Are you prepared for your Retirement?

Most people will say no, that’s no surprise, because to these people, Retirement Planning starts only at the last 5-10 years of their working life. Whatever they have by then will determine the kind of lifestyle they will live during their Retirement. And also a risk factor to consider is that a sudden high expenditure during Retirement will deplete this amount drastically, leaving the future really uncertain…

So should you be noticing this kind of situation, and you do not wish to be in it, then it’s time to take into considerations to a comfortable retirement.

The Factors To A Comfortable Retirement:

1. Time

2. The Interest Rate

3. The Lump Sum Amount

4. Budgeting

The First Factor – Time

Time is an important factor because with enough time, you allow the magic of Compounding Interest (Factor #2) to take effect.

If you do not know what is Compounding, a simple illustration will be taking 2 as a multiple for annual compounding and so if you start with a 1 this year, next year it will be 1 x 2 = 2, the year after will be 2 x 2 = 4, followed by 4 x 2 = 8; 8 x 2 = 16 and so forth.

The number sequence as illustrated above will be 1, 2, 4, 8, 16, 32, 64, 128, 256, 512

So you can see how the numbers get bigger and bigger with time. And that’s Compounding!

Just imagine, if you can get the number sequence above, using 10 years to plan, you will be able to get a figure of 512. But if you do not take the opportunity and you only have 5 years to plan, you will only be getting a figure of 16! Notice the difference between 16 and 512 with a difference of 5 years.

Now do you know the Importance of Time?

The Second Factor – The Interest Rate

The Interest Rate is, like explained, used to compound your money together with the Time Factor. This Interest Rate is also linked to the amount of Risk you are going to expect.

i.e. The Higher The Interest Rate, The Higher The Amount Of Risk.

And in reality, it’s hard (but not totally impossible) to have a Multiplying Effect of 2 because that would mean that the actual interest rate is 200% (200% / 100% = 2).

The common Interest Rate range are from the lowest of 0.125% to an average range of 5 – 15% per annum (this range can be for investment product types like Bonds, Unit Trusts and Stocks).

Most people are comfortable with 0.125% per annum because it’s almost 99% guaranteed that you will get it! Whereas for the 5 -15% range, there’s some considerations and convincing involved because there’s no guarantee for this and that you need to let enough time and positive market forces to work together. But generally, both factors should be to your advantage.

Additional Tip: there’s a negative market force that will eat away your Interest Rate and that’s Inflation! So if you are serious in doing Retirement Planning, you should always take Inflation into consideration! How much to take? Easily 3-4 per annum!

So can you imagine if you decide that 0.125% is the best choice but because of inflation of 3%, your money is increasing (oops, decreasing…) by 0.125 – 3 = -2.875%!

That’s why you need to understand why you need to consider a Higher Interest Rate (an amount that you are comfortable with) and working along with a Professional Financial Advisor to achieve this Interest Rate on an average and long term basis.

The Third Factor – The Lump Sum Retirement Amount

This will be the Goal that you want to work towards to. With this figure in mind that you wish to achieve in your Retirement Age, during the Planning Stage, you will be able to assess how near or how far are you away from achieving it.

If you take a simple calculation of a $2,000 per month to last you for 20 years, it will be easily a $2,000 x 12 x 20 = $480,000 that you need to work towards to. If it’s $1,000 per month, it will be $240,000 and so forth.

The Fourth Factor – The Budgeting

This is the part where you take real action in planning for your Retirement! If the Retirement Amount, that you wish to have, requires you to set aside an $X at an comfortable Interest Rate, and you are able to set aside without affecting your daily lifestyle, then you do not need to do any Budgeting. Just be disciplined enough to set aside this $X amount every month and you will have a Comfortable Retirement.

If you do not have that $X amount to set aside, then this is where you need to learn Budgeting. This will be a tough exercise to most as you need to monitor your expenses on a tight basis. Budgeting also let you take sacrifice for a good cause, e.g. no $5 coffee but a $1.50 coffee instead, and you save $3.50 for it. One day is $3.50 and for the next 30 days, you will have an extra $105 to set aside.

With these 4 Factors to help you to plan for your Retirement, I believe, you have more reasons to start doing so today! If you are still unsure of how to do so, you can always engage a Professional Financial Advisor to help you along!

