The Asset Growth Chart- PART 2

Hi! We meet again and thanks for spending some time to be with me on the subject of Asset Growth. To recap on previous article, i have spoken about the requirement to formulate your financial goals monetarily, followed by the need to create personal household Cash Flow statement(CFS) and Net Worth Statement(NWS).

On this article, let's examine those two statements and find out how it can be used in our financial planning.

A CFS is a display of records of all your revenues in a particular month shown on the left hand side of the sheet, and records of how those revenues have been chanelled to, shown on the right side of the same sheet. The NET of this two sides will give us the SAVINGS for the month in relation. From the right side of the statement, the whole total of transactions add up to what we call MONTHLY EXPENDITURE (ME).

For the purpose of establishing the Asset Growth chart, i shall not touch on the NWS in this article. I will cover that on other articles in not far future.

Let us assume that on the average of 12 consecutive months, your ME stands at RM 2000/-.

Let's assume you are 35 years old and will retire at age 55.

Let's assume you will live 20 years in your retirement age.

Let's assume the inflation rate is 4.0% annum throughout.

Let's assume the growth rate of your investmetn portfolio is 5.0% annum throughout.

Suppose your long term financial goal is to have this much of money monthly to service your lifestyle during your retirement period. That means, during every month of your retirement days, your retirement fund should be able to provide you with at least RM 2000 monthly for you to enjoy current lifestyle in your golden days. The point now to remember is that you need to convert that RM 2000 which you need during retirement, to today's money worth. After which you will need to assess against your current baskets of investment products. With a little assistance from my HpB10 financial calculator, that RM 2000 MUST be satisfied with an amount of RM 154813 now.

Now, lets look at your current basket of investment products.(The example below is just for illustration purpose only)

Assume in the basket of investment you have,

Fixed Deposit = RM 50000@ 3.0% interest per annum.

Savings = RM 5000@ 1.25% interest

Unit trust = RM 20000@ 7.0% Equity Fund

EPF = RM 100000@ 4.5% dividend

With a little bit of calculation to find the asset portfolio's expected return, the example above would be able to provide us an expected return rate of 4.27%. Is this return rate satisfactory?

Due to time constraint, i shall resume on next column on a different date. See ya!