The 1st block on the top is an individual life that a person have to encounter.
The investment portfolio is a block that generate active or passive income through out the life time of an individual.
The other 2 blocks show the liabilities/asset that a person most likely to encounter.
The 1st block is a sure thing in life. People will die and may get ill or disable. People would retire at some point of time. They also need education in their early stage of the life time or paying for their kids education. These are the must. The 1st block generally is a block that would cost a hugh amount for a person life time.
What to protect against?
Protection is the risk managment against death, disability and critical illness.
For death and disability
Have amount set aside for funeral cost, debts, expenses needed for individual and family member. In this way, family members would not have addition burden or liabilities in the event when a member of the family is unable to be self sufficient.
For critical illness
Have amount set aside for ongoing treatment and lump sum medical cost.In this way. family members would not have additional burden or liabilities in the event when a member of the family is unable to be self sufficient and need constant expenses.
The other 2 blocks are the expenses that would add burden/value-add the cash planning of the 1st block.These block also cost hugh amount to a person lifetime.The different is the 1st block is a sure to happen to an individual while the other 2 blocks are most likely to happen.
What make financial planning difficult is that all these block may not be mutually exclusive.They can happen together.This make the situation complicated and an individual to lose focus on the planning. Thus early planning give one the allowance to pre-empt, make adjustment and have adequate resources to tackle the issues.
So whatever happen to an individual will also cause the spouse, parents, next generation to be affected. If no proper planning is done, this would be a vicious cycle that keep rolling down from generation to generation.If a proper planning is done, the benefit would pass down from generation to generation too. Unless some event occur that would change the life. For eg, strike a big lottery ticket, lost all retirement money on casino, great entrepreneur is born, etc