Image Credit: sxc.hu

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When it comes to Financial Planning, have you asked yourself what is more important – Your Needs or Your Wants?

Not too sure what is the difference between the two?

- Your Needs In General

In a general sense, your Needs can be anything from Goods to Services that are necessary for living, e.g. Food, Clothing and Shelter

- Your Needs In Financial Planning

In a Financial Planning sense, your Needs can be setting up an Emergency Fund to providing an Income Replacement in the event of Death, Permanent Disability, Critical Illnesses and even have enough coverage for Hospital & Outpatient Expenses.

- Your Wants In General

In a general sense, your Wants can be anything from Goods to Services that may not be necessary for living, e.g. Toys, Cars, Games and Entertainment.

- Your Wants In Financial Planning

This can be saving enough for a Expensive Car, for a Private Property when you already have a Shelter, and even for a Luxurious Retirement.

Even though the meaning behind a Need and a Want can be quite straightforward like what’s mentioned above, but do you know that when it comes to differentiating and prioritizing one’s needs and wants, many people are still having difficulties?

The Example Of How People View Their Needs And Wants

I was working with a few young professionals (this may not be the case for all) on going through their Priorities & Preferences and we even brainstorm for their Short Term, Middle and Long Term Goals and Objectivities.

A few common findings are that they are attracted to the same idea of getting their First Car, First Private Property, First $500,000 in the very near future (from less than 3 years to near to 5 years time frame). Most of their saving or investments plan are dedicated towards these Goals.

And getting a Car or a Private to them is a Need and not a Want. Do also note that for them, they have not planned anything for their Emergency Fund, or have any income replacement plans against the unforeseen. In planning for this, they see this as a Want, they only Want to plan for this when they feel that they are ready.

If only they have followed my Financial Planning Tip #4: Settle Your Basic Financial Planning, they should know that should not be the case!

And There’s A Good Reason For The Confusion Between Needs And Wants

This good reason is what we know as Advertising. Due to the power of Advertising, many people think they need things that they, in fact, want!

There’s this confusion that they must have what is advertised before anything else. Financial Planning is always the last thing that they may want to consider.

Just think… would you prefer to show off your latest Car Purchase or the $500,000 Term Insurance?

To bring you to reality, should anything happen, in the midst or have acquired these expensive items (there’s always such a possibility), that render you – Permanent Disabled or Down With A Major Illness like Cancer (but you will survive) – and you are faced with an absence of income…

What can really help you and your affected family members? Is it…

• A Car that depreciates in value the moment you drive out of the Garage
• A Property that you may have difficulties selling it off to the current property market
• A Limited Bank Account or
• An Investment Plan still waiting to bear Fruits

Or…

1. A Comprehensive Medical Plan that takes good care of your Hospital Bills and Outpatient Treatments
2. A Term Insurance that pays out $500,000 lump sum even though you may have just serviced around a year of premium
3. A Disability Insurance that still take care of the 75% of your last drawn salary

Bearing in mind, that what you may have up above – the Car, the Property, the Savings and Investment Plan are still there for you. You still have a Car that your family members can drive you around, a Property for you to rest and recover and your Savings & Investment meant for other great things!

So you can see why something that you feel that you need (a car) is actually what you want. What you want or hope to plan for (a Term insurance) is actually what you need right in the first place!

So What Am I Suggesting To You For Your Financial Planning?

First is to know that what you need may be just be what you want. Differentiate that out right from the start! If you have planned all your Resources for your Wants, my suggestion is to concentrate on taking out some of these Resources to plan for what you Need.

You may, because of this, achieve what you want in a longer time frame but a good thing is that you have taken care of what you Need. If your Needs are all well taken care of, you can be assured that what you want the next time, you will have no worries!

With this, I dedicate this post to be my Financial Planning Tip #7 for you to know your what you really Need first and what are those that you can consider Wants!

Related Posts:

• Financial Planning Tip #6: Know Your Personal Financial Ratios
• The Financial Planning Process And Its Importance To You
• Are People Around You Living Longer Or Shorter?
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• Your Comments – My Replies #1
• What Does It Mean When You Say No To Insurance
• Have You Started Your Retirement Planning?
• Mixed Feelings: Should You Protect The Goose That Lay The Golden Egg Or The Golden Egg Only?
• Larry Winget Says: You’re Broke Because You Want To Be
• Financial Planning Tip #4: Settle Your Basic Financial Planning

Do you know the importance of going through a Financial Planning Process with your Financial Planner?

