1 minute read
Case Study
Step 4: Develop your financial plan
We may have many financial goals and in developing our financial plan, we need to list down and prioritise these goals as well as our courses of action towards achieving the overall plan. It is important for financial plans to adopt a life-cycle approach so that a more holistic view of how each financial goal contributes
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Elizabeth, aged 27, has been working for five years and is currently a Senior Business Development Executive. Her monthly net income is RM4,300 and she receives an average two-month bonus each year. Her average monthly expenses are approximately RM1,500 and she currently has RM5,000 in her savings and fixed deposit accounts. Her short-term financial goal is to have six months’ worth of living expenses, or RM9,000, in savings for contingencies.
Elizabeth drives a secondhand car that has a current market value of RM5,000. Another of her financial goals is to buy a new Perodua Myvi 1.5L Automatic, which was priced at RM54,090 at the beginning of 2019. She would have to pay a 10% down payment and take a five-year hire purchase loan with prevailing interest rate at 3.2% per year and inflation rate at 3%. Thus, the monthly hire purchase instalment would be RM969 (this calculation will be discussed in Chapter 3). To achieve both her financial goals of buying the new car and having more in savings, she is committed to saving 10% of her income each month.
Elizabeth’s longer-term goal is to have RM1 million (excluding her Employees Provident Fund) in savings for her retirement at the age of 60. To achieve this goal, she plans to make regular investments starting in 2020, when she is 28 years old. Table 1.2 summarises Elizabeth’s overall financial plan.
From Table 1.2, Elizabeth’s first priority is to build up her emergency fund equivalent to six months’ worth of living expenses, which would be RM9,000 (RM1,500 × 6 = RM9,000). This is reasonably conservative given that the amount does not include expenses related to the new car that she intends to buy. She currently has RM5,000 in her savings and fixed deposit accounts and if she commits to saving RM430 per month (10% × RM4,300 = RM430), she would have RM4,300 after 10 months and hence, achieve her short-term financial goal.
