While financial consideration is the key aspect in financial plan especially during the computation, non-financial aspect always being neglected consider by many practitioner. In fact, one of the factors that lead to fail in providing a comprehensive financial plan is due to unable to take consideration of non-financial aspect. Thus, in the recent round table discussion, it makes a call for a need to have understand ‘subjective’ aspect.
In fact, the subjective non-financial consideration is equally as important as the financial consideration in the creation of a financial plan. While financial considerations refer to individual’s objective information such as the total amount of money needed for retirement fund, but the non-financial considerations include the individual’s qualitative information. This information comprises of individual’s attitude and spending habits, behaviour towards risk, ability and capability to follow the plan budget allocation, the feeling either likes or dislikes on certain investment instruments. Thus, further discussion on non-financial consideration its divide into five key areas in financial planning.
Firstly, the risk and insurance planning. During the computation of the protection needs, the objective consideration such as to determine the amount of shortfall or deficit that the individual need to cover. Besides, the individual also need to make sure he or she is afforded to make the monthly or yearly premium payment on the protection coverage. This is because the premium payment may consume a portion of the monthly amount from the individual disposable income, and subsequent lead to illiquid situation. On the other hand, an example of subjective consideration includes health condition for the insured individual. This is because without belonging to a typical mortality health, the individual may face the risk of being unaccepted by the insurers or if being accept but with a high amount of premium. Besides, from the perspective of the individual’s emotion, it is a need to understand the individual feeling about purchasing insurance, in which may involve offensive taboo among some individual feeling or culture.
Second, the tax planning. An example of objective consideration such as to make sure the individual follow the proper guideline in filling all the relevant claims. The process of filling up all the claims need to be make sure according to legal legislation guideline, as such this include the proper technique for tax relief and tax rebate in the tax assessment. On the other hand, the subjective consideration involve the individual attitude towards paying tax, in which related to intrinsic motivational to pay tax.
Third, the investment planning. During the individual computation the amount of money to contribute into the investment portfolio, the objective consideration such as the availability and accessibility of amount surplus fund. However, the individual also needs to take consideration the subjective aspects such as the individual’s risk profile, in which can be categorise into risk seeker, risk neutral and risk adverse. Besides, another subjective consideration such as the occurrence of a situation where the individual have some preference on some certain investment products. Due to a huge complex of products availability in the market, this lead to individual confuse and they might encounter some likes and dislikes of the investment products.
Fourth, the retirement planning. During the individual computation on the retirement fund, some of the objective consideration consists of the available of extra surplus amount to contribute towards regular contributions, and the type of methods being used for the retirement fund computation. The methods which typical use is either capital liquidation or capital retention method. On the other hand, the subjective consideration includes type of lifestyle post-retirement, state of health post-retirement, and intention to work post-retirement. First, the type of lifestyle post-retirement. Indeed, the individual lifestyle needs to be adjusted according to the amount of retirement fund accumulate when he or she reach retirement. However, the challenge face by the individual is the willingness of the individual to change and downgrade their lifestyle if the amount of retirement fund accumulate is shortfall? Second, the state of health post-retirement of the individual may decrease during retired, thus in need of more health care coverage. Subsequently, it might use up a portion of the hard earn retirement fund. Third, the intention to work post-retirement. This to determine if the individual have the intention and willing continue to work even after retired due to insufficient of retirement fund. If yes, it might prolong sustainable of the retirement fund.
Fifth, the estate planning. The direct objective considerations such as the available estate planning instrument in the market for the individual, and maybe the need to have a living trust during the life time. On the other hand, the subjective consideration include the emotion feeling about writing a will, in which related to some offensive taboo feeling. Besides, the subjective consideration in determine the executors and trustees parties when the individual pass away. This is because the individual might have encounter likes or dislikes feeling on certain parties to execute the will when he or she is pass away.
In summary, a comprehensive financial plan full of meaning if taking consideration for both financial and non-financial aspects. In fact, to establish the comprehensive financial plan, it is the greatest if individual able to begin with subjective non-financial consideration issues, and subsequent work on the objective financial consideration of the amount of the money is for.
|Risk and insurance planning||Has the individual any ‘short fall’ protection needs? Can the individual afford to pay for his/her protection policy?||Are the individual and his/her spouse health? What is individual feeling about buying life insurance?|
|Investment planning||The amount of surplus income/available capital individual can afford to contribute towards certain investment products||What is the individual risk profile? The individual dislikes of certain fin products|
|Tax planning||Has the individual made all the legitimate claims for relief from his/her tax return?||The business individual’s attitude towards paying tax|
|Retirement planning||Has the individual had surplus income to make regular contributions towards his/her retirement fund? What methods has he used for projecting future income for retirement?||Where does the individual want to live after his/her retirement? The state of health of the individual & the spouse after retirement. Individual’s intention to work after retirement.|
|Estate planning||Has the individual written a will? Is there a need to create a living trust?||Does the individual feel that writing a will is taboo? Who can be executors/trustees of the individual’s will?|