And this process is not just plainly buying insurance plans through your Financial Planner but rather more of understanding of your personal and financial situations, current/future needs and objectives.

If you have not really done so or do not know what is this all about, I will be sharing what are the benefits that you can actually get out from going through one.

First – What Is This Financial Planning Process And Its Benefits

To Financial Planners, this is the process known as “Knowing Our Clients” and every insurance companies do have their own means in the form of either a software or booklet, ranging from between 10 to even 20 pages and in which a lot of your personal information and particulars will be recorded.

Certain Important Particulars Like:

1. Occupation (to assess the risks) and Family Dependents

2. Total Savings, Investments and Loans/Debts

3. Current Total Income and Expenditure

4. Your Available Budget

And to your benefits of this, there will also be calculations done and these numbers will be of great importance to you! These numbers, if properly calculated based on your full and truthful declaration, will let you know whether you are:

- Protected Against Any Financial Risks Or Long Term Care

There’s enough means for you carry on your lifestyle in situations like a sudden short-term illness/injury or for your family to continue living in any case of premature death.

What about conditions that are long term or permanent? Knowing your numbers will help you to take care of this situation and also lessen any burdens on your family.

- Protected Against Living Too Long

Courtesy Photo From http://www.sxc.hu

You have enough money to last through your retirement based on the lifestyle that you want. You will also be able to “really” retire by then and not having to continue to work just to keep the income coming in.

- Able To Pay For The Costs Of Raising Your Children And Their Education

Do you know that a $42,000 university education this year (that’s the cost I paid for my Civil Engineering Degree back in 2006) will not the same $42,000 in 20 years time. Think near to $100,000. You have to factor in inflation and rising education costs.

- Able To Have Enough Money For A Special Purpose (e.g. new car, bigger house) In A Stipulated Time Frame

A desired interest rate can be calculated for you to ensure that you are saving/investing in the right place thus being able to meet your objective in dues time.

- Able To Pass Wealth On To Your Next Generation

It’s not just the Rich that are able to pass on their wealth to their generation. If you have gotten all the numbers for the above, it’s all about planning for this extra amount to be factored in.

Second – The Importance Of These Numbers To Your Present And Future

The numbers generated from this Financial Planning Process tell their own stories and also the action plans that you need to take good care of them in this present stage.

Also you can use these numbers as reference for future planning as and when you have changes in your current lifestyle, e.g. a new and high-paying job (= increased concern for higher protection but more ability to pay off debts) or an addition to your family (= increased cost of raising and education). Taking all these into considerations and re-doing your numbers will give you a clearer picture of what is needed to be done.

These numbers will also justify the product recommendations or advices done by your Financial Planner. For example, because you know your numbers, a fixed budget can be used to take care of two concerns (i.e. Retirement and Protection) rather than just taking up a plan because it’s personally recommended by the Financial Planner but not to your advantage.

Third – A Personal Record For You That You Can Bring Around

Courtesy Photo From http://www.sxc.hu

As mentioned, a Financial Planning Process will generate numbers based on your personal information and a good part is that all these informations are properly documented and formulas for getting these numbers do not really change much.

If you have no changes to your current lifestyle, the numbers that you get form your own personal record which you can use to obtain your insurance needs.

In this manner, you can make a better judgement which insurance plans from which insurance companies can meet your objectives.

Going Through The Financial Planning Process – What To Expect

Going through this process does not really take too much time and to better prepare yourself – you just need to know your personal information, income, total savings/investments/debts. All these informations should be easily obtainable.

Once you are done with your information, getting them down by your Financial Planner will usually take around 1 – 2 hours. For the calculations, do give your Financial Planner one or two days to do them up. If it’s recorded down using a software platform, you can get your numbers usually on the spot.

For any product recommendations needed, this must take one or two days.

Now There’s No Reasons…

Given the benefits as shared, there’s no reasons why you should not go through a Financial Planning Process or even to suggest to your Financial Planner that you would like to go through.

