Lifestyle Planning

Lifestyle is an important part of our lives. Everyone has a different description of Lifestyle. The most important thing is what ever maybe the lifestyle needed, one has to plan financial to achieve it.

Planning has to be done to

• identify the need,


• the money needed for that lifestyle,


• the time available


• how to acheive it.

The first step is quite simple. Lifestyle to travel overseas every year, need a holiday home, a sports car, a luxiourious home by the beach, etc etc. It can also be a simple second home, a financial free retirement. So you need to know how much you need.

The very important factor in planning is the time you have and the method you acheive it. The earlier you plan the higher the amount. This chart shows a simpe computation of Time value of Money.

Once you decided to save, the the risk that you can take has to be decided. If you dont want risk, the returns will also be low. High risk, High returns.

The options are

• FD in a bank for abour 1%-2% interest rate

• Bonds or tresury bills- 2-4% returns


• Balanced funds with exposure to bo equity and bonds with about 5-9% returns


• Equitiues either as Shares, Unit trust or Managed accounts with a potential return of more than 9%

Time is crutial to any planning. The earlier you start the higher the returns you can reach. Also, the amount needed will be lower.

Income vs Expense

Time and again, we have to go to basic to manage the income vs expense matrix.

There has been a lot told and written on how to manage the balance and of course ultimately save for a better living standard. Pyramid of needs, NEEDS vs WANTS etc.

Yesterday I attended a workshop on Money sense conducted by a STAR trainer called Abu.
His success story is very interesting on how a GOAL in life is so important (www.abangabu.com)

I would like to share some interesting ways he uses to manage money.

He uses the Compass to explain it in a simple way. Like the compass helps a person lost in a jungle to move to civilisation, the financial compass can help spend wisely and hence mange money well.Now looking at the financial compass, E- stands for Essentials. Food, clothing, children's education, house rent/mortgage payments, medical expenses all go into this category. This can constitutes upto 60% of your income.

N- signifies Necessities. Education, insurance, medical cover, savings etc come under this category. Up to 40 % of your income should go into these expenses.

Both these categories should be High priority in any ones financial plan.

Now looking W- Waste, things that account for unplanned items like spending on taxi because of waking up late, eating out unnecessarily. You can look back at your spending patterns and identify what you can categories under this. At anytime, this portion of expenses shouldn't be more than 5% your income.

Last but not the least is S- STUPID, SILLY expenses. These expenses are those we do to satisfy our False Prestige or EGO. To show off that we are doing well when the fact is not so.

Talking about this section, a lot can be said about how the RICH present themselves. For example, Warren Buffet the richest man on Earth, says his success is Simplicity. He still lives in a house he bought with his first income, travels by economy class and doesn't buy things he doesn't need. There are a lot of such examples.

Like the saying goes " Empty Vessels make more noise" its always the not so financially savvy who spend on POMP & SHOW. This component of expenses shouldn't be more than 5% of the income.

So, using these NEWS categories, one can easily plan for financial freedom. So next time you go shopping take your COMPASS along.