Articles: Financial Planning for the Future

It has become a common phenomenon that many of our colleagues, or the people around us who often complain that their financial condition messy.

Total debts were mounting and exceed their income, even exceeding the amount of assets owned. In such a condition that usually becomes the scapegoat is the small amount of income they have.

Though the actual root causes rather than just being on the income side, but the failure to manage finances. Many of us who have no financial planning, never even thought to plan for the financial condition, let alone in the future.

Financial planning is actually an essential activity that must be done by everyone and this is what will differentiate between groups of people who always stuck by the lack of liquidity and a group of people who can enjoy life. This paper will attempt to discuss in a simple, how one should begin to plan financially.

Diagnose the financial condition
The first step that needs to be done in preparing the financial plan is to diagnose the condition of our current personal finances. Must be considered in diagnosing the financial condition is the amount of total revenue, total expenditure, the amount of assets and liabilities are debts that we have.

In general, it is clear that the amount of total income must not exceed the total expenditure. For people who have a fixed income each month so could easily be estimated in total revenue in one year, including non-regular income such as holiday allowances and bonuses. And the spending should be governed not exceed its total regular income.

Non-routine income should not be allocated to bear the total expenditure, but must be allocated for investment purposes or to strengthen an emergency fund. As for people who have the type of income variable (not fixed), the total expenditure should not exceed 80% in average income.
Next postal matters more is the lessee. We often mistakenly defined the asset in relation to financial planning.

Real asset is anything that gives the results or our support of productive activities. Simple example is the house we live in and the vehicles that we use can be classified into an asset because it supports our productive activity, while the villas, stereo sets, acoustic guitars, golf clubs and a second vehicle which we rarely use, certainly not an asset category. Savings and investment is one of the real intentions yielding assets.

Debt is a plural thing done and really not something to be feared. Debt is essentially adding our purchasing power by appealing to our revenues in the future into the present.

Matters more in terms of debt is the type and amount of debt repayment obligations that must be our responsibility. Home loans and productive vehicle is clearly a type of debt is reasonable and can be tolerated, but credit card debt is a type of debt that absolutely must be avoided. Interest rate credit card debt reaching an average of 35-48 percent per year and this is clearly a burden our financial liquidity.

Considering the high interest rate credit card, then use credit cards to be aware of the extent for the sake of practicality and convenience only and not to increase our purchasing power by way of debt.

In terms of managing debt, the total amount of our debt repayment obligations should not exceed 30 percent of our total revenue. When we get stuck on the condition of the obligation to pay debts that exceed the threshold, then the debt restructuring should be carried out with absolute priority to the debts that have high interest, such as credit card debt, unsecured loans and the like.

Own Emergency Fund
The second step in preparing the financial plan is to check the availability of emergency funds that we have. Emergency fund is a fund which should be available at any time if unforeseen expenditures arise.

Many people do not think the availability of emergency funds in their financial planning, so that when the unexpected expenses that often do is increase the purchasing power by creating debt, and the usual type of debts is debt with high interest rates such as credit card debt and credit / loan without collateral.

Whereas it is clear that actual debt should never be used as pledge to cover these unexpected expenses. This is where the importance of the availability of emergency funds, so we are not trapped high-interest debt.

The amount of emergency funds to be held in the financial planning varied, ranging from 5 to 20 times our total monthly expenditure, depending on the load that we bear. When we were still single, then simply have a five-month emergency fund total expenditures, while more and more members of our family, the greater the emergency funds that we must prepare.

Simple criterion is that each member of the family who became tanggunan we must have an emergency fund five months of total expenditure. So that when we're married and have two children, then the total amount of emergency funds that we have is 20 times the total monthly spending us. This emergency fund is not an investment category, but this emergency fund must be invested to expand.

Types of investment options for an emergency fund is an investment which are liquid and have a level of investment risk is relatively small. Investment in an emergency fund is not for the purpose of growth but rather on the availability at any time and are not cracked by inflation. It must be realized that the size of this emergency fund should be increased in line with the increase in our standard of living.

Make a List of Expenditures
The third step in preparing the financial plan is to create a list of expenditures. At this stage the absolute do is check for this type of expenditure which we live.

Broadly speaking the types of expenditure can be divided into four sections, namely the obligation to pay debts, expenses such as routine household expenses, electricity, telephone, etc., investment and personal expenditure.

As already explained in the first step above, the obligation to pay the debt (repayments) should not exceed 30 percent of our total revenue. And this is the first priority must be placed on the expenditure side.

Defer payment of debt obligations will only lead to the creation of new debt opportunities in the future that have a higher interest rate. The second priority is to manage expenditures in the regular expenditure.

Must be clearly distinguished between routine expenditure and personal expenses. Routine expenditure is the kind of expenditures that absolutely must be done to support our productive activity, could not be saved without degrading the quality of life and can not be avoided, while personal spending is the kind of expenditures that must be sacrificed if there is a decline in income.

Routine expenditure must be maintained in the range of 50 percent of our total revenue. When the routine expenditure has exceeded the threshold of 60 percent of our total revenue, then we do not have the opportunity to invest.

As a result we will lose the opportunity to improve the quality of life in the future. So when a routine expenditures are nearing the threshold, we must work even harder for us to increase total revenue.

Investments must also be a priority in the allocation of "expense" we. This investment is useful to improve our quality of life in the future. Investments will acquire assets that we have and be a source of passive income.

Investment culture should be done early start, how kecilpun our revenues. The amount of the allocation "expense" for the minimum investment is 10 percent of our total revenue. In order for this condition is reached, the allocation of investment rather than from the rest of our income after deducting the expenses, but had been allocated as soon as we receive revenue.

Please understand that investing is not the same as saving, because saving only provides asset growth rate is relatively very small. The younger the age of our greater weight (percentage) our investment in investment instruments that can provide a high return rate to support our financial future.

It must be realized that the investments that give high returns but have always had a high level of risk and the risk level should be fixed in accordance with the characteristics of our risk tolerance. The more established the condition of our economy, then the asset allocation in the form of investment must be getting bigger, until, in turn, we can achieve financial freedom if the results we receive from our investment in working assets have exceeded or at least close to the results of our productive work.

Personal spending is the only type of expenditure which may and should be sacrificed when there is an increase the percentage of expenditures in the three headings of other expenditures. Postal delays and reductions in private spending will not reduce the quality of our lives and not harm our financial condition in future.

This is clearly different if we reduce our expenditure allocations to the three headings of the first expenditure priority. One way to control personal spending is to open a special account at a bank that is used to support these personal expenses and the account contained only the remainder of our previous month's revenue after deducting the total expenditure is our third priority expense items that should not be rescinded.

This special account used to fund personal expenses so as not to undermine the three headings of expenditure priorities. With the existence of a special account, then we also did not bother to calculate the allocation of personal expenses that may be performed.

Once we fix our financial situation then we should enter the fourth step, which is planning a short-term financial goals and our long-term. In determining the short-term financial goals and long-term financial goals should be clearly outlined to be achieved and the range of time to achieve it.

Target goals should be realistic and of course adapted to our conditions. Long-term target and then broken down into short-term targets and strategies for achieving that goal.

One of the most decisive factor of success in achieving financial goals is the commitment and order us to obey pre-determined strategy. Financial planner professional from the banking world can be engaged to organize our financial goals.

Hopefully, this paper provides inspiration for us to rearrange and improve our personal finances. Happy investing.