IT is said that when 26-year-olds today reach the age of 60, more than 65 percent will be broke, close to 30 percent will still need to work, 4 percent will be financially-independent and only 1 percent will be wealthy. These sad statistics reflect the state of financial planning in the country.
Financial planning has been taken for granted even among well educated professionals. The emphasis is more on finding a job, starting a business and building a career and yet very little effort has been made with regards to addressing the need of making a comprehensive financial plan for their lives.
Financial planning is pure and simple common sense and it is a wonder why so many people even well educated professionals still get into problems regarding money. People often quip that money is the root of evil but actually the Bible says “the love of money is the root of all evil.” In other words the problem is not about money but the attitude towards money, and truly the Bible hits the nail on this one. As a financial planner and one who wears so many hats professionally let me share to you the top 5 money problems that I believe aptly applies even to well educated professionals.
1. Not having a comprehensive financial plan. Your becoming a professional didn’t just happen by chance. You came up with a plan and then executed such plan that is why you became a professional. It is the same thing in your financial plan. You got to have a financial plan. It all starts from there.
When we talk about financial planning people often get this wrong idea that they are suppose to be “kuripot” (parsimonious). You won’t go out on trips or eat in fancy restaurants. You hardly spend any money at all. What good would that do if you are a miser and then one day you go out of your office and you get hit by a truck?
On the opposite end of the spectrum is the “live like a king, die like a rat” mentality where you are a “one day millionaire” and find yourself begging from your children when you grow old. The point of financial planning is making sure you enjoy each stage of your life whatever stage that might be.
A comprehensive financial plan is simply based on goals and dreams, determining how much it costs to fund it; of course, adjusting it for inflation. The plan also requires:
- having a look at what you have through your balance sheet;
- determining how much free cash flow you have by looking at your income statement;
- factoring in all your living expenses and discretionary expenses to enjoy life now;
- determining how much of your free cash flow gets invested on a monthly or yearly basis to fund your goals and dreams;
- knowing the target rate of return of investment and knowing what vehicle to put your money into to reach that target;
- preparing for the contingency of dying too soon, making sure that your family has enough left behind; and,
- reparing for living long, making sure that you have enough to enjoy life later on.
2. Failing to talk about finances with your spouse. It is a well-known fact that problems about money is the number-one cause of marital problems, either from the lack of it or too much of it. Often, a financial plan is unsuccessfully executed because of an uncooperative spouse.
Sit down with your spouse and talk about your financial situation. Behind a successful financial plan is always a spouse that cooperates with each other, especially when it comes to money matters.
3. Failing to prepare for retirement. This is an equally-important point to think about considering that a lot of professionals are self-employed and do not have somebody setting up a “retirement fund.” Sadly in a lot of cases, self-employed professionals still keeps on working even beyond the retirement age.
While there are those who are still working beyond the retirement age not for money but to keep themselves busy, there is the sad reality that there are those who are still working because they need to support themselves and their family on a day to day basis. Preparing for retirement should be made given emphasis in any comprehensive financial plan.
4. Disregarding the importance of health. The adage “health is wealth” certainly is true and applies to all. When all late-night drinking spree in the guise of client meetings and all of the cholesterol-rich and fatty food takes toll on our body, we will soon realize how expenses related to health and wellness can become a huge part of our expenses.
I am reminded of a conversation I had with a law practitioner who thinks a lot of lawyers die from heart attack. I am not surprised at all. Considering the stress that we all undergo in our professions, we have a tendency to set aside things that are not urgent but very important and one of this is good health.
Aside from eating right, exercising and knowing how to properly handle stress, preparing for medical emergencies—the possibility of being afflicted through a dreaded disease—through a medical health plan or program should be made part of our comprehensive financial plan.
5. Not having a comprehensive estate plan. It equally comes as no surprise that a lot of well-educated professionals who have well-educated children are left quarrelling and suing each other over his or her estate considering that they have seen the effects of the lack of planning for their estate and considering further that they have the legal knowledge on how to go about to plan the orderly distribution of their estate.
Zigfred Diaz is a Cebu-based registered financial planner of RFP Philippines. Aside from practicing law, he is a licensed environmental planner, real-estate broker and appraiser. To learn more about personal-financial planning, attend the 94th RFP program in March 2022. To inquire, e-mail email@example.com or text 0917-6248110.