Financial Planning 101: Financial Planning Area and Interest

As a human who grows day by day, learn new skills to enhance life could be important at all. So, I would share my learning outcomes, as well as possible. A few days later I just shared the first part of Financial Planning 101. In this article, I just shared about financial planning mindset and how to do financial planning by your-self. If you haven’t read the article, please check the link below.

Financial Planner 101: Financial Planning Mindset and How To Do It

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Financial Planning Areas

After reads the article, you might think that financial planning is about investment. Even though, when we talk about financial planning it has the biggest area.

For example, you might think that you can do investment, anything like a mutual fund, deposit, stock etc. But remember, if your analityc result says that you can’t do to much invesment or you have a lot of loan, don’t deny the truth of the data analysis, you are not able to do investment.

There are 6 areas of financial planning you should know:

1. Personal financial statement: Financial planning is a data capture of your financial condition right now. Remember, data is never lying, bad or good it’s can be your financial condition representatives.
2. Investment planning: Financial planning can be your investment planning to reach out your future goals and offset the inflation.
3. Pension fund planning and education fund planning: The standard of living in future will be very different from the present. Financial planning must be a futuristic plan.
4. Risk management (Insurance): Financial planning also organizes your insurance, matching a portfolio that fits your needs. Do not let the insurance is too large, even though you do not need it.
5. Tax planning: Financial planning is about defines how to minimize the tax you must pay. For example, with the same benefits, there are 3 kinds of investment product. The obligation has a 15% tax, deposits have a 20% tax and the capital market has a 0.1% tax. In this case, you can choose the investment product who has minimum taxes.
6. Estate planning: Property is an inherited asset. With financial planning, you can collect data about your assets. You might cooperate with notaries to ensure that your property will be safe and will be passed on to the person in question.

Simple Interest and Compound Interest

When you are ready to invest money. You must know about interest. There are 2 kinds of interest: simple interest and compound interest.

Simple interest is taken from the principal value of your investment.

For example, an investment of 100 million rupiahs has 12% simple interest. So, after 5 years of tenor, it has a final result of 60 million. With formula:

Annual interest = simple interest x nominal of investment

Compound interest has bigger result from simple interest. Usually to count results of compound interest you must use a financial calculator. You can just download it on the app store or play store. You just need to prepare a value of present value, interest value, period, type of investment: annually or monthly. These values can predict future values.