3Gs of Financial Planning

Hello there! Welcome to another edition of SG Retire Steady Newsletter, where I share my insights, experience, resources and knowledge so that you can achieve financial freedom in a sensible and reliable manner. Read on!

If we were to ask around or search online, we would discover countless models for financial planning. When it comes to following them, there is no right or wrong. The best model is the one that is the best fit for our personal philosophy, values, life stage and experience. In this article, I highlight 3 essential components of financial planning.

GUARD

Whether the source of our wealth is from employment, business, inheritance or investments, we do not like losing money involuntarily. We might give to charity, help out a less fortunate friend, or purchase something we don’t need, but these are actions which we are in control of.

Guarding our wealth refers to ensuring that the money that we own is protected from situations whereby our wealth is taken away without our intent. This is usually due to unforeseen situations like retrenchments or medical emergencies. To a certain extent, higher-than-expected inflation and an increase in borrowing costs also fall under the same category.

While we cannot predict every single situation, it is still wise to set up safeguards to protect our wealth from the threats that we do know about. Actions like having an emergency fund, getting appropriate insurance, and making our money keep pace with inflation are examples of such safeguards.

GROW

The need for growing wealth is increasingly important from one generation to the next. Inflation is only the tip of the iceberg. Other factors include improved life expectancy, better lifestyle expectations, and fewer offspring to support the previous generation.

Growing our wealth refers to allocating our investible assets into a mixture of income-generating assets and instruments taking into account individualized conditions such as liquidity needs, risk tolerance and life stage. The goal is to have sufficient money to fulfill the financial goals that are important to us.

What this means is that if we can fulfill our financial goals by utilizing less risky investments, then that is the path to go. However, this is easier said than done as there are factors that are beyond our control such as enforced early retirement, inflation and policy changes. Therefore, we should still attempt to optimize the growth potential of our wealth.

GIVE

While alive, we have full rights to our money. If we pass on, we relinquish our rights unless proper arrangements have been set in place. Instruments like beneficiary nominations, wills and trusts are available to ensure that our wishes are honoured in the event of our demise.

Another thing to consider is our mental capacity while alive. If we are deemed to be mentally unfit to manage our wealth, someone will have to do it for us. Most likely, we would want someone whom we can trust to act in our best interest. That is where an LPA comes in to ensure we get to decide who will be in charge instead of leaving it to chance.

Knowing where your money goes to if you are not around or if you are not mentally able anymore can give you peace of mind so that you can focus on living in the present.

That’s a wrap! Thanks for being here.

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Sim Jit-Vern
B.Eng (Hons), CFP, ChFC, CLU, CIAM, ADWM, ASEP, IBFA

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