Try starting a conversation with your friends about financial planning. They might just start rolling their eyes, throw you a snort and utter, “Don’t waste my time. I don’t believe in that crap.” Oh well. What a shame. That crap is going to make you a happy man in the long run. 

What is a Financial Sailboat?
I was talking to my financial advisor one day, and he gave me this analogy that I’ll like to share with you guys. He says a financial plan is like a sailboat. I’ll throw in a picture for your understanding.

Ermmm … did that help?

On average, you should set aside at least 15 to 20% of your monthly NET income to building up the three essentials of your financial sailboat – the hull, the sail and the life buoy.

The Hull
The hull is like your savings, your fixed deposit and any other fixed income instruments. Building a sizeable hull provides stability. However, too big a hull will get you nowhere when pitting against the waves of inflation. So what’s the minimum amount of savings you should have? Most financial advisors recommend an amount that is sufficient to support your current lifestyle for 6 months. This is your emergency fund. Make sure that you keep it in somewhere fluid, like in a high interest rate savings account, for easy access. If you were to lose your job suddenly, at least, you’ll still hold out for six months. Way to go, tough guy!

The Sail
The sail is like your investments (e.g. unit trusts, equities, real estate, business ventures, bonds etc). A strong sail helps you to cruise through the waves of inflation, and speed up your financial journey. However, too big a sail will cause you to capsize or take on the wrong course during stormy economic weathers!

The Life Buoy
The life buoy is your insurance policies (e.g. whole life plan, endowment plan, personal accident, medical etc). Invest some money in a sizeable buoy. It keeps you afloat when your sailboat capsizes during financial storms.

Imagine if John, a married man with two kids, were to meet with a traffic accident. Say he’s lucky enough to survive, he’ll be in for a rude shock. Depending on his condition, the hospital bill might just hurt more than his physical pain! On top of that, he’ll be pouring in his hard-earned savings just to settle the bills. Not very wise indeed. With a hospitalization plan, he’ll be asking for an extended stay in hospital just to take a break from work! Even in the worst case scenario – he passes on – he can be sure that his whole-life plan will continue to watch over his family by financing their daily expenses!

YOUR Kind of Financial Sailboat 
Remember I mentioned setting aside 15-20% of your net income? You should further apportion it among the hull, the sail and the life buoy. How much to apportion? You may ask. An interesting rule that I learned and still apply now is this – use your age as the apportioning factor!

Say I’m 25 years old this year. Out of the 15-20% that I set aside, I will put 25% (my age) in the hull and the life buoy. The remaining 75%, I put them in the sail. As you grow older, naturally, your risk appetite will shrink and the amount you invest in the sail decreases. When I reach 30, I’ll have 70% in the sail. Get the picture?  

When is it the Right Time to Start?
It’s NOW. The inflation rate won’t wait for you. Your money in the savings account is depreciating by the minute. The stock market won’t wait for you either. You might be missing on a chance to earn compounded interests of 20% per year. Still bent on waiting?