Shiva Sachaphimukh from Farnam Tree gives his insight.
Financial planning does not follow a fixed formula. Everyone’s objectives and circumstances are different, and goals are always evolving. Bymaking deliberate decisions about balancing short-term and long-term needs, you can make managing your financial affairs easier.
This does not require an oversized Excel spreadsheet, just some time on your side to take stock of how things stand today and to prioritise your goals for the future.
Here are several components you can consider incorporating into your financial planning that we believe will pay large dividends.
Knowing Where You Stand (Your Personal Balance Sheet)
Determining where you want to be in the future is made much easier when you have an accurate picture of how things look currently. Putting together a personal balance sheet helps in making this assessment.
Your individual or family’s balance sheet provides you with a snapshot of the state of your financial affairs. It is a concise summary of what you own (assets) and what you owe (liabilities). Any cash you hold in the bank is an asset. If you hold a mortgage or have credit card debt, that is a liability. The difference between the two is your net worth (assets minus liabilities).
Conducting this simple exercise has two benefits: it provides you with an overview of your wealth and where to prioritise.
Planning for retirement makes no sense if you are saddled with credit card debt with high interest charges. Similarly, hoarding on to a stockpile of cash in your savings account for decades is a wasted opportunity to invest and grow the asset section of your balance sheet.
Automating things as much as possible only has benefits. Making things systematic results in your life being easier to manage. Creating a budget and setting aside a fixed amount for savings each month is a simple way to do this. When it comes to the investing side of things, having a plan in place makes it easier for you to follow- through. Doing things on an ad-hoc basis can allow emotions to creep in and make the process more tedious.
Being flexible is imperative when assessing and working towards your financial goals. Budgets are great but in reality, surprises come from many directions. One way to provide a cushion for the unpredictable is by holding an emergency fund. We suggest having at least 6 months of your expenses in cash or other highly liquid assets (such as a money market fund). This makes it easier to sleep at night and provides easy- to-access cash at your fingertips if required. Circumstances change, so it is best to be prepared.
Make it Easy to Review
We recommend updating your plan at least a few times a year. The easier it is to do, the less likely you are to put it off.
When you are diligent and patient, you will be able to track your net worth increasing over time, which can be rewarding by itself.
SHIVA SACHAPHIMUKH is a Director and part of the investment team at Farnam Tree. He is a licensed Investment Consultant with the Thai Securities and Exchange Commission (SEC).
Farnam Tree is a boutique investment and wealth management firm based in Bangkok. The company is a licensed Investment Advisor under the Thai SEC and Ministry of Finance.