFP has passed a rigorous training program and certification examination under the auspices of the Registered Financial Planners Philippines and adheres to the RFP code of ethics. The RFPs in the Philippines are always available to assist any and all who require their services.
Jesus P. Posadas is a registered financial planner of RFP Philippines and columnist in Business Mirror.
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