26 October 2016
Financial Planning is about prioritizing and balancing different financial goals  Photo: Institute of Financial Planners of Hong Kong
Financial Planning is about prioritizing and balancing different financial goals Photo: Institute of Financial Planners of Hong Kong

Why it pays to plan early for your financial future

Quite a lot of people treat financial planning with suspicion, probably because many so-called financial planners are no more than salesmen peddling company products.

But a real financial planner should be able to help you figure out your needs.

Getting married, buying a house and starting a business are major life decisions that cost money.

Which is why it pays to start early when planning for a secure financial future.

“It’s not something you wait until you’re rich,” says Gin Lee, a CERTIFIED FINANCIAL PLANNER.

The first thing a planner can do is help you identify your goals and see whether these are achievable in the time frame you want.

He can also help prioritize them or tweak them, as well as offer alternatives.

For instance, if a client wants to save for a big wedding and a house at the same time, the financial planner might suggest a smaller family affair to leave enough money for a down payment on the property.

“Some people make good money but they sometimes forget they also spend a lot and tend to overestimate their financial strength,” Lee says.

If a client insists on a property in an up-market location he can barely afford, Lee might tell him to buy it but rent it out instead of moving in.

The owner could then use the proceeds to rent a smaller apartment.

So, it’s about give-and-take and striking the right balance.

”The right financial planning also varies greatly from person to person,” Lee says.

Take two young professionals in their thirties, one salary man and one entrepreneur.

The salary man gets a stable income. His financial plans should focus on meeting major current and upcoming expenses.

These could include parental support and other big-ticket items such as weddings and down payment on a home.

Lee might suggest some insurance coverage against accident or sickness.

He wants his clients to have peace of mind but also to be prepared for the worst and be able to handle it if it happens.

For the entrepreneur, extra emphasis should be put on sustaining the business.

Also, his business partner might decide to cash out, which requires a large sum of money to buy him out.

So, there is a greater need to build up a cash cushion.

There is another reason people will gain from early planning.

“Young professionals in Hong Kong typically have to work overtime, even overnight during the first few years in their job,” Lee says.

“Their health could start to decline as early as their thirties.”

And buying insurance early typically costs less.

Personal finance can be a sensitive subject and Lee admits there are difficulties.

Clients may be reluctant to share financial information with a financial planner who is a complete stranger.

Lee says it takes time to build up the relationship and earn the trust of clients.

For their part, financial planners need to be as transparent as possible and able to properly explain their recommendations.

Clients do not always behave as they’re expected either, and that will leave a well-thought out plan poorly executed.

This could happen easily, Lee says.

A more conservative approach based on the client’s risk appetite and financial knowledge might be the best solution.

The problem with this approach is when the client becomes overly aggressive in which case he could end up losing money.

“If possible, we will go over trading performance to help the client evaluate his investing competence and fine-tune his strategy,” Lee says.

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EJ Insight writer

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