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  • Your Ultimate Guide to Financial Planning for the New Year

    18 December 2017


    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.

    Part 1: Setting Up Financial Goals

    goal setting

    1. GOAL SETTING

    • Write your smart goals
    • Identify where you want to go
    know your current financial status

    2. KNOW YOUR CURRENT FINANCIAL STATUS

    • Compute for your SALI (Statement of Assets, Liabilities & Investments)
    • Prepare on income statement
    prioritize goals

    3. PRIORITIZE GOALS

    find investment vehicles to match your goals and risk profile

    4. FIND INVESTMENT VEHICLES TO MATCH YOUR GOALS AND RISK PROFILE

    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.

     

    Part 2: Financial Building Blocks

    Financial Building Blocks

    Proper financial planning will help you create a balanced strategy and achieve your financial goals. Then again, you have to take financial building blocks into considerations when mapping out your financial strategy.

    Some people focus on wealth accumulation too much that they forget about wealth preservation strategies. These two building blocks may be interchanged or stacked onto one another, depending on your individual financial plan. However, it’s recommended to begin preserving your wealth once you start earning a steady income before you focus on accumulating more funds.

    1. Wealth Preservation

      Wealth preservation is the most fundamental financial building block. As soon as you start earning a steady income, you need to figure out how you can maintain your finances.

      Some wealth preservation assets you can focus on are your education and professional growth, home, retirement fund, insurance coverage and protection, and emergency fund.

      First, you need to think about covering your basic needs such as food and shelter before investing in yourself. Your education will help you advance in your career, and earn more as time goes by.

      While you’re growing as a professional, make sure that you’re slowly but steadily saving for your retirement. Along with this, you need to have an emergency fund set aside.

      Get insured so that you and your family are protected in times of crises such as accidents, job loss, natural disasters, and other unexpected circumstances.

    2. Wealth Accumulation

      Investments and business opportunities will allow you to earn more and accumulate wealth. Because you know you’re covered, you can take risks and put your money in investment vehicles.

      In this stage, your goal is to invest and amass as much wealth as you can to guarantee a comfortable and enjoyable retirement. You may opt to reinvest your retirement fund in growth-oriented vehicles such as a business that will enable you to earn a passive yet steady income eventually.

      You can also diversify your investments to prevent high risk of loss and maximize capital gains. Don’t be too aggressive and expose yourself to dangerous risk levels. As they say, don’t put all your eggs in one basket.

    3. Wealth Transfer

      As you grow older, you may start to get concerned about transferring your wealth to your heirs or favorite charity.

      Who will inherit your assets? Having a proper estate plan or last will and testament ensures that the wealth you’ve worked so hard to accumulate will go to the people or organizations of your choice. It’s your own blood, sweat, and tears. It’s only right that you decide where it should go.

      In this stage of your financial plan, you need to consider tax efficiency and reduction. Proper estate planning allows for the tax-efficient transfer of your assets to your chosen heirs. Create a wealth transfer plan to communicate your financial values to your heirs.

      A wealth transfer plan can also help your heirs learn about how they can preserve your estate, invest it wisely, and further accumulate wealth. Remember, you are not just entrusting your wealth to your heirs. You are leaving behind your legacy.

    The new year offers new opportunities for you to place yourself on the path of financial independence. Time flies, and before you know it, your retirement day has come. So, don’t waste any more time! Follow this guide to start working your way to financial freedom.

    Once you create an individualized financial plan, don’t hesitate to ask the experts about what investment vehicles are perfect for you. Go to any of the 800 BPI branches near you, and talk to a Bancassurance Sales Executive to discuss your financial plans.

    Did you know?

    You can buy a life insurance at any BPI branch nationwide! Talk to a bancassurance sales executive now!

    RECOMMENDED PRODUCTS

    Life Ready Plus

    Protection

    Get the power to protect yourself and your family with an affordable life insurance plan. Life Ready Plus is easy on the budget, but offers coverage of up to 30 times your yearly payment to support the financial needs of your loved ones.

    The plan gives you fast access to coverage and benefits and can match your long-term financial goals when maintained within an appropriate term.

    Philam Life Vitality

    Critical Care Max

    Health

    Critical Care Max will help you make more memories by providing financial aid during the early stages of a critical illness. This unit-linked life and health insurance plan offers assistance on your recovery. You can build a health fund that grows over time, depending on your chosen investment, to pay for other medical costs.

     

    In addition, it comes with a hospital confinement benefit that will replace lost income due to hospitalization. This daily cash benefit may also come with optional benefits like cash payout for surgery-related expenses, allowance for consultation fees, and many others.

    Philam Life Vitality

    Build Estate Plus

    Life Protection

    Let your loved ones enjoy the fruits of your labor even when you’re no longer around. Build Estate Plus is a unit-linked protection plan that will cover your estate taxes after your passing so that you can ease your family’s burden.

    It doubles as an investment savings fund that builds Account Value as you pay. It is also integrated with AIA Vitality that provides additional upfront coverage of 20% to your policy and add-ons.

    Philam Life Vitality

    CRITICAL CARE PLUS

    Health

    Be in good hands in times of sickness. Let Critical Care Plus, a unit-linked health and life insurance plan, take care of you with financial aid in case of a major illness, so you can focus on getting better and spending more time with your loved ones.

     

    It even gives you more benefits for having good health through the AIA Vitality program that adds 20% upfront coverage and supplemental benefits on your policy. 

     

     

    Philam Life Vitality
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