Let's understand financial planning before it's too late

This economic crisis has opened our eyes to the fact that “financial planning” is not just a matter for the elite, but a necessity for everyone. Those without a clear financial plan are more vulnerable to emergencies, which can happen quickly and easily.

What exactly is financial planning?

Financial planning is the process of managing our resources to achieve life goals, whether it’s retirement, buying a house, or funding children’s education. It involves analyzing our current financial situation and setting a solid plan for the future.

Why do people nowadays need to take financial planning seriously?

The first problem: increased lifespan, but insufficient retirement funds

Statistics show that humans are living longer. The average Thai man lives to 71.3 years, women to 78.2 years. Suppose you retire at age 60 and need 30,000 baht per month until age 80. Simple calculation: 30,000 × 12 months × 20 years = 7,200,000 baht.

According to statistics, only 25% have enough money for retirement. Plus, state allowances of 600 baht per month and social security averaging 3,000 baht per month are not enough to cover living expenses.

The second problem: changing family structures, unable to rely on children

Thailand is entering an aging society, with over 10% of the population over 60 years old. Meanwhile, the younger generation has fewer children, averaging 1-2 per family, due to rising costs.

Data indicates that 55.8% of the elderly still depend on others. Relying on children for support until the end of life is not a stable solution. The new generation also spends money fully.

The third problem: inflation gradually erodes purchasing power

Twenty years ago, a bowl of noodles cost 5-10 baht. Today, it’s 40-50 baht. In 30 years, it could be 100 baht or more. Money saved without investing will gradually lose value.

The fourth problem: state welfare is already strained and will worsen in the future

In 15 years, the population over 60 will increase to 20% (1 in 5 people). The ratio of working-age to elderly people will drop from 6:1 to 3:1. The taxes collected by the government will be insufficient for future welfare.

The fifth problem: financial products are more complex and diverse

In our parents’ era, depositing money in banks was enough; returns were satisfactory. Today, the lowest interest rates in history (1.00-2.00%) mean deposits are inefficient.

There are over 726 stocks, more than 1,537 mutual funds, plus insurance products, life and health insurance, and others. Choosing correctly is essential to make “money work” effectively.

The sixth problem: need to manage life risks

During COVID-19, it became clear that many people suddenly lost jobs, and families lost breadwinners. Without savings and life insurance, debt burdens and expenses can crush families. Serious illness and medical costs can wipe out income and spike expenses.

What are the components of good financial planning?

Step 1: Set clear life goals

To know what to save for, you need to set financial goals: house, car, annual savings, children’s education, marriage, and most importantly—retirement.

Define clear goals, timelines, and amounts to give your savings direction, not just saving randomly.

Step 2: Record income and expenses

90% of new workers face the problem of “spending all month.” They don’t know where their money goes. Keeping a record regularly, even for just 7 days, will reveal which expenses are necessary and which are frivolous.

Today, many apps help track income and expenses, encouraging mindful spending.

Step 3: Create a personal financial statement

Many people, after working for years, stop counting “assets with no debts.” Annual financial health checks are like physical health checkups.

Record:

• Total assets (bank accounts, investments, home value, car, collectibles, luxury items)
• Total liabilities (mortgage, car loans, credit cards, informal debts)

Formula: Total Assets – Total Liabilities = Net Worth (our true wealth)

Step 4: Prepare an emergency fund of 3-6 months

If you suddenly lose your job or face an emergency, you need a reserve. It’s recommended to set aside 3-6 times your essential expenses.

Emergency funds should be kept in safe, highly liquid places, accessible immediately in cash, with low risk—such as money market funds or regular savings accounts.

Step 5: Assess risks and get adequate insurance

Many people insure property (home, car) but forget to insure themselves, like life and health insurance.

If the family breadwinner falls ill or passes away, not only does income disappear, but medical costs are also high. The family’s financial health could collapse.

Step 6: Save before spending, avoid over-indebtedness

Change from Income - Expenses = Savings to Income - Savings = Expenses

Aim to save at least 10% of income. Also, total debt payments (home, car, credit cards) should not exceed 45% of income. For example, if earning 20,000 baht, debt payments should not exceed 9,000 baht.

Step 7: Find additional income sources

During COVID-19, many lost jobs, and some couldn’t reduce expenses. Having multiple income streams is now a survival strategy—spend free time earning from skills or passions.

Multiple income streams are no longer optional; they are essential for preparing against uncertainty.

Step 8: Make money work—invest wisely

Invest leftover funds in suitable assets based on your understanding and risk appetite:

• Stocks/mutual funds: returns from dividends and capital gains, but with risk
• Bonds: fixed interest and principal repayment
• Real estate: steady rental income and appreciation

Diversify your portfolio according to age and goals to truly make your money “work.”

Step 9: Continuously educate yourself about finance

Invest in knowledge—costs are comparable to investing in gold. Read articles, watch YouTube, listen to finance podcasts like SET Education, and other free resources.

Spend 1-3 hours weekly learning about topics of interest. This will make investing and financial planning easier and more enjoyable.

Example of differences: savers vs non-savers

A difference of over 1.3 million baht just by one decision.

Summary: Start financial planning today, it’s not too late

The harsh truth is no one will help us; we must rely on ourselves. Financial planning is not difficult or only for some—it’s a skill everyone must have.

Start with simple steps: create a budget, prepare an emergency fund, avoid over-indebtedness, save, and begin investing. Learn gradually as you go.

Those who start early will already be halfway there—ready for retirement and any crisis.