Thriving in Life With a Financial Plan
By Helwa Sofni Md Isa
When my client took a career break, she underwent a big transformation that prompted her to work on her financial planning.
Follow the story of my client, Puan Sara and her husband, Encik Que as they undergo a financial planning journey after Puan Sara decided to take her career break in order to to take care of her young family.
Age: Early 30s
Marital Status: Married, with 2 children
Asset Allocation: 50% in property, 40% in Fixed Income, 10% in equity
Income Source: none, totally dependent on husband
An Unplanned Event
Puan Sara was in her mid 30’s when she decided to take a career break to care of her young family while her husband Encik Que took a job thousands of miles away.
Being career-minded and holding a promising position, taking a career break had never cross her mind before. It was a very difficult decision but being a mother, for her it was the best option for her family at that point of time.
Just a year earlier, she made 1 major financial decision in her life. She bought a property that cost approximately half a million ringgit with a 20-year mortgage. The loan had rather a short tenure despite the large amount as she wanted it to fit into her plan to retire at age 55, hence the loan was targeted to be paid up by then.
Therefore, having to decide for a career break needed serious consideration in terms of financial readiness. The initial plan was all expenses and ongoing commitment to be taken care of by her husband, except for that property loan that she had committed to a year earlier. In order to cover for the progressive repayments of the loan, the plan was to use her EPF account 2 savings.
What Money Can’t Buy – TIME!
You see, both Puan Sara and Encik Que were committed to change their lifestyle in order to match their new single income status, in other words they were prepared to downgrade and live humbly.
What came as a surprise to Puan Sara was that living humbly was actually a little adjustment to what she was already used to. Her lifestyle was not really downgraded at all. There was no significant impact to her emotionally.
She still enjoyed her time very much. In fact, now that she was no longer working, she found that spending time with her family was a true blessing. She also still had meet ups with friends and relatives.
With all this happening, Puan Sara was confused. What happened to all her spending during her working life? Where did all her spending back then go to?
If things were going so well in terms of spending, perhaps being a stay-at-home mother could be a viable long-term option for her? Or perhaps taking on a less demanding job albeit with lower income would be okay too? These thoughts crossed her mind.
The Wakeup Call
Despite enjoying her new lifestyle and considering the possibility of continuing it, Puan Sara felt concerned over one thing – her family’s complete and total dependency on her husband as the sole breadwinner of the family.
This fact was rather scary and made her feel insecure as to what the future held for all of them.
Despite spending being manageable so far, she was worried and had many questions. Was their current lifestyle truly sustainable on a single income? Could they afford to retire comfortably? Would the possibility of sending her children to private school be a wise move?
To address this, she did her own study. She did plenty of reading and asked many financial representatives to find the answers. She was confused with the options available, and how to prioritize needs accordingly. While having many life priorities, their family resources were limited.
A First Step to A Good Start
What Puan Sara needed was an advice on her overall financial situation. She needs a holistic review that consider all financial goals together as much as her concerns. Some goal targets will need to be adjusted to accommodate other financial needs. Thus, prioritizing these needs were equally important.
I attended to Puan Sara’ needs using the 6-step Financial Planning Process. We began the process by getting to know each other better. We included Encik Que in the discussion as many plans were family-related that needed commitment, agreement, and support from both of them. Open-ended questions were asked to understand their concern, goals, and objectives. We identified and fine-tuned their financial and life goals so that they were clear.
The engagement was smooth as both Puan Sara and Encik Que understood that providing accurate and complete input are extremely crucial in order for me to holistically analyse their unique needs and develop the specific plan that would suit their family best.
Holistic Financial Review
The following were areas of Financial Review that were discussed thoroughly with Puan Sara and Encik Que:
Cash flow review: Understanding of the income stream and tracking the spending pattern properly. Spending includes discretionary and non-discretionary expenses. This enables them to set aside minimum cash reserves first. This process also allowed them to know their actual investable asset value and the ability to optimize their cash flow.
Risk Management review: This to ensures that Puan Sara and her young kids are covered in the case of any financial shocks or should anything have happened to Encik Que. We reviewed and summarized the existing policies and performed the gap analysis. To address the gaps, we prepared multi-vendor product comparison and recommendations.
Asset allocation review: This review was intended to ensure their existing resources or investment working harder to beat inflation and support their financial target specifically for retirement, kids’ education planning, and the hajj planning. Investing in the best-of-class products helped them to maximize their potential returns while managing the risk level according to their risk profile.
Estate Management review: Highlighted the estate administration processed involved and the Islamic inheritance law applicable to their existing financial position. This review included discussion on the estate planning tools available and what best to support their wishes while keeping cost for now and future at the most optimum possible.
“A dream life is all in details”
During the first discussion of this financial planning, it was rather an emotional session for Puan Sara. The finding and details were more troubling than what she initially expected. Particularly on estate management, realizing the misunderstanding that she had prior to this discussion was too much for her should anything had happened to Encik Que.
There were few other financial mistakes spotted such as unsuitable insurance policies and selection on investment type that did not match their risk and expectations.
In summary, this Financial Planning Review we worked on together has added value to them both by addressing:
Reduced Financial Risk
Reduced Financial Cost
Optimum Cash Flow management
Proper Investment Strategy
This Financial Planning Review also made Puan Sara realize that there are things that can happen beyond her control. She realized that not every risk can be for certain covered by a plan.
While her decision has been to prioritize her family, she realized she cannot drop everything else but rather would still need to lend her attention to these other things although they should comparatively take up less of her time. For example, she still needs to be financially independent, financially savvy, acquire more life skills and competency, in order to adapt to challenges that came to her way.
“The diagnosis and analysis done helped me and my husband to make informed decisions. Life scenario planning made it clear what to expect, what to work on and what to sacrifice to some extent. Having comparisons and options for me and my husband to choose from are such a stress reliver, that made me feel so thankful. I enjoy life better; I appreciate things surrounding me. In short, I am a better person today!” – Puan Sara
Puan Sara believes that having a financial plan as a couple is important in order to manage expectations, emotions, and ultimately gain peace of mind knowing that you are on the right track for what is best for your family. And that is possible and much simpler with the help of professional advice from the Licensed Financial Planner.
Do you want to have a holistic financial planning review? Contact Helwa Sofni and get connected to a licensed financial planner. WVA Story is a series focusing on personal stories by licensed financial planners from Wealth Vantage Advisory.