Financial planning

When you understand and know how to set financial goals, the next thing to do is to figure out how to realize these financial goals.

There are 3 basic steps to making financial plans for yourself:

STEP 1: REVIEW YOUR FINANCIAL SITUATION

THERE ARE TWO FACTORS YOU NEED TO CONSIDER IN DETAIL WHEN ASSESSING YOUR FINANCIAL “HEALTH”.

• Asset situation

• Cash flow situation (monthly income and expenses)

When looking at the asset situation, you need to list existing assets and asset-related loans. Personal assets include houses, vehicles, and other valuable assets (such as computers, phones, etc.). When you subtract personal asset-related loans, you get your net worth (or simply capital).

For the cash flow situation, you should list income and daily expenses (repeat this step monthly, if possible):

ESSENTIAL EXPENSES

House rent, electricity, water, groceries, travel, etc.

ENTERTAINMENT EXPENSES

Traveling, eating out with friends, shopping for clothes, accessories, etc.

SAVINGS

You should put at least 10 - 15% of your earned income in a savings account so that you will be able to buy valuable assets in the future (house, car), as well as save for yourself and your family when you are sick or ill.

STEP 2: EVALUATE AND ANALYZE OPTIONS TO ACHIEVE YOUR FINANCIAL GOALS

Once you’ve listed your income, expenses, and liabilities, it’s easier to find ways to accomplish your personal financial goals. Personal finance is essentially a story about numbers, so keeping records helps to easily identify opportunities and risks that could affect your lives and assets.

Assuming your case is similar to Mai’s, you can develop a plan to accomplish your financial goals as follows.

INCOME GROWTH GOAL

Mai’s plan is to increase her income by about 30% after 2 years of working and to be a team leader.

BASIS FOR THE GOAL

According to Mai’s research, the average salary for the position of team leader in her profession is about VND 9 million, provided she meets the knowledge and experience requirements.

CONDITIONS FOR THE GOAL

Mai needs to improve her knowledge by applying for a number of professional courses (she expects to take 2 courses in the next year, each course lasting 3 months). In addition, Mai must also improve her Japanese language skills (intermediate level - expected to learn in 2 years).

OPTION TO ACCOMPLISH THE GOAL

• EXPENSES: Mai needs to anticipate the tuition fees for the two courses mentioned above and when to pay them.

• SOURCE OF EXPENSES: In the first year of working, Mai needs to recalculate her expenses to have extra money for her courses. In case of insufficiency, Mai can borrow from her family or pay 30% of the tuition fees in advance by credit card, repaying the card loan in the next 9 - 12 months.

• DURATION: Mai needs to rearrange her schedule so that she can complete the courses as planned. Sacrificing time spent on entertainment and meeting friends will also help Mai save more money.

SAVINGS GOAL

SHOPPING AND CONSUMPTION GOALS

HEALTH CARE GOAL IN CASE OF SICKNESS AND ILLNESS

SAVINGS GOAL

In addition to the amount required for the courses to increase her future income, Mai also needs to budget for periodic savings for emergencies or her own needs.

SHOPPING AND CONSUMPTION GOAL

So that she can afford to study and save, Mai is very frugal when it comes to shopping. However, sometimes Mai still wants to reward herself with something she loves and/or needs. Mai wants a new phone and a bag suitable for the office environment. She also wants to buy a motorbike in the next 2 years. To achieve all this, she will probably use a consumer credit service and see it as a reward for her efforts.

HEALTH CARE GOAL IN CASE OF SICKNESS AND ILLNESS

BASIS FOR THE GOAL

Because of her limited income and savings, Mai also wants to take out a small insurance for herself and her family in case of unexpected situations. This insurance will be for when she is sick or loses her ability to work for a while, and especially when she is unable to pay off consumer loans that could cause problems for her loved ones.

CONDITIONS FOR THE GOAL

Mai needs to learn about some types of life insurance and health insurance, provided the benefit amount is at an appropriate level so that she can afford the premium.

OPTION TO ACCOMPLISH THE GOAL

STEP 3: FOLLOW THE PLAN

THIS IS THE STEP THAT DETERMINES THE SUCCESS OF THE PLAN, BECAUSE SIMPLY HAVING A GOOD PLAN IS NOT ENOUGH TO TURN GOALS INTO REALITY. THERE ARE THREE FUNDAMENTAL ELEMENTS REQUIRED TO REALIZE A GOOD FINANCIAL PLAN:

KNOWLEDGE – THE ABILITY TO APPLY KNOWLEDGE

Knowledge in general (including personal finance knowledge) is information about a certain subject that appears in written or audio documents. For example, this handbook is a source of knowledge. Its contents will become the foundation for a person's personal financial knowledge. As a result, it becomes possible to determine a way to set financial goals as well as realize these goals.

Going a little deeper: In terms of income, you need to obtain knowledge and master skills in your career field, then know what criteria must be met in order to increase your income. In terms of spend management, you must learn how to classify daily living expenses, which should be dealt with first, which should be left for later, which are not necessary.

Knowledge is a long process of acquisition and accumulation. Once you have acquired knowledge, you can use it flexibly to achieve your goals in life.

Information – analyzing and evaluating information

Information is the announcement, exchange, or explanation of a particular object and is found in the form of sounds, numbers, and letters, to bring about a certain understanding to the recipient. If knowledge is like a car, then information is the fuel the car needs to work.

In Mai’s case, in order to get money for her courses and other high-value items, she needs to save every month. However, Mai needs to consider which bank offers the best interest rate and how long she should deposit her money for – in other words, she will have to examine information. According to the risk-return tradeoff, small-scale banks have higher savings interest rates, while this value is relatively low at large or foreign banks. For her insurance purchase, Mai will definitely need to look at quotes and benefit tables from different insurers to analyze and evaluate the information.

In Tuan’s case, when buying a house to prepare for his marriage, he will also need information about things like loan packages, planning, infrastructure, and potential development to make the final decision about the house he wants. It is important to evaluate information as it could be inaccurate and unreliable, or it might not be the right time to spend money.

In order to make sure you have found good sources, you need to pay attention to the accuracy and diversity of information.

ACCURACY

You need to consider the reliability of the information source. For example, when buying a motorbike or a phone, in addition to watching advertisements or public information, you should visit places where the items are displayed to receive official and professional advice from the seller. Don’t just take your friends’ words for it, or guess based on advertising in newspapers and on television. Research planning information from competent state agencies, as the real estate market often abounds with rumors intended to inflate prices or create speculative waves.

DIVERSITY

To get a loan with the best interest rate when buying a house, car, or household appliances, you should seek out information from different banks or financial companies to compare. Do the same when buying insurance. Always get information from multiple sources to help you make optimal spending decisions in terms of expenses and benefits.

Personal experience and knowledge from others (consultants, relatives, friends, etc.)

You’ll never achieve your goals efficiently if you make decisions based only on your experience. After comparing accurate and diverse information, you also need to learn from the practical experience of experts, friends, and relatives.

For example, when Tuan is about to buy a new motorbike, he can ask for advice from his family, friends, colleagues, or sales staff, or from online reviews.

For an insurance product or a consumer loan company, the experience of relatives and friends will provide more information to consider when choosing the most suitable product.