Financial planning can feel distant or complicated, but the “financial pyramid” offers a simple way to think about building wealth one layer at a time.
Why plan your finances?
One question people may ask is how income earned over roughly 40 working years can support a life that may last 60 years or more. This is why financial planning is presented as a necessity for preparing for later life.
A financial life timeline
Consider a timeline that starts with earning an income at around age 20 and continues until about age 60—roughly 40 years of earning. After age 60, spending may continue for 20 years or more. That is a challenge to plan for.
Build a strong foundation
In finance, a strong foundation has two main pillars.
Emergency savings
An emergency fund can act as a safety net when unexpected events occur. Set aside about six times your monthly expenses and keep the money somewhere accessible and low risk.
Understand borrowing
Distinguish between debt that may support future goals and debt that can strain your finances. Examples of necessary borrowing include a home loan or education loan. Consumer borrowing, such as credit cards or personal loans, may carry high interest. Necessary loans still require a plan, while consumer debt calls for particular care.
Save for specific goals
Goal-based saving can connect savings with plans. One example is to divide savings into four portfolios:
- Portfolio C: Emergency fund. The six months of emergency savings described above.
- Portfolio B: Pension. Money intended for longer-term spending after retirement.
- Portfolio X: Short-term goals. Examples include travel or saving for a car down payment.
- Portfolio A: Investments. For people seeking higher potential returns.
Understand taxes
Tax rules affect how much income remains after allowable expenses and deductions. A simple formula for taxable income is:
Total income − allowable expenses − deductions = net taxable income
Tax deductions and allowances
Examples of deductions that may apply to people starting work include: a personal allowance of THB 60,000, a standard expense deduction of up to THB 100,000, social security contributions, and provident-fund contributions. It also mentions support for parents over age 60, insurance premiums, and retirement funds such as SSF and RMF. Eligibility and limits depend on applicable tax rules.
Tools for building long-term wealth
Possible tools for preparing for retirement and other long-term goals include:
- Social Security pension: described as a foundation provided by the government.
- Provident fund: contributions are made by both the employee and employer.
- Personal investments (RMF/SSF): mutual funds intended for retirement investing.
- Compound interest: returns can build on prior returns over time.
- Retirement calculation: estimating a target can help organize a financial plan.
Key points
- Build a financial foundation with emergency savings and a plan for borrowing.
- Divide savings among goals with different time horizons.
- Understand the tax rules and deductions that apply to you.
- Review retirement tools such as pensions, provident funds, and investments.
- Estimate how much you may need for retirement.
Financial planning can help organize savings and long-term goals. Review the applicable rules and study investment information carefully before making a decision.
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