Related Posts:

• What Does It Mean When You Say No To Insurance
• Financial Planning Tip #7: Know Your Needs Versus Wants
• Financial Planning Tip #6: Know Your Personal Financial Ratios
• Are People Around You Living Longer Or Shorter?
• Four Effective Habits Of A Good Financial Planner
• Financial Planning Tip #5: The Rule Of 100 – Use This To Plan And Invest In Long Term
• Your Comments – My Replies #1
• Have You Started Your Retirement Planning?
• Mixed Feelings: Should You Protect The Goose That Lay The Golden Egg Or The Golden Egg Only?
• Larry Winget Says: You’re Broke Because You Want To Be

Ratios are very common in our daily lives and one such common ratio is like Soccer Players who are generally evaluated by their goals to games ratio. Therefore in Financial Planning, there’s such ratios available to help you get a better understanding of your current Financial Health.

Before getting these ratios, there are a few preparations and understandings needed like:

- Liquid Assets – You need to know how much Cash and similar to cash resources that you can easily converted to cash typically within one year. Such items are like your savings account and fixed deposits.

- Monthly Expenses – You need to know how much you spend every month. If you are able to get the details very near to 100% of the actual expenses then that would be good and would definitely help to getting a more accurate result

- Net Worth – This is obtained by using the difference between your Total Assets and Total Liabilities. Total Assets usually consist of your Liquid Assets, Investment Assets (shares and Unit Trusts) and Personal Use Assets (like you Car and Home). Total Liabilities would include your Short-Term Obligations (Credit Cards), Investment Loans, Loans to Purchase Personal Assets (like Car Loan, Home Mortgage). Once you have these information ready, you will get your Net Worth

Are You Ready For Your Personal Financial Ratios?

1. Liquidity Ratios = Liquid Assets / Monthly Expenses

Guideline is Greater or Equal to 3-6 months. This will let you know the number of months you can meet your monthly expenses from your existing liquid assets assuming that you have lost/stop your job.

2. Liquid Assets to Networth = Liquid Assets / Net Worth

Guideline is Greater or Equal to 15%. This will let you know what amount of your net worth is in Liquid Assets.

3. Savings Ratio = Savings & Investments / Total Income

Guideline is Greater or Equal To 10%. These figures should be easily available to you as most Singaporeans like to keep track of their Savings Account and Investment Account on a regular basis. This ratio will let you know the percentage that you are using to save with your income.

4. Debt-to-Asset Ratio = Total Liabilities / Total Assets

Guideline is Less or Equal To 50%. This ratio actually let you know how much of your assets are financed by debt. Therefore the lesser the better.

5. Debt Service Ratio = Annual Loan Payments / Annual Take Home Pay (after your own CPF Contribution)

Guideline is Less or Equal To 35%. This ratio will let you know how much of your Take Home Pay is being used to pay off your loans.

6. Investment Assets to Net Worth Ratio = Investment Assets / Net Worth

Guideline is Greater or Equal to 50%. This figure will let you know how much you have devoted to accumulating money especially for purposes like Retirement or Long-Term goals. Another guideline to note is that this ratio should increase as you get older.

7. Solvency Ratio = Net Worth / Total Assets

There’s no guideline for this and this ratio actually show you how much of your assets really belong to you. In other words, how much belong to you after settling all of your debts (if any).

Are these Ratios commonly used during your Financial Planning stage?

I would say at least 50 – 80% of the time. The commonly used is No. 1 & No. 2. Before a proper Financial Health Check, Financial Planners need to know that you have done up your Emergency Funding (to sustain your daily lifestyle during out of job and also that your insurance/investment plans can still be continued)

You Are Ready To Start Planning…

If you take time to work out these Ratios and being able to adjust them to be within the Guideline, then I would say you are ready to start planning for your life and live life to your fullest.

Related Posts:

• Financial Planning Tip #7: Know Your Needs Versus Wants
• The Financial Planning Process And Its Importance To You
• Are People Around You Living Longer Or Shorter?
• Financial Planning Tip #5: The Rule Of 100 – Use This To Plan And Invest In Long Term
• Your Comments – My Replies #1
• What Does It Mean When You Say No To Insurance
• Have You Started Your Retirement Planning?
• Mixed Feelings: Should You Protect The Goose That Lay The Golden Egg Or The Golden Egg Only?
• Larry Winget Says: You’re Broke Because You Want To Be
• Financial Planning Tip #4: Settle Your Basic Financial Planning

Have you asked yourself this question before - Are people around you living longer or shorter?

