Your Ultimate Guide to Financial Planning for the New Year

New Year is the best time to start anew and map out your financial plans. While a lot of people have the misconception that financial planning is only for the old and rich, a solid financial plan will help you take control of your finances and set yourself up for success, whether you’re already well-established or just starting to build your wealth.

Here’s your ultimate guide to financial planning for the new year.

1. Goal Setting
   
   While it’s tempting to just follow the path of someone you admire, you need to carefully consider what you really want to achieve. Your financial goals must be aligned with the things that matter to you.
   
   Ask yourself where you are in life’s key stages. Are you at the point where you’re starting to earn a stable income? Are you preparing for marriage and dreaming of a big wedding? If you’re already married with young children, should you be saving up for college or building your retirement fund? Or is it better to think about buying life insurance in the Philippines as early as now? It’s important to know where you are in life and understand what matters to you to create appropriate and realistic goals.
   
   Make sure that your goals are SMART (specific, measurable, attainable, realistic or relevant, and time-bound). A SMART goal would be phrased with all the pertinent details included such as “to build P100,000 worth of savings by the end of the year.”
   
   Create short-term goals that will help you achieve your long-term goals such as saving at least Php10,000 from your monthly salary for the next 12 months, investing in a unit-linked insurance plan in the Philippines, or increasing your monthly income by getting a part-time job during the next year. Be realistic.
   
   Both your short-term and long-term goals need to be aligned with the priorities you set. If, for instance, your priority is to build your retirement fund, ask yourself whether purchasing a new home would help you achieve that.
   
   
2. Know Your Current Financial Status
   
   After setting your financial goals, it’s time to examine your current situation.
   
   Calculate your income and monthly expenses. To determine your net worth and know if you’re financially healthy, take all your expenses into account and compute your SALI (Statement of Assets, Liabilities, and Investments).
   
   Getting your SALI in order will further allow you to determine the value of everything you own and the amount you owe. Basically, your net worth is the sum of all your assets minus your liabilities. SALI will also give you a solid grasp of how much risk you can tolerate when buying investments.
   
   Whip out that calculator, and do the math so that you can adjust your goals and budget accordingly.
   
   
3. SALI Computation
   
   List down all your assets along with its current value. This includes your cash savings, retirement fund, emergency fund, the properties you own, securities, and life insurance policies you can cash out.
   
   You can also list down all the valuables you can immediately sell in the event of an emergency such as cars, jewelry, art pieces, sports and gaming equipment, musical equipment, computers, gadgets, and other luxury items.
   
   Once you have all your assets in inventory, start summing up your liabilities. List down all your debts, including credit card bills, car or home mortgage, personal loans, insurance debts, taxes, and other payables.
   
   Consider your liabilities for the whole year. So, if you’re jotting down the liability of your insurance premiums, place the whole year’s amount even if you’re paying quarterly.
   Analyze your lists. Is there anything amiss? Are the values you placed accurate? You may need to do some research, for instance, to determine the current market value of your assets.
   
   Consider value depreciation and appreciation. Improper calculation can lead you to believe that you have enough money to use when unexpected disasters occur such as a serious illness, job loss, or natural calamity.
   
   Now, compute for your net worth. Subtract the sum of your liabilities from the sum of your assets. If it’s a positive value, then you’re on the right track. When the result is a negative number, don’t fret too much. That only means that you have an opportunity this year to plan your finances and increase your net worth.
   
   
4. Prioritize Goals
   
   Once you know your net worth, you can start weighing which goals should matter to you first.
   
   Some of your goals may be to save for retirement, to buy life insurance in the Philippines, to have a travel budget, to buy a new car, and to build a business. They may not all be achievable at one time, which is why you need to prioritize.
   
   So, write down all the things you want to achieve—from the easy ones to big-ticket goals. When you have all of them outlined on paper, organize your goals according to priority.
   
   You can approach them simultaneously by stacking goals and creating short-term goals that will help you achieve your big-ticket goals. Both your short-term and long-term goals need to be aligned with the priorities you set. For instance, your short-term goal of consistently saving a portion of your income must help you achieve your long-term goal of building your retirement fund.
   
   
5. Find Investment Vehicles to Match your Goals and Risk Profile
   
   Investments offer an opportunity to increase your net worth and income, helping you build wealth and eventually, succeed. Educate yourself before choosing an investment instrument. Here are some investment vehicles to consider.
    

• Cash
  
  Cash vehicles include savings and checking accounts. This investment instrument earns little to nearly insignificant ROI. Most banks just offer a monthly interest earning of around 0.02%, but cash vehicles are highly useful and flexible due to its high liquidity.
  
  You can use it for your monthly expenses and liabilities, emergencies, or for buying other investment products. Consult your bank representative and ask about their savings or checking account products that will help you earn more.
  
  
• Life Insurance
  
  Life insurance coverage not only protects you from unexpected and untoward events such as an accident or a serious disease, but also helps you protect your family from financial ruin in the event of your demise.
  
  Most life insurance in the Philippines today are bundled with a cash value and investment scheme that’s tailored according to your specific situation and risk tolerance. This cash value can accumulate over the years and can be used for other investment opportunities, emergencies, and other big-ticket expenses.
  
  
• Stocks
  
  Stocks are for aggressive investors. Buying a significant amount of stock shares allows you to participate in a company’s success.
  
  As a shareholder, you may benefit from increases in the stock price and dividends declared. Furthermore, you have a claim on the company’s assets in the event of liquidation.
  
  Knowledge and understanding of the stock market is highly valuable if you want to invest in stocks.
  
  
• Bonds
  
  Bonds are debt instruments. Basically, you (as an investor) are loaning money to a company or agency in exchange for interest payments in addition to the face amount.
  
  Much like stocks, the value of bonds can rise and fall based on a variety of factors. However, the movement of bonds is primarily in tune with the direction of interest rates.
  
  
• Mutual Funds and UITFs
  
  For those who want to invest their money but have limited to no knowledge in stocks, mutual funds and UITFs are for you.
  
  A mutual fund is a pooled investment vehicle commonly managed by a third-party agency. They are in charge of managing your investment through stocks, bonds, and other investment vehicles. UITFs (Unit Investment Trust Fund) work similarly such that it’s operated and executed by a trust entity.
  
  Both mutual funds and UITFs are considered affordable medium to long-term investments.
  
  
• Tangible Assets
  
  You can also invest in tangible assets such as gold, silver, real estate, small business, or other lucrative assets that you can touch, see or use. Residential or commercial properties offer an attractive ROI, especially during periods of economic and industrial expansion.
  
  Commodities such as silver, gold, and precious metals are often used to hedge against inflation and as a storage of value during periods of economic uncertainty. These commodities can easily be traded, but you have to be aware of potential risks of capital loss and market value depreciation.