How Benny Does His Financial Planning without Investing – Sample 1

(Disclaimer: following sample serves only to explain how one does financial planning. All cost mentioned in the sample is fictional and it does not reflect the real condition. This sample is designed for those who just or are about to start their working life)

1. Setting Financial Goals

Benny is 23 years old and just started working in Kuala Lumpur with a monthly salary of RM3, 000. He is doing his financial planning now.

Benny has been dating his girlfriend for 2 years and he hopes he can marry her in 3 years. After a rough calculation, he estimated that a simple wedding will need RM30, 000. Benny also plans to have his own house at 30 years old, which mean he will need to have money to pay for deposit when he is about 28 years old. At the moment, he assumes he’d need at least RM20, 000 for deposit and the rest he may go for KWSP.

So Benny’s 3~5 years financial goal is clear now. He needs to save at least RM50, 000.

2. Listing Out Expenses

Next, Benny starts to list down all his monthly expenses as following,

Item	Expenses
Meal	RM500
Transportation	RM450
House Rental	RM450
Hp. fee	RM100
For Parents	RM300
Insurance	RM200
Entertainment	RM200
Miscellaneous	RM100
Total	RM2, 200

Throughout the coming 5 years, he assumes his monthly expenses will increase by an average of RM200 every year. So his monthly expenses would become RM2, 400 in 2^nd year, RM2, 600, RM2, 800 and RM3, 000 for 3^rd, 4^th and 5^th year.

3. Listing Out Income

Benny’s monthly income after KWSP is RM2, 670 for 1^st year, which has a surplus of RM470 after deducting his monthly expenses. He planned to save it all. If he maintains this surplus for the rest of the 5 years, the maximum saving he could achieve was RM28, 200, which is only about half of his financial target. But he has assumed his monthly expenses will increase every year, which means his income will not be able to support him from 4^th year onwards. So, he also makes an income increment projection. He plans to have at least a RM300 increment every year. This can either be done by performing well in his company or switch a new job in the middle with better pay.

With this assumption, his monthly income would become RM3, 300 in 2^nd year, RM3, 600, RM3, 900 and RM4, 200 for 3^rd, 4^th and 5^th year. His ideal saving becomes as follows

Year	Calculation	Yearly Saving	Cumulative Saving
1	12 x (2670-2200)	RM5,640	RM5, 640
2	12 x (2937-2400)	RM6, 444	RM12, 084
3	12 x (3204-2600)	RM7, 248	RM19, 332
4	12 x (3471-2800)	RM8, 052	RM27, 384
5	12 x (3738-3000)	RM8, 856	RM36, 240

Benny almost cries out as he realizes that with this planning, he still could not save up to RM30, 000 in the 3^rd year for his marriage and another RM20, 000 in the 5^th year for his house.

4. Adjusting Expenses

After much consideration, Benny feels that he should be able to save another RM100 from meal, entertainment and miscellaneous. With the RM1200 reduction every year, his new saving becomes as follow,

Year	Cumulative Saving
1	RM6, 840
2	RM 14, 484
3	RM22, 932
4	RM32, 184
5	RM 42, 240

Benny thinks this is the best he can do. Any further reduction in expenses will lower his living quality. But now, the difference for his 3 years financial goal and the saving assumption has reduced to about RM7, 000. For his 5 years financial goal, there is almost no difference.

5. Adjusting Income

With a clear goal in mind, Benny knows that following his plan, he will be short of RM7, 000~RM8, 000 to achieve his financial goals. Dividing RM8, 000 with 36 months in the first 3 years, it means that every month he will need an extra income of RM230. He thinks he should be able to find a part time that can earn him an extra RM230 every month.
So now, he has made himself a viable financial planning to achieve his 3~5 years financial goal. He feels relieved now. At least he knows if he wishes to get what he wants after 3~5 years, he needs to ensure he follows this plan.

Sadly, Benny forgot to take investing into consideration as part of his financial planning….


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