Setting Goals

Financial planning involves three steps:

1) Setting goals

2) Assessing your financial situation

3) Managing your resources.

Step 1: Setting goals

The first step is to know what you are planning for. Make a list of all your needs and goals. Managing day-to-day living expenses comes first.

Other needs and goals could be:

  • Being debt-free
  • Having emergency reserves (say 3-6 months of all expenses)
  • Having health insurance
  • Meeting retirement needs
  • Saving enough to get married
  • Buying a home
  • Financial protection against unexpected events such as the death of family breadwinner(s), critical illness or permanent disability
  • Paying for your children’s education

Work out how much you need for each goal or need. For some, it could be an amount that you need to pay regularly, e.g. home loan instalments, health and life insurance premiums. For goals like retirement savings, it could be a lump sum amount at your desired retirement age. If it’s paying for your children’s tertiary education, you might find that a combination of savings and loans works best for you. When projecting future values, take into account current prices and projected inflation.

Next, look at how much you have to start with by assessing your financial situation.