Misconception vs Reality: Myths about Financial Planning

Myth #1: Financial planning is only for the rich

Misconception

The general perception of having financial planning is that it is for the wealthy. The middle class and the poor do not have the surplus or the allocation in their financial state to think about financial planning and savings due to their circumstances. A person who is living from paycheck to paycheck would have to think about stretching what little income they have into paying bills and surviving from month to month. The thought about financial planning would not be their priority. Most low-income earners are mindful of the fact that if they do not have enough to live comfortably from day to day, then even thinking about financial planning is an ill-afforded luxury.

Reality

This is one of the biggest myths about financial planning. Financial planning is applicable to everyone regardless of their income bracket and affordability. If the individual has the ambitions, goal and drive to improve their quality of life, then financial planning is doable and achievable – with the right tools and resources. However, it all has to start with the mindset. Without the right belief that their financial state can be improved, it’s no wonder people are stuck at where they are financially. In fact, without proper financial planning is a sure-fire way to stay poor.

Myth #2: You can always do it later on in life

Misconception

For the optimistic bunch – these are the guys that think that while their financial state is “not there yet”, they will eventually make it and be at that sweet spot in life. They’re usually ‘happy-go-lucky’ people who take things at they come, and live from day-to-day without worrying much about their future financial state.

Reality

Procrastination is never helpful in life, and this also applies to financial planning. The reality is the earlier you start your financial planning, the better the chances of you improving your financial status and increasing your wealth. A good return of investment from your financial planning involves time. If you’re still young, you have the advantage as time is on your side.

Myth #3: It costs an arm and a leg

Misconception

Like myth #1, most Malaysians think that financial planning is for the wealthy and affluent with multiple asset classes. Coupled with high consultation fees and being pressured into buying all sorts of financial products, consumers wouldn’t want to go near a financial adviser/planner with a ten-foot pole.

Reality

Here’s a quick disclaimer: The next section is not meant to put insurance agents in a negative light, but merely to highlight the difference between a financial adviser and an insurance agent. Both have their place and importance in the finance-sphere for consumers. Ultimately, it is up to the consumer to decide what is best for them.

First things first, people tend to mistake insurance agents for a licensed financial adviser. It doesn’t matter what their business card says. These days, many insurance agents go around bearing name cards with titles such as “financial planners”, “financial consultants” or “financial advisers”.

The truth is, an insurance agent is not the same as a licensed financial adviser/planner/consultant. There are overarching areas in terms of their services, sure. But it’s time we call a spade, a spade simply because while they have some similarities, they are inherently different. One main difference is that an insurance agent represents a particular insurance company or bank, whereas a financial adviser does not.

If cost is ultimately your concern and you’re not looking at another round of politely declining your agent when he/she comes to you with a new product from their company – consider hiring an independent financial adviser.

Here’s a quick checklist of what to look out for in an independent financial adviser:

  1. IDEALLY, an independent financial adviser is not tied to any financial products. This also means that he or she does not advocate any products to you on the basis of earning a commission. You can be rest assured that he or she has your best interests at heart and only suitable products are recommended to you based on your needs. This itself strikes off the possibility any conflict of interest.
  2. They are licensed by Bank Negara and the Securities Commission of Malaysia. If in doubt, check and validate their claims on this website.
  3. Engage a fee-based financial adviser. They’re usually affordable as the fee covers the cost of their work without the usual product pushing.

If you’re still concerned that financial planning is an expensive exercise, by not planning will cost you even more. Now which is more expensive – to plan or not to plan?

Myth #4: Focusing on the portfolio

Misconception

A diverse portfolio is the benchmark of successful financial planning. The idea of having a fully diversified portfolio is enough to take care of the future is shared by many. Scattering the eggs into many baskets would mean reaping returns for various avenues. This in turn would mean that the money earned will be enough to take care of the future. Diversifying the portfolio would mean investments in many forms like shares, bonds, fixed deposits, properties and so on.

Reality

Proper financial planning means looking at your overall financial situation, the assets, debts, income, expenditure and everything in between. A diverse portfolio would mean nothing if your financial planning is done without considering the full picture.

Myth #5: All you need to do is a plan

Misconception

Once a plan is crafted, you need not revisit it unless you want to. Since to get the financial planning done, you will need to do a health check-up on your current finances. Supposedly, you are on top of the numbers related to your income and expenditure, and hence your plan should be foolproof.

Reality

Financial planning is not a one-off process. It grows and evolves according to your income and the country’s economic situation. You should look into your financial planning yearly to stay current and updated. The financial planning industry in Malaysia can do better, and this may change with new initiatives from both the Government and non-government bodies alike.

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