Having worked in the banking and financial services industry since 2007, I have observed that the average man on the street often make the same common mistakes as stated below.
Recent statistics have shown that individuals who plan for their finances at a young age are likely to be 2.5 times financially more successful than others who do not. Although many Singaporeans like to think of themselves as resourceful and savvy individuals, less than 5% have actually drawn up a financial plan for their themselves. In fact, many of us spend more time drawing up holiday plans than financial plans. Is it any wonder that Singaporeans are finding it harder to buy our first home or to retire comfortably?
Understanding the essence of financial planning can help us avoid many of the pitfalls ahead of us..
Common Mistakes Consumers Make When Approaching Financial Planning
1. Do not set measurable financial goals.
2. Make a financial decision without understanding its effect on other financial issues.
3. Neglect to re-evaluate their financial plan periodically.
4. Look for quick financial fix instead of a long-term strategy.
5. Expect unrealistic returns on investment.
6. Think that financial planning is only for the wealthy.
7. Think that financial planning is only necessary when they get older.
8. Confuse financial planning with investing.
9. Think that financial planning is primarily tax planning.
10. Wait until a money crisis occurs to begin financial planning.
11. Think that using a financial planner means losing control.
(Source: CFP® Board Licensee Survey)
(Source: CFP® Board Licensee Survey)
Financial planning will work well to help you achieve your desired goals, if you keep in mind some basic principles:
- Set measurable financial goals
Set specific targets of what you want to achieve and when you want to achieve results. For example, rather than saying you want to buy a decent house when you get married, your goal may be specifically to buy a 4-room HDB flat for not more than $260,000, when you turn 30 years old. Always put a monetary value to your desired goal.
- Understand the effect of each financial decision
All your financial decisions are inter-related. Each financial decision may affect other areas of your life plan. For example, a decision to set aside a regular amount of money for your child’s education fund may affect when and how you meet your retirement goals.
- Re-evaluate your financial situation periodically
Financial planning is a dynamic process. Your financial goals may change over the years due to changes in your lifestyle or circumstances, such as an inheritance, marriage, birth, house purchase or change of job status. Revisit and revise your financial plan as time goes by to reflect these changes so that you stay on track with your long-term goals.
- Start planning as soon as you can
Don't delay your financial planning. If you start planning early, chances are you will achieve better results. Develop good financial planning habits such as saving, budgeting, investing and regularly reviewing your finances. You will be better prepared to handle emergencies and the various changes that occur in your life.
- Be realistic in your expectations
Financial planning cannot change your financial situation overnight. It is a lifelong process. Remember that events beyond your control such as inflation, changes in the stock market or interest rates will affect your financial planning results.
- Realize that you are in charge
You are ultimately responsible for your financial well-being. If you need help, take the first step by considering working with a qualified financial planner. Ask questions about the recommendations offered to you and play an active role in decision-making.
- Know what to expect from a qualified financial planner
A qualified financial planner is someone who is trained and has experience in taking a broad look at your entire financial situation. The financial planner will focus on your needs first through the financial planning process before recommending course of action that will help you reach your financial goals. Various financial products such as stocks and shares, unit trusts and insurance policies are merely tools that are used to implement the appropriate solution. The financial planner will work closely with you to help you evaluate and monitor all of your financial concerns including budgeting, savings, taxes, insurance, investments, retirement and estate planning. The financial planner will help you understand why certain recommendations are made and how each financial decision may affect the other areas of your finances.