Many people do not have a financial plan. Buying insurance does not constitute a financial plan. Buying some unit trusts does not constitute a financial plan. Having a CPF or an SRS account is not a financial plan either. Learning about fundamental analysis and technical analysis do not constitute financial planning. Attending financial talks especially those “free” talks isn’t making any financial plan too. Quite the contrary, purchasing an insurance, investment, opening an SRS account and following what the speakers have to say in those “free” talks can be detrimental to one’s financial health because there was no financial plan in the first place. So what in the world is a financial plan?

A Financial Plan is a map. The map indicates where the person is now. It also shows where the destination is. To get from where the person is now, a journey is required and the map shows the road to that destination. During the journey, there will be difficulties and challenges. The map shows the potential obstacles along the way and also show the possible route(s) which has the highest level of success in reaching that destination.

This map is the financial plan. The “destination” can be defined by the client. If the client does not know where the destination is, the financial planner can give some most common destinations as suggestions. This “destination” is known as the “Objective” of the financial plan. Before the journey can begin, it is important to identify where the client is right now. Not knowing where the client is right now in the map would cause the client to travel in the wrong direction.

Very often, people just buy products and any how attend talks without even knowing where they are in the map. The result of doing so will cause the person to travel in routes to the unknown. Without knowing the destination, without knowing where the person is right now and without any map, any decisions to buy products and listening to talks are doomed to failure. The worst part is, majority will fail because financial literacy in Singapore is very poor. Those who fail will have to rely on social support which will lead to higher taxes and that in turn punishes those who are hard working and responsible.

The financial plan does not come free. One of the first things to learn about financial matters is nothing comes for free. Many financial advisers who does not charge fee for financial planning would give a template financial plan printed by their firm. These “free” templates normally are often skewed to sell their products. But there are a whole lot of other considerations which the client is unaware from these templates. Templates cannot address the following concerns:

• The need for diversifications. That is to say, never put all assets/money with one company;
• The need to receive advice for which the solutions do not pay any commissions (e.g. telling the client to close his credit card account in order to eliminate his over borrowing habits)
• The requirement to regularly review the financial plan in the future so as to ensure that the client is correctly traveling in the recommended route (“templates” advisers would use this chance of review to sell a product because this is the only way to be compensated for this review. On the other hand, a fee-based financial planning would just charge a fee for this review without the need to sell a product);
• No two clients are the same. Everybody is unique. Everyone has a different appetite for risk and everybody has a different objective in life. Thus, a “template” plan cannot address the uniqueness of a human being;

Rarely does anyone have a financial plan. Moreover, a financial plan is not static. I have been modifying my own family plan continuously. But those who has no plan to start with will eventually be doom to failure.