The Phases of Financial Planning

Financial planning is an important aspect of life that becomes increasingly critical as we progress through different stages of life. Whether you are young and unmarried, married with children, or approaching retirement age, it is essential to plan and manage your finances in a way that aligns with your current life stage and future goals.  

Consider implementing some of these suggestions as a starting point:

Young and Unmarried

As a young adult, it is easy to feel like you have your whole life ahead of you, and financial planning may not be a top priority. However, this is an excellent time to lay the foundation for your financial future. Here are some steps you can take:

1. Establish a budget. Start by creating a monthly budget and stick to it. Track your income, expenses, and savings, and be mindful of where your money is going. Establishing good financial habits early on can set you up for success later in life.  

2. Build an emergency fund. Start saving for emergencies and unexpected expenses. Having a cushion of savings can help you avoid debt and financial stress if something unexpected happens. Aim to save three to six months' worth of living expenses in an easily accessible savings account.

3. Understand your tax obligations As an expat, you may have to pay taxes in both your home country and your new country. Research the tax laws in both countries and consult with a tax professional to understand your obligations.

4. Make pension contributions. Check in with your employers to see what the company’s pension scheme they offer. Contributing to a pension early in your career can help set you up for a comfortable retirement. Even small contributions made early on can accumulate over time and grow through compound interest. In Malaysia, all companies are required to contribute to the Employees' Provident Fund (EPF) for all Malaysian citizens and permanent residents who work in the country. However, expats and non-permanent residents aren't obligated to contribute. If you fall into this category, you can consider opting in or explore other retirement planning plans with us to help you plan for your retirement.

5. Protection. While most companies provide health insurance, it is important to review your company’s policy to ensure that it provides adequate coverage on medical expenses. Otherwise, a personal international health insurance is highly recommended. Also, Income protection insurance can provide financial support if you are unable to work due to an illness or injury. ‍

‍Young and Married

As a young couple, you may have shared financial goals and responsibilities, and it is important to work together to achieve them. Here are some financial planning tips for young married couples:

1. Set shared financial goals. Sit down together and set financial goals, such as saving for a down payment on a house, paying off debt, when you plan to have kids, or a vacation. Communicating regularly and creating a plan for achieving these goals can help you stay on track and make progress together.

2. Plan for retirement. It may seem far off, but it is never too early to start planning for retirement. Consider opening a retirement account and setting aside a portion of your income for savings.

Married with Younger Children

Having children significantly raises your expenses and highlights the importance of financial security. Nevertheless, your investment requirements also escalate. For example, many parents intend to invest in their children's education or assist them in purchasing their initial home. Therefore, parents must prioritize their retirement and investment plans while balancing their desire to provide for their children. Its uncommon for families to have enough resources to achieve all of their financial objectives. However, initiating contributions towards them as soon as possible is critical.  

Here are some tips to help you navigate this stage:

1. Review your insurance. I always make it a point to sit down with young families to ensure that they have adequate international life and health insurance coverage. It is very common for expat families to rely on one main breadwinner. That is why you would want to consider taking an income protection policy to protect your income if you are unable to work.

2. Planning for your children’s education. Start saving for your children's education, whether it’s for their early years or college education. As a Private Wealth Manager, I can help you put together a plan which can include investment portfolios depending on your goals to make your children’s dream a reality.

3. Establish a will: Ensure that you have an international will in place to provide for your family’s care and financial needs if something were to happen to you.

Married with Older Children

As you grow older, you tend to earn more money, and your children become less reliant on you financially. With your increased income, you can also afford to save more and work towards financial goals that were previously out of reach. Once you retire, it's important that you have a well-established financial plan in place, as you will likely rely on your pension income and savings or investments to support your living expenses.  

Here are some tips for this stage:

1. Prioritise retirement savings: As your children become more independent, you may be able to redirect some of your savings towards retirement. I can assist you in securing a comfortable and financially stable retirement by dedicating time to establish a thorough financial plan. By doing so, I can help to ensure that you have the necessary resources to enjoy your retirement without financial worries.

2. Start planning your estate. If you have already established an international Will, it is important to review your existing policies ensure all your assets are up-to-date so you can start estate planning. This includes broader planning such as establishing trusts and naming beneficiaries to ensure your assets are distributed according to your wishes.

Pre-Retirement/Early Retirement

The majority of individuals aspire to maintain the same quality of life in their retirement as they had during their working years. I believe we require an annual retirement income equivalent to two-thirds of our last year's employment earnings to achieve this goal. The one-third reduction is due to decreased spending on expenses like mortgage payments and work-related travel. Conversely, some expenditures, such as vacations, may rise during the initial retirement years since retirees have more free time. Once your children have left home, you may find yourself with more disposable income and a new set of financial priorities. Here are some tips to help you navigate this stage:

1. Review the suitability of your existing Investment and Protection policies. Review the performance of your investment policies to determine if they are meeting your expectations. At Melbourne Capital Group, we work with global partners to provide you with a diversified investment portfolio that can provide a steady stream of income based on your risk tolerance and goals. I can assess your specific needs and circumstances, and then evaluate the policy terms and conditions to determine if they align with those needs.

2. Re-evaluate Your Budget: With fewer financial responsibilities, it may be a good time to re-evaluate your budget by looking at your expenses and sources of income to reallocate your funds to align with your current priorities.  

3. Review your estate plan. I would prioritise an ongoing review and update on your estate plan to ensure that everything in place for everyone’s peace of mind.

If you have read this far, you will see that financial planning is a continuous process and essential at every phase of your life. Seeking the guidance of a financial advisor in Malaysia is highly recommended, especially for expats who may have assets in multiple jurisdictions. We can help you navigate complex financial matters and provide a customised plan that caters to your unique needs.  

Elmira Donald, our Private Wealth Manager at Melbourne Capital Group, offers her expertise to individuals of varying ages and backgrounds to help structure and establish financial plans. Please don’t hesitate to contact her today on +60 17 600 4303 and elmiradonald@melbournecapitalgroup.com or fill in the form below.

Have questions on your personal finances? Join us for an exclusive roundtable discussion held at Joloko Kuala Lumpur this 26th February 2023.