Financial planning is all about purpose
by Lee Khee Chuan. Posted on June 24, 2012, Sunday
When you pick up an entry level or do-it-yourself financial planning book and browse through the content page, you will see that major topics are listed like this: risk and insurance planning, investment planning, estate planning, and retirement planning.
Even the syllabus in Certified Financial Planner (CFP) and Registered Financial Planner (RFP) courses also follow such topics as their modules.
However, when you read such books, or are a student of CFP or RFP, you will realise that such organisation of topics makes it very academic and difficult to see how each of the areas are interlinked.
Such situations are similar in medical sciences where medical doctors specialise in each area of the body such as the heart; lung; ear, nose and throat; bone, kidney, etc.
Then people realise that the body is a whole system and not merely ‘the sum of its parts’.
Thus people start to look at the body ‘holistically’.
The whole is more than the sum of its parts.
www.thefreedictionary. com explains ‘holistic’ as: emphasising the importance of the whole and the interdependence of its parts; concerned with wholes rather than analysis or separation into parts; relating to the medical consideration of the complete person, physically and psychologically, in the treatment of a disease.
Therefore, in my series of articles, I am going to look at financial planning in a holistic manner rather than the conventional manner of only looking at its parts.
Holistic approach to financial planning
Imagine now that you are relaxing your mind and are sitting comfortably on a sofa, sipping a good cup of coffee or tea.
Your mind starts to drift back to the time you first started working and earning your income. And the early effort to build up your career and business also starts to come to mind.
As your mind drifts back to the present, you see yourself enjoying a certain level of living standard and you start looking into the future, thinking about what you want to achieve from your business, family and personal life now.
Business-wise, you aspire to expand and grow your business further to capitalise on recent market opportunities. Family wise, you want to give your fast growing children a good education by sending them to good university overseas, if you can afford it.
When you retire, you want a worry-free retirement and you look forward to enjoying the fruits of your labour.
Then you realise that things may not be as rosy and smooth as you’d like to imagine.
You start to feel a little bit concerned about whether you will save fast enough for your children education; feel a bit unsure whether your Employment Provident Fund (EPF) fund will be enough to sustain your long retirement years; whether your present investment funds can whether the storm to earn you your expected returns. And then your mind starts to shift to the bigger unknown.
You are feeling a bit uneasy – what will happen if you are not around to provide for your children and see them through to college or university.
You are concerned that if life does a twist and turn, whether your life insurance coverage is adequate after remembering that you have just reluctantly signed as personal guarantor for your company’s bank loan and overdraft facilities.
When you recently heard that a business friend suffered a relapse of cancer disease and had to cough up a big sum of money for medical treatment in Singapore, you ask yourself whether you have enough resources to cover such eventuality.
Suddenly your phone rings and your thoughts are disrupted. Your mind is back to the present.
Purpose of what you want to achieve
In conclusion, when you look at financial planning in a holistic manner, you will realise that it all boils down to the purpose of what you want to achieve at the end of the day.
You have aspirations and goals that you want to fulfill while you are still around and you also want to manage the risks if things go wrong.