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David Seto's column: Time to find your PEARLS

With Spring Festival here, now is the perfect time to review your personal financial goals for the next 12 months. By this, I mean you should be thinking seriously about your annual financial plan for yourself or your family.

And what's the most important aspect of a financial plan? It's getting it down on paper. The reason behind this is simple: if you go through the trouble and effort of writing out your plan, you raise the odds that you will be committed to it because you will have invested time and energy into this very important task of planning out your family's financial future.

When it comes to personal financial plans, we suggest you look for your PEARLS, which is an acronym for Position, Earnings, Aim, Risk, Length of time, and Strategy.

Position. In order to know where you are going, you first need to know where you stand in terms of your finances. This might sound straight forward, but when you are dealing with employee stock options, retirement annuities, and foreign exchange rates, it can get very complicated very fast. Take time to sort this out.

Earnings. What kinds of returns have your assets been producing? In fact, have your assets even been earning you enough to cover inflation? Inflation is part of what the financial world calls systemic, non-diversifiable risk. In other words, you can't escape it. If inflation is rising at 3 percent and your funds are only generating 2 percent, you're falling behind. Taxes should also be considered in terms of how it would affect each year's capital or interest gains.

Aim. You can dream about your short-term and long-term financial goals. But when it comes to the plan, force yourself to write down what's real. This is clearly a fine balance and should not be taken lightly.

Risk. To what extent are you and your significant other comfortable with risk? Should you be taking on more or less risk if you've lost money in the past? Contrariwise, what should you do if you made money investing in the past? Would you take on more risk? Should you? These are important considerations that must go into the plan.

Length of time. Your financial goals will likely be a function of when they materialize. A second home, a child going to college, retirement. These are all future events with different time frames for different families.

Strategy. Armed with all this information, what should we do? How should we implement the plan? How will it be monitored? And equally important, how can we create and sustain a "Plan-Implement-Feedback" loop? Why is this important? Not only do you want to make sure you are on track, but you also want to know if you need to make on-going adjustments to your financial plan given unforeseen circumstances over the short and long run.

Financial plans come in many types of shades and colours. PEARLS, nevertheless, covers most of the personal financial planning spectrum. Give it a try!

Writing on finance and economics for the last 18 years, David Seto, CFA splits his time between Hong Kong and Beijing where he reads Chinese Classics and tries to revive his defunct band, Scarbelly. Any comments on his columns can be sent to dseto@btmbeijing.com.