Sunday 29 March 2009

Our financial needs and wants in life

YourMoney: Our financial needs and wants in life
By Yap Ming Hui

2009/02/22

IN order to achieve your financial freedom, you must know clearly what your financial needs and wants in life are. Your personal financial management should make a healthy contribution to the realisation of the life that will make you happy. Contrary to most financial planning practices, I will not define your financial needs and wants before defining what a good life is to you. If you expect your money to contribute to your good life and you're not clear about what that good life is, how can you possibly get there?

In order for your money to be more than just a financial figure, it is important that you identify and articulate your definition of good life.

It must not be the social norm version of good life. Your self-defined good is your innermost driving force. It gives you a sense of direction and purpose. It motivates you to your highest levels of energy.

Your financial needs and wants are about supporting a good life that is consistent with your core values and beliefs and it's the starting place for any money management. Your own definition of good life is there, within you. But most of us simply haven't identified it.

To share with you a guide on defining good life, I would like to quote a formula outlined by Richard J. Leider and David A. Shapiro in their bestselling book Repacking Your Bags.

"Living in the place you belong, with the people you love, doing the right work, on purpose."

According to them, good life is an integration -- a sense of harmony among the various components in one's life.

It means that, for example, the place you live provides adequate opportunities for you to do the kind of work you need to do. And that work gives you time to be with the people you really love. And that your deepest friendships contribute to the sense of community you feel in the place you live and work.

The glue that holds the good life together is your purpose. Defining your sense of purpose -- the reason you get up in the morning -- enables you to continually travel in the direction of your vision of the good life. It helps you focusing on where you want to go and discovering new roads to get there.

If you are interested in finding out more on how to define your own good life, I suggest you can read Repacking Your Bag or any other life-planning books.

Only after defining what good life is, can you move on to identify the financial needs and wants required to support your good life.

The following are some of the questions that you can ask yourself to identify your financial needs and wants in life:

- When would I want to retire and how much income will I need to maintain my desired retirement life style?

- How much tertiary education do I want to provide for each of my children? By when do I need the money?

- How much do I need to finance my annual vacations? How about my vacations during my retirement?

- How much would I need to maintain my current life style?

- How much would I need to buy my dream house?

- What are the other financial goals that I would like to achieve and how much will they cost me, and when would I need it?

A sample list of financial needs and wants

Below is one of my client's list of financial needs and wants for a good life.

- I would like to retire at 50 with RM96,000 annual income.

- I want my wife to retire earlier at 35.

- I would like to provide RM200,000 each for my children's tertiary education.

- I would like to set aside RM20,000 for my annual vacation and I hope to double it to RM40,000 when I retire.

- I would like to maintain my current family lifestyle of RM120,000 per year.

- I am happy with my current house. I will not need to buy another house.

When you develop your list of financial needs and wants, don't be restricted by your current financial resources. You should focus purely on defining the financial needs and wants that will give you the good life you want.

That's what we mean by defining the financial freedom goal that you really want in life. When you do that, you will develop a strong sense of belonging to the financial freedom goal that you set because it means a lot to you. When you do that, you will not blindly follow the common financial freedom goal of just wanting to become a millionaire or a multi-millionaire.

Each one of us will have our own financial freedom goal. Therefore, each will also have our own code for our financial freedom.

We need to find out what combination of spending, ROI, inflation, time and saving is the right code for us to achieve our own financial freedom.

Have you found out what is your code to your financial freedom? If you have, you are on the right track to achieving your financial freedom.

If you haven't, you better start finding it out now before it is too late, because without the essential element of time, it is going to be difficult, if not impossible, to achieve your financial freedom.



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Yap Ming Hui is the managing director of Whitman Independent Advisors Sdn Bhd, which has recently launched Roadmap to Financial Freedom service to help guide Malaysian families to achieve financial freedom

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