Planning for Investing

Financial Planning is one of the building block to “investment”. No matter what we invest in, it is important that we manage our financial position properly first. Proper management allows us to do the following;

  • -Accumulating a war chest for investment
  • -Reduces the cost of investments
  • -Enhances our risk profile

In order to manage our finances, what we need is a financial plan. In general usage, a financial plan can be a budget, a plan for spending and saving future income. This plan allocates future income to various types of expenses, such as rent or utilities, and also reserves some income for short-term and long-term savings. A financial plan can also be an investment plan, which allocates savings to various assets or projects expected to produce future income, such as a new business or product line, shares in an existing business, or real estate.

This blog will not be a full fledge financial planning or management guide and we will not cover the various investment techniques and methods of valuation. It is sufficient at the moment to highlight to the reader, what needs to be done rather than how it is done and what are the issues that should be understood in financial planning or investment planning.

What is financial planning?

Essentially, a financial plan offers us a road plan that can be useful for us to navigate our financial journey and to certain extend our life with greater peace of mind. A good financial plan has the following elements;

  • A set of financial goals and objectives
  • A current net worth report
  • A personal risk profile
  • And an investment plan

Before you embark on doing a financial plan make sure you are aware of all your current financial details and make a list of all possible expenses and income that you may have. For expenses, it is helpful if you can classify them into what is “nice to have” and what are necessities. You may also get a good book on local taxation requirements and practice or get professional tax advice on possible taxation issues.

Who can help you with financial planning?

Most insurance agents and unit trust consultants can help you in your quest to do a financial plan. However, local legislation only allows certain qualified professionals to give professional advise on financial planning, do a financial plan for the client and charge a fee for the service. Two qualifications are current approved for this purpose are the RFP qualification from the Malaysia Financial Planning council and the CFP® qualification from the Financial Planning Standards Board via Financial Planning Association of Malaysia. If you are not based in Malaysia find out from local authorities about the availability of licensed financial planners in the local market. Here are some of the qualifications that are involved in financial planning.

Net Worth

For an individual, the net worth is the value of a person’s assets, including cash, minus all liabilities. The amount by which the individual’s assets exceed their liabilities is considered the net worth of that person. The net worth statement is then a report of an individual’s financial standing or position. This is similar to the balance sheet of a company. In order to do financial planning for oneself, the person my have some idea of what his financial position is. This include things like balances in bank accounts, pension funds (Ie; EPF balances) , investments etc. Follow the link below to see a life example of how to calculate your net worth.

What is your risk profile?

“Managing risk is a combination of art and science that incorporates a number of basic characteristics. It involves continually searching out and understanding risk, measuring and managing them.”[1] We cannot avoid risk. However, we can face it head on and manage it so that it does not affect us too much. We must constantly look for risk, understand it and find ways to circumvent it or manage it effectively. Even, putting money in fixed deposits have certain risk involve. There is the risk of the return from FD not been able to overcome inflation which effectively devalues the investment. We must also assess our risk tolerance. How much risk can we take? Basically, there are 3 types of risk profile;

  •      Risk indifferent people
  •      Risk Averse people
  •      Risk seekers

However, our risk profile depends a lot which stage we are in our life cycle. Older people will most likely to be risk averse because they cannot afford to loose all their money in investments as they will not have the means or time to earn it back. Lastly, when it comes to managing risk we need to exercise caution , be disciplined and proactive. The need to be proactive is vital because if we get it wrong the impact can be quite big, financially and often irreversible. Like the saying goes, there’s no crying over spilt milk.

Some issues to know in financial planning

As mentioned earlier, this article is not meant to be a comprehensive guide on investment and if you are interested in one you can refer to some of the literature listed at the reference section at the end of this article. Here we would like to highlight some salient points in financial planning which we think could be useful in your understanding of financial planning and investment so that maybe you might be able to enjoy another passive source of income.

Goal Setting-

Set realistic, challenging and achievable goals. Do not set out to be a Warren Buffet or Bill Gates. You will be very disappointed later. For one, these guys have a totally different financial and risk profile than your own profile. Chase your own dreams not others.

Know what you want

Set out in general terms what you would like to achieve in managing your finances. Some of us are more concerned about retirement planning while others may be planning for their children education.

Set Priorities

This point can never be mentioned enough. Do what is important and urgent and not what catches your fancies. For example; many give precedence to their child education than their own retirement planning just to keep up with the “Jones”. In this case, the correct priority is to ensure that you plan for retirement planning first because it is 100% sure that you will retire and it is 100% sure that you will need the income from investments after your retire. Education needs are more flexible and in some cases are not very crucial anyway. For example; the child may get a scholarship, mike prefer apprenticeship rather than going to college or may not event want to do a post secondary education at all.

Explore your tax positions

You need to determine your tax positions so that you can take advantage of any tax breaks or tax treatment methods to reduce your tax liabilities. For example, having investment income in a private limited company may have different tax implications than investing under your own name. Consult a tax consultant or your financial planner to ensure you are ware of the opportunities and threats which exist in your tax situation.

Set your planning time frame properly

In doing your financial plan, you will need to ensure that the time frame you use is correct and accurate. If you do it wrongly, you might be way short of achieving your targets. For example, if you are investing in unit trust, ensure you factor in the distribution charge and management fee over the entire period of investment.

Read the prospectus (or terms and conditions)-

In whatever you invest in, the prospectus is a very important document as it sets out the fund’s goals, investment strategies and policies and the risk-reward position it takes. It may be hard reading being full of legalese, but you must go through the fine print to ascertain that your goals and expectations match that of the fund. The financial accounts will show if the fund is sticking to its game plan and how well it is performing within the plan.

Seek professional advice

Do not be under the illusion that you can do it alone. Even professionals in the financial planning line cannot be expected to be master of everything financial. They would still need to consult tax experts, accountants, stock brokers for specific information.

Where to invest?

Once we are done with financial planning and management and are able to set aside some extra cash then we can start looking into the type of investments available to us. We will cover these possible passive income streams in the next few lessons but we would like to end this article with a list of possible investments vehicles that you can consider.

  • Stocks/shares
  • Mutual funds or unit trust
  • Real Estate Investments Trust
  • Money market instruments
  • Foreign exchange deposits
  • Fixed Deposits
  • Collectables and precious metals
  • Commodities
  • Derivatives
  • Bonds and debentures
  • Real Estate properties


  1. Maximize what you got…No Matter How Much You Have Now, Yap Ming Hui, Whitman Independent Advisors, Selangor, Malaysia, 2006
  2. Personal Money, Issue #55 March, 2006 The Edge Communications Sdn. Bhd.
  3. Financial Freedom 2, Through Malaysia Equities and Unit Trusts, Cheah, Wong et al, Kuala Lumpur Mutual Fund Berhad, Kuala Lumpur, Malaysia, 2000
  4. Malaysian Master Tax Guide 2006, 23rd Ed., Veerinderjeet Singh, Dr & Teo Boon Kee, CCH Tax Editors, CCH Asia, 2006
  5. Managing Risk, 4E Journal Vol 4 No.1, Financial Planning Association of Malaysia, 2004 6.Securities Commission Website 7.Wikipedia

[1] Quoted by Grace Kang CFP® in her article “Managing Risk” appearing in the 4E journal published by the Financial Planning Association of Malaysia., Vol.4 No. 1 March 2004. T
The author is a freelance consultant and trainer and one of the areas he trains is in the area of financial Management. The above does not in any way implies that the author is dispensing financial advise for investment purpose and readers are advised to consult their brokers, qualified financial planners, accountants or lawyers before making any investment decisions. This article is for education purpose only. 

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