financialtreat – will explain about getting acquainted with the Financial Pyramid for Planning a Retirement! Which you will get in the following article. Let’s look at this article carefully!
Enjoying life is necessary. But, what you enjoy now is not necessarily you can enjoy in the future. So, there is nothing wrong with preparing for retirement early with good financial planning.
Indeed, you may have plenty of reasons to keep updating your wardrobe collection of outfits, or book a luxury resort in Bali for more discounts due to the pandemic. But remember, your office insurance may decrease in benefits when you retire later. Who will pay for your electricity bills and daily necessities when you can’t work anymore? This is where financial planning is important.
Burdening children who are often seen as an investment in old age also feels wrong. Do you remember the difficulty of your parents to bear life as a sandwich generation? You don’t need to repeat it later if you have prepared your retirement well. Well, so that you are motivated to live leha-leha in old age, see some reasons why you need to prepare a retirement fund right now!
Reasons to Need Financial Planning to Prepare for Retirement
Pension Assistance from the Office and Government Has Its Limits
Your current well-being is still very much considered by the government or the office where you work. Because, you are an asset that must be maintained to remain productive for the economy. But the situation will be much different when you retire later.
Although the government and the financial world already have various programs and products to support your well-being in old age, it will still not be as optimal as it is today. Moreover, when seniors later you are more susceptible to disease and may experience many unexpected events. Many offices provide pension funds in the form of lumpsum so you won’t have any more monthly income later.
In addition, if you do not have good health insurance and only rely on your office, then the benefits will be adjusted when you enter retirement age later. So, starting financial planning is a wise step so that you do not trouble anyone when you retire later. Are you ready for that?
Want to Trouble Your Child In Old Age?
Those of you who are married, or already have children may think of this option. Namely, to spend your old age with children and grandchildren to be abundant in happiness. That option is indeed good and possible, especially if your relationship with your child is close and warm. However, you must realize that when it comes, your child already has his own life which also costs a lot of money.
Ensuring your retirement fund is enough to finance old age is also proof of your love for your child. So that later, when he wants to take care of you in old age, he does not need to be burdened by your financial needs. Let’s start financial planning carefully!
The Faster Your Retirement Fund Prepares, the Bigger Your Money will be in Old Age
The combined effect of your old age investment initiated since you were still very productive will make the accumulation of funds so much greater, you know. This is because the investment you make has an effect called compound interest.
When investing, the compound interest effect will affect the value of your capital. The early investment you make will make the capital is subject to less tax deductions. Not only that, the margin that you can also play again in investment instruments so that the accumulation becomes more.
Especially if you start early. Think of it this way. You want to retire at the age of 60. Well, do you think, will you have more money when you start investing at the age of 25 or 30? Of course, the sooner you invest, the greater the chance you can move your feet in old age.
Instead of waiting for lumpsum to retire from the office, starting the first step for yourself is certainly more profitable, right?
How to Prepare Financial Planning: Getting to Know the Financial Pyramid
Now, you already know the benefits of saving for retirement early on. It’s just the question, how can you do good financial planning to do this? For that, it’s a good idea to know about the financial pyramid. Alias, the financial pyramid. Have you heard this?
Well, the financial pyramid is a help in visual form so that people can understand the important steps to achieve financial freedom. Like a pyramid, the financial pyramid has several tiered layers from the base layer to the top.
So, what are the layers of the pyramid? Here’s the explanation!
The most basic level of the financial planning pyramid is how to meet short-term needs. In this case how can you manage cash flow and emergency funds. Cash flow management is essential to maintaining personal and family financial stability. In the absence of good cash flow then what will happen is an imbalance between expenses and income, it could be that the expenditure is greater than the income or “the big stake than the pole.” If this happens, then your short-term goals will be difficult to achieve and will certainly complicate your situation.
In cash flow, there are several components that must be maintained, one of which is debt. Debt management is very important because it has a direct impact on spending every month in the form of installments. If you can’t manage debt properly, your life will not be safe and comfortable.
Debt becomes the first preference in the cash flow component.
As much as possible you should settle your obligations in the form of debt first before other expenses. In financial planning is always based on top priorities so that you are not wrong in making decisions for life in the future.
The second preference in cash flow is to pay insurance costs. The cost of insurance becomes one of the most important costs after paying debts because with insurance you are able to transfer the risks that exist so that if you are affected by the risk you are ready to face it because you already have insurance.
The third preference in cash flow is savings and investment.
Savings and investments are one financial component whose function is prepared for the needs and desires of financial goals in the future. With savings you can enjoy savings if you need them.
The latter preference in cash flow is daily necessities. After making room for the previous three components, the rest is use in everyday life. The expenditure of life is divide into two, namely needs and desires. Allocate each need first compare to the desire. Moreover, desires that are consumptive must be reduce.
In addition to the cash flow that is the basis, there is an emergency fund that is no less important. This emergency fund has something to do with cash flow. This emergency fund must be owned by everyone for the sake of financing urgent needs. If you do not have an emergency fund, it will have an impact on your cash flow turnover. So prepare an emergency fund from now on so that your cash flow is smooth.
The second level above cash flow and emergency funds in the financial planning pyramid, the thing that makes life also safer is risk management, namely insurance. Various kinds of existing insurance such as life insurance, health, and assets. Insurance is a protection that you buy to transfer the risk to the insurance company from loss, damage, loss and even death of life. With insurance you will feel safer if something is not desirable.
For example, if you are sick and cost billions of rupiah, you do not need to sell the assets you have or create new debts for your treatment. You will get funds directly from the insurance that can be use by you for your healing needs or it could be that medical expenses will be paid by the insurance in accordance with the amount of the value of the agreement. There are so many benefits of insurance, in addition to making life safer, you can also maintain and preserve the assets you have.
The third level of the pyramid is to achieve financial goals for the medium term.
Everyone has different financial goals. These financial goals include preparing children’s education funds, housing funds, religious funds, and so on. To achieve these financial goals you must have a strategy and how to achieve it for that you must learn and understand how to realize your financial goals or can consult a financial planner you trust.
The fourth level in financial planning is the pension fund. Everyone wants a comfortable life when they are old. But that comfort cannot be achieve if you do not prepare it from now on. You have to calculate how much you need and how much retirement funds must be prepare for your needs when you are not productive anymore. All of that must be planne from now on.
Read More Financial Management:
- Career Planning: Understanding, Benefits and Goals
- Benefits of Capital Markets for Investors and the Economy
Last in the financial planning pyramid is inheritance.
Every parent certainly wants offspring who can live a decent and comfortable life but many parents forget and do not know that inheritance is not just the remaining property owne by parents given to their offspring. But inheritance must be prepare so that your descendants can utilize the funds for other productive purposes. The goal is that your descendants can live prosperously with the inheritance you provide.
Those are the five levels in the financial planning pyramid. Want to live safely, you must pay attention to cash flow, emergency funds, and risk management. Want to live comfortably, you can realize your financial goals, prepare for retirement funds and inheritance.
Hopefully this paper can open your mind to plan your life in more detail by using the principles of the financial planning pyramid.