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General Guidelines on Financial Planning

The Definition and Range of Financial Planning

Income of your life:

  • Money earned from your personal abilities is called active income
  • Money earned from investing your money is called passive income

Expenditure of your life:

  • Money spent on daily lives from birth to death is called living expenses.
  • Money spent on investments or credit borrowing is called financial expenses.

Financial planning is the knowledge regarding managing individual active income, passive income, living expenses, and financial expenses. People can meet their cash flow requirements, increase their fortune, and fulfill their dreams by financial planning.

The duration of financial planning is through all your life, not just in the current moment. Financial planning is about managing cash flows, which also includes risk management since the lifetime cash flows have uncertainties.

Asset and liability management

Savings are from the income left after deducting expenses in each period. Assets are accumulated from savings each month.

Income and expenditure management

Tax arrangement

It’s important in the financial planning filed to legally save income tax in the lifetime income and expenses, and legally save estate and gift tax upon transferring fortunes.

Risk management

Your properties can be further protected through the planning of insurance and trusts.

The purpose of Financial Planning

Balance the gap between individual income and expenses

Saving from work = expenses on growing your personal resources + expenses of retirement

In different periods of your life, the income and expenses are usually not the same. If income is greater than expenses, there are savings. If income is less than expenses, there are liabilities. The first purpose of financial planning is to properly manage the income and expenses in every period of your life.

Have a better life

Give back to society

Through financial planning, you can create a fortune, have the ability to serve people, and thus give back to society.

Fight against inflation

Prevent you from staying in the poor parts of the M-shaped society

The Range of Financial Planning

Make money

  • Active income: income generated from labor, e.g., salary, commissions, bonus, operating income, etc
  • Passive income: income generated from money, e.g., interests, rent, dividends, capital gains, etc

Spend money

  • Living expenses: It refers to the cost of living of individuals and family, e.g., food, clothes,
  • Financial expense: It refers to the expenses due to investments and borrowings, e.g., interest expense from borrowing or insurance premium.

Savings and assets

  • Contingency reserves: reserve cash to cope with unemployment, disabilities, lack of money, etc if there is any
  • Investments: investment tools that can generate financial income
  • Properties or fixed assets: buy useful assets like houses or cars to use

Borrowings and liabilities

  • Debt from spending: It refers to the borrowings from spending, e.g., installments, credit card borrowings, etc
  • Debt from investment: It refers to the borrowings from investment, e.g., stock margin financing and short selling
  • Debt from self-used assets: It refers to the borrowings from buying useful assets, e.g., mortgages or car loans

Save money and mitigate tax

  • Reduce income tax: save tax by reporting method or deductions

Protect money: insurance and trusts