Why is it important to plan your finances? Provide a clear answer before saving money.

In this era, many young people talk about finance casually. Planning finances seems like a heavy task for the elderly, but in reality, it’s something that young people must start from day one when they begin working. Honestly, if you haven’t started today, in 10 years you’ll feel the need to rush.

Why is there a widespread problem of unprepared retirement? Plenty of assets but not enough money

Statistics show that out of every 100 retirees, only 25 have sufficient savings. The remaining 75 rely on children, pensions, or continue working. Why is this happening?

Three main reasons:

First, life expectancy is increasing. Thai men have an average lifespan of 71 years, women 78 years. Some live up to 90. If you retire at 60 and still live another 20-30 years, how much money do you need to save? When you stop working, income ceases immediately, but expenses continue.

Second, inflation erodes our money’s value. A bowl of noodles cost 5 baht 30 years ago; today, it’s 40-50 baht. In another 30 years, it might cost 100 baht. If you don’t save money that outpaces inflation, your life savings will be wiped out by rising prices.

Third, government welfare is insufficient. The social security pension averages 3,000-3,600 baht, and the elderly allowance is only 600 baht. Is that enough? Mostly, it covers food and rent. For serious illness or emergencies, you need to gather additional funds.

Financial planning is about preparation, not overthinking

Simple definition: Financial planning means managing income, savings, and investments to align with life goals and post-retirement plans.

Comprehensive definition: The process of analyzing your current situation (how much money you have), (how much debt you owe), setting future goals (how much savings you want and when), then choosing suitable financial tools to successfully reach your goals.

To clarify, compare it to traveling. If you want to return home from another province, you wouldn’t start without knowing the route. You need to know where you are, where your home is, which way to go, what vehicle to use, and how long it will take. Financial planning is the same; you need to know your starting point, your destination, and the route.

Five reasons to start financial planning today

1. Children are not enough to rely on

Society has changed. There are demographic issues. Families used to have 4-5 children, but now most have only 1-2. Young people marry less and have fewer children because expenses are high. When we retire, we worry that children might be busy or unable to help financially, or even support ourselves. Relying solely on children may be too risky.

2. The collapse of state structures; welfare may end or be reduced

In 15 years, the proportion of Thais over 60 will be 1 in 5. Meanwhile, the working-age population (ages 15-59) will decrease. The ratio of working adults to elderly will drop from 6:1 to 3:1. This means the government won’t have enough funds to increase welfare but will need to raise taxes instead.

3. Financial instruments are becoming more complex; choosing wrongly can lead to losses

In our grandparents’ time, depositing money in banks yielded 5-6% annually, which was easy. Today, interest rates are only 1-2%. There are stocks, mutual funds, bonds, real estate, and many more, each with different risks and returns. If we don’t understand each, we might choose poorly and lose money.

4. Life is full of uncertainties; emergencies can happen suddenly

After COVID, many lost jobs. Some families lost their breadwinner. Some fell seriously ill, with high medical costs. Without savings or insurance, life can become very difficult. Just one event can wipe out your entire life savings.

5. The earlier you save, the easier life is later; the later you start, the harder it gets

Those who save from their youth and invest early benefit from longer periods and compound interest. For example:

Saving 5,000 baht monthly for 15 years at 5% annual return results in about 1.36 million baht. But if you delay and save more later, it becomes much harder.

Steps to save and plan your finances that anyone can do

Step 1: Set clear life goals

If you haven’t started saving, you need to know why. House, car, marriage, children, retirement, travel—without goals, savings become aimless.

Set specific goals, e.g., “Buy a house in 5 years costing 2 million baht” or “Retire at age 55 with a monthly income of 30,000 baht.” Once you know your goal, calculate how much to save, what return you need, and which tools to use.

Step 2: Record income and expenses daily

Ninety percent of early-career workers say, “Month to month, no savings.” But if you track expenses daily, you’ll see where your money goes—how much is lost, where it leaks, and whether it’s necessary or wasteful.

A simple way is to use a mobile app. No need for a notebook. Record every expense for 7 consecutive days to develop a habit of thinking before spending.

Step 3: Create a personal financial statement and check your financial health

Even after working for years, many don’t know their net worth. Calculate:

Total assets minus total liabilities = true net worth.

Assets include cash, investments, house, car, valuables (if sellable). Liabilities include bank loans, mortgage, car loans, credit card debt, personal loans.

If liabilities exceed assets, it’s a red flag. Immediate action needed.

Step 4: Prepare an emergency fund before investing

Emergencies—natural disasters, job loss, serious illness—can happen suddenly. You should have 3-6 times your monthly essential expenses saved in highly liquid accounts, like a regular bank account or money market fund, not high-risk investments.

For example, if your essential expenses are 10,000 baht/month, keep 30,000-60,000 baht in an accessible place.

Step 5: Save first, spend later; avoid excessive debt

The simple principle: Income minus savings equals expenses.

Not income minus expenses equals savings.

When your salary arrives, set aside 10% for savings first, then spend only 90%. If you can save more than 10%, even better.

And importantly, avoid excessive debt. For housing or car loans, payments should not exceed 45% of your income. For a 20,000 baht salary, payments shouldn’t be more than 9,000 baht; otherwise, life becomes difficult.

Step 6: Plan for life and health insurance first

Many save money but neglect insurance. In case of serious events or health emergencies, medical costs can wipe out savings. If the family head falls ill, insurance provides financial support. Don’t forget to get life and health insurance.

Step 7: Invest to make money work and generate additional income

Saving isn’t just depositing in banks, as interest is only 1-2%. With inflation at 2-3%, your money loses value. Invest in understandable products like stocks, funds, bonds, which yield 5-8% annually. Be patient and invest long-term, at least 3-5 years.

Alternatively, develop a second income stream using free time. Nowadays, multiple income sources are not optional but necessary.

Step 8: Invest in “knowledge”

Learn about finance and investing through SET Education, YouTube, podcasts, etc. Dedicate 1-3 hours weekly to study topics of interest.

The more you know, the better your decisions, reducing risks and understanding financial products clearly.

Finally, do it now, not tomorrow

Financial planning isn’t as complicated as it seems. Just start with clear goals and maintain discipline.

Begin today: set goals, record income and expenses, prepare emergency funds, avoid over-indebtedness, and invest consistently. Over time, you’ll notice significant differences.

From now on, you can choose how you want to live and take control of your life.