Financial Planning Made Easy

As the old adage goes, if you fail to plan, you plan to fail. So, it goes to show how important planning  is if you want to reach your financial goals. I think no one wants to depend on social assistance when we reach our sunset years.

So, how do you make sure you avoid these financial woes?

1) Pay Yourself First
For a start, you should open several bank accounts for various purposes so that you can preset GIRO amounts to be transferred to your savings and spending accounts. This will result in discipline to save which is sometimes lacking in most people. Afraid that your yearly overseas trip or that designer bag is going to blow your budget? You can set aside an amount every month to a "special treat" account with which you can dip into for your overseas vacation or extravagant purchases and make sure you don't have to touch other accounts. A rule of thumb is to make sure you save at least 20% of your income and to keep 6 months of expenses as an emergency fund.

2) Pay off Debts
You should list down all your debts and start prioritising and paying off those that incur the highest interest. For housing loans with low interest, if you are able to make investments which can exceed the interest that you incurring on the loan, you should go ahead to do that and earn the spread.

3) Buy Insurance
Make sure you are adequately covered especially if you have dependents so that they do not have to suffer unnecessary financial hardship if the unforeseen happens. For this, you can purchase a term life insurance. The cheapest in the market would be the SAF Aviva Term Life policy available to NSMen and their spouses. Maximum coverage is S$1m. Everyone needs a hospitalisation and surgical (H&S) insurance due to increasing medical costs. At a minimum, a basic MediShield plan should be considered. The Singapore government is trying to come up with MediShield Life which will cover Singaporeans for life. The premiums will definitely increase with this change for younger Singaporeans but this will ensure that elderly SIngaporeans enjoy affordable coverage.

4) Live within / below your means
It might be tough for some people but for those who can do it, the delayed gratification can save you from rude shocks like retrenchment, family emergencies. In this age of consumerism, this may be easier said than done but those who can do it will definitely have the last laugh.

5) Make Investments
Rule of 72 states that you can double your money in 7 years if your investments yield 10% or 10 years if your investments yield 7%. If you are not the financial saavy type, you can always invest in low cost ETFs in the market. That is what Warren Buffett instructed his wife to do if the Oracle of Omaha is no longer around. Remember the Rules of Investment of the Man - Rule #1 : Do not lose any money; Rule #2: Refer to Rule #1.

6) Have a Clear Financial Goal
Make use of tools on the CPF website and MoneySense website to help you. Assess how much you need after retirement and calculate how much you need your nest egg to grow to. That way, you will not be too far off in terms of your goals.

7) Make your Will
And finally, in order to be clear on the distribution of your estate upon your demise, you should consult with your lawyers to draft your will. You can also do it yourself but the risk is that the will might be ineffective or invalid in the eyes of the law. Costs are S$200 onwards depending on the complexity. Do be reminded that CPF funds, joint tenancy property, insurance and joint accounts are not included. In the case of CPF funds and insurance, you need to nominate your beneficiary whereas for joint tenancy property and joint accounts, it goes to the surviving owner.