What is financial planning?
For most things that are important in our lives, whether it’s getting into university, your wedding, your first child or even your next vacation, you probably had a plan for it. It typically involves laying down your goals, setting down a plan of attack and adhering to that plan — financial planning follows the same logic.
Financial planning is the ongoing process of reviewing your finances holistically, followed by creating and implementing a plan aimed at achieving your financial goals.
Having a sound financial plan can help to reduce stress about money, and help build a nest egg for important life goals such as saving for retirement.
Follow these five quick steps to get yourself started on your financial plan:
1. Set your financial goals
The first step to financial planning is to identify your goals. More often than not, people do not have their financial goals written down.
You can start by listing out your short, medium and long-term goals. Below are some financials goals for your reference:
- Short-term financial goals (less than 5 years or even shorter): Build an emergency fund, travel, car purchase etc.
- Medium-term financial goals (5-10 years+): Wedding, downpayment for first home, child’s education,etc.
- Long-term financial goals (10 years+): Saving for retirement, healthcare and medical expenses, succession planning etc.
Note that everyone can have very different financial goals and it depends on many factors, including your current life stage, personal circumstances, current and future lifestyle etc.
Your goals are at the centre of your financial plan, list out the estimated amount and target time horizon for each of them. Success will be how well your track against reaching these goals, hence the more specific you are, the easier it will be for you to track your progress down the road.
Read more: How to prioritise your financial goals
2. Assess your financial situation
Now that you know what your financial goals are, the next step is to look closely at where you stand financially. Start by creating your personal balance sheet — make a list of everything you own (your assets) and everything you owe (your liabilities).
Current assets include cash in the bank, short-term investments such as money market funds as well as your liquid investments such as stocks, ETFs, and mutual funds (also called unit trusts).
Non-current assets include pension investments such as your MPF/ORSO balance, property ownership and other assets such as insurance policies, or other items such as tradable and transferrable club memberships.
On the liabilities side, you can list out short-term secured or unsecured loans such as car loans or tax loan as well as long-term debts such as mortgage.
Next, just like a CFO taking care of a company’s finances. After establishing your personal balance sheet, you can start taking a closer look at your cash flows.
3. Create a budget and track your money
How much money is coming in and coming out every month? Track your expenses so that you have a better idea of your spending and savings.
Looking at tips on how to boost your monthly savings? Break down your expenses into different buckets, determine whether they are truly “necessities” or “treats”.
Read more: How to save more money — 5 saving tips for Hong Kongers
There are now many budgeting tools available, make use of them to help you easily track all your incomings and outgoings each week, month and year.
4. Create and implement an investment plan against your goals
Now that you have established your goals and your financial situation, here comes the most important part — create an investment portfolio at the appropriate risk level and asset allocation mix for each of your financial goals listed in step one.
For short-term goals such as creating an emergency fund, you can look to build an investment portfolio using low-risk, liquid investments such as money market funds.
For medium-term goals, such as saving for a house downpayment in 5 years. You can look to build a globally diversified balanced portfolios such as the classic 60-40 portfolio (60% stock, 40% bonds).
For longer-term goals, such as saving for retirement, you can look to grow your money more aggressively to harness the compounding effects of long-term investing, famously dubbed the 9th wonder of the world by Albert Einstein. You can choose to invest in equities or for qualified Professional Investors, introduce alternative investments such as private equity and hedge funds into your long-term retirement portfolio.
As a result, your overall investment holdings should be the sum of all your individual investment portfolios created specifically for your different financial goals.
5. Review your plan and your progress regularly
Just like with everything in life, whether it's following a diet or sticking to your New Year's resolution, the secret to success is discipline in adhering to your plan.
Review your financial plan periodically to check whether you are on track, it can be quarterly or semi-annually. But at least once a year, you should also review your plan holistically as circumstances might change as we enter into different life stages or after big life changes such as the following:
- Changes in employment status;
- Change in family dynamics, e.g. getting married, divorced or losing a spouse/partner;
- Buying or selling a property;
- Inheritance etc.
Read more: Financial planning through life stages
How Endowus can help with your financial planning journey
Endowus was founded upon the mission to help all of us invest better, so that we can live easier today and better tomorrow.
Through our award-winning digital platform, clients can access over 200 Best-in-Class investment funds at 0% subscription fee and enjoy 100% Cashback on trailer commissions typically embedded in fund management fees. What you need to pay is only the transparent and reasonable Endowus fee calculated base on your AUM with us.
Read more: Choosing Endowus when investing in Hong Kong
You can also use the pre-built and optimised model portfolios curated by our Endowus Investment Office as building blocks towards your financial goals.
To get started on your investment journey with Endowus Hong Kong today, click here. Or you can schedule a 1-on-1 free consultation with our SFC-licensed client advisors, who would be more than happy to advise you on your personalised wealth management needs.
Read more:
- Financial planning for married couples
- Financial planning for new parents in Hong Kong
- DIY investing: Be wary of its touted benefits and hidden costs
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