Why Is Financial Planning Crucial Today
Financial planning is crucial today because of the following reasons. You may think that if your parent didn’t need financial planning while you were growing up, why do I need it? If you haven’t noticed, the lifestyle your live is very different compared to 20 or even 10 years ago. The world has changed tremendously and so has our lifestyle. Do you recognize these trends?
1. You are going to live longer
Life expectancy worldwide is increasing. While diseases like cancer and heart attacks are very common today, average lifespans have increased! Due to improvements in health care, a baby boy born in 2004 is expected to have a life expectancy of 74 and a girl, 79 years or higher, depending on which country you are in.
2. You will spend more on health care
Medical inflation is about 8 – 10% a year. Not only cost of medical treatment increases, with longer lifespan, the total cost of medical care over your lifetime will also be more. Diseases that probably killed a person in the past are now treatable, off course at a price. You also need to cater for long term care after retirement.
3. To enjoy retirement
Since you expect to life longer, the retirement years will also be longer. If you and your spouse retire at 55 and live to 75, you’re going to eat 43,800 meals in retirement. Excluding inflation, if each meal costs RM 5, you’ll spend RM 438,000 on food alone.
4. You have more ways to spend your money
Just a fews years ago, there were no theme parks, satellite television, home theater systems, smart phones, PDA’s, play-station, private medical care, internet, shopping malls, designer coffee, tolls, etc. to drain our income. Today it is increasingly easy to spend money fast. Choices are everywhere. If you just try something, the cost of “trying” stuff cost you money that could have been saved for the future.
5. You travel a lot more.
You spend more on travel than you used to for common activities like work, shopping and schooling. It is very common to travel 30 miles or more in a single day. With increases in fuel price, your budget for travel will shoot up
6. You will marry later and have children later
Nowadays, it is very common to see retirees with children still studying. You have to build an education fund to cater after you no longer earn an income.
7. Costs of raising children is higher
Cost of raising children is rising. Children clothes, food and medical care usually cost more than adults. You also pay for music classes, ballet class, children camp, children golf (yes, it’s there) language development, tuition, and more. Children today are much more demanding compared to when you were a kid. Who knows what other classes you need to pay for.
8. Your children will spend more time in university
It used to be that a first degree is sufficient to get a good start. Today many continue on for their Masters’ degree or even Phd. Instead of starting work at 22 or 24, you will have to pay for food, lodging, travel and study fees for a longer period before your children start to earn an income.
9. Inflation
Inflation raises the cost of products and services. You may outlive your money, if your investments do not grow at least at par with it.
10. To pass wealth to the next generation
This is increasingly difficult because it is likely that you will outlive your assets and have nothing to leave to your children. In many cases, the transfer of wealth is going backwards.
It is for all these reasons that you need to have a financial plan.