Financial Planning involves three steps:
1) Setting goals
2) Assessing your financial situation
3) Managing your resources.
Making An Assessment
List out all the resources you have, such as your salary and wages, any bank savings or investments like shares or unit trusts. If you have any insurance products which are bundled with investments or savings, like whole life participating policies, investment linked plans or endowment plans, do list out how much protection you are getting and the value of the investments portion (do note that the projected values in your benefit illustration are not guaranteed). Do make use of the various CPF schemes for housing, healthcare and lifelong savings.
Also make a list of all your liabilities or outgoings – there are household expenses to pay, debts you owe (e.g. home loans, car loan payments), credit card balances, health and life insurance premiums, taxes and so on.
When you’re trying to assess your financial situation, it can be tough to know exactly where you stand – or how you compare to others. To help you get a handle on how your situation stacks up, take a look at the financial questions listed below.
Do you have a low amount of debt relative to your income?
Make a list of the balance, interest rates, and monthly payments for each of your debts. Then, calculate your monthly debt-to-income ratio by dividing the amount you owe by the amount you make.
Do you have enough savings to cover an unexpected expense or emergency?
The rule of thumb is to have emergency savings to cover three to six months worth of expenses.
Do you regularly contribute to your personal savings?
While emergency savings and retirement savings may address some of your immediate and future needs, it’s also important to have savings for other goals, such as buying a car or a house.
If your financial situation seems to be on track, you can keep that positive momentum going by building your wealth and investing for the future. If not, you may want to try building a better personal budget, so you can increase your savings or pay down any of the debt you have left. Others may consider credit counseling or debt management. You may also want to take steps to improve your credit score.