foundation-2660502

How to set a good foundation in your financial plan?

 

A foundation is a base for something. It provides a support for everything that can be possibly built on top of it. From a structural building perspective, the foundation is the building system component that supports the building from the ground. It is the most crucial element of a building. A tall building is built possible only from the ground up, and it starts with a deep foundation. That is why the Chinese said “万丈高楼平地起” which means the highest towers begin from the ground.

What about financial planning? Similar to a structural building, constructing and building a foundation is absolutely paramount in a person’s financial life. It is through this base that wealth can be built on top of it.

The foundation in financial planning is about doing the things right in a person’s financial life, which are the basic principals of forming a solid base of your financial planning pyramid.

These are the things everyone should be doing it right:

  • Have a positive cash flow every year and able to build a cash surplus from your pay check minus away your expenses.
  • Manage your debt if you need to borrow to finance a big-ticket item, eg. purchasing a house
  • Know where your money come and go. Track all your income and expenses and review them.
  • Transfer your risk away through getting the right type of insurance and ensure the coverage is adequate to meet your protection needs.
  • Create and maintain an emergency funding to take care of any unforeseen situations which might cut away your income.
  • If you have dependents, you need to set up estate planning instructions to take care of them.
  • Beyond the emergency funding, make your money work harder for you through asset growth program.
  • When considering investment programs, know what you are investing at, the risk involved and the expected volatility.

All these 8 principals form the base of your financial planning. If you got all these principals right, congratulations you are on your path to financial success! If not, you should seriously do a financial review and take action steps to correct them.

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DISCLAIMER This website found birth in my passion for personal finance and my mission to enhance the basic financial literacy of Singaporeans. The information provided on the site is for information purposes only and is of a general nature. It is not intended to be, and does not constitute financial advice or any other advice, and is not specific to you. The author disclaims any and all liability in the event any information, commentary, analysis, opinions, advice and/or recommendations prove to be inaccurate, incomplete or unreliable, or result in any investment or other losses. Please consult a qualified financial adviser, or even better, a CERTIFIED FINANCIAL PLANNERTM , before making any financial decision. Further to the above, the contents of this site reflect the personal views and opinion of only the author, and not of any company. CFP®, CERTIFIED FINANCIAL PLANNERTM, and theCFP® certification marks owned outside the U.S. by Financial Planning Standards Board Ltd. (FPSB). Financial Planning Association of Singapore (FPAS) is the marks licensing authority for the CFP marks in Singapore, through agreement with FPSB.