If you do not have an answer or do not wish to answer this, my suggestion is that you flip through the Straits Time and just have a glimpse at the Obituary Page. You do not have to understand in details but just have a rough feel at the age of people passing on…

My personal opinion is that the answers to the above are both a yes! And the point that I want to bring across is  - Have You Planned for both situations?

What Happened When You Live Too Long…

During the course of sharing Financial Education through Financial Planning, we, as Financial Planners, have a certain guideline to share that men and women are living longer. Men will usually live till age 72 and Women will live till age 80 and should we consider Medical Advances (should you be sick in long term and require medications to sustain your life), the average lifespan for men is at 72 + 8 = 80 years old and women to be at 88.

And is this suggestion accurate – refer to the newspaper and more less you will get the same answer as what I usually share.

So what happened when you live too long… Have you ever thought of it? Some of the implications that will usually worry people are:

• You are much on your own or with your spouse. Children may be too occupied with their own lives and family. So you will need to depend solely on your own savings to sustain your lifestyle. Children may still contribute a little (do not really expect this too much) but may not really be enough to keep you going for 15-20 years (retirement age is around 65 and lifespan of 80 years old gives you 15 years of no working)
• Because of long years of working and stress (as much many Singaporeans suffer from Diabetes, High Cholesterol and Hypertension), many people fall sick and need to be under long term medications and of which a minority may need to be under some form of hospital care & treatment. These costs will eat up your savings, and should you be well again, your earning ability has already been reduced and you may just have not enough for your retirement period.

What Happened When You Live Too Short…

Nobody wishes for this but life is really unexpected. When such a thing happened… the implications are:

• One can be the only child that a parents can ever have. With that loss, emotion hurts are there and the possibility of having someone really close in times of need is low.
• One could leave behind a huge debt - Study Loans, Credit Card Debts, Home Loan, Installment Purchases are to be taken care of by the next-of-kin. If there’s no planning for this. The next-of-kin’s life is worst off than before.
• One could leave behind children. Part of starting a family is having children and providing them with a good education. The loss would mean that they have a lesser chance to have that especially if the one that is gone is the main income contributor.

Is It Too Late To Start Planning?

As long as you feel that there’s a need to plan, it’s never too late! Setting aside a budget would only mean that you need to change your lifestyle a little. Will you really suffer… Definitely not! Okay, maybe a little at first but once you get used to it, life is still per normal.

How Can You Plan?

For sharing wise, I will not go into too much of Financial Planning details (like how much retirement income or how much commitment) so I will just share with you what are the available options available to you to plan for…

For Living Too Long…

1. Annuity Plan. This Plan will give you a monthly income as long as you live. And if you do live longer, the payouts will be more than what you have initially set aside. Such plans are like your CPF Life and from Insurance companies.
2. Rental Income from Property. Good hedge against Inflation. And should you get a property early soon, the Rental income will help to ease off the Loan installments and during your Retirement age, this income will be your monthly expenses (part of it will go to maintaining your property).
3. Dividends or Sale of Stocks. Good stocks will give you dividends and multiple stocks can give you substantial amount every 3 months or so. Should you follow Warren Buffet and hold on to good stocks for long term, the sale of these stocks during your Retirement will be your Savings.
4. Medical Insurance. A good medical insurance plans will help to take care of your hospital bills (keeping them to minimal) thus protecting your life-long savings.
5. Insurance Plans. Endowment, Investment-Linked Plans, Whole Life Plan with Profits – should you plan early when the cost is lower will help you in your Retirement times.

For Living Too Short…

1. Term Insurance. If you have loans and financial commitments, get a Term Insurance to protect. Plan more and your family members will have less to worry in later years.
2. Medical Insurance. Should there be any hospital bills, at least a Medical Insurance Plan will help to minimize the bills for the next-of-kins.
3. Waiver Of Premium Riders. Should you be planning for your Children’s Education with Insurance Plan, do get the Riders to protect future premiums.
4. Have a Will. Having a Legal document will help to distribute your assets accordingly.

Related Posts:

• 2010 – A New Year To Start And Improve Your Financial Plans
• What Does It Mean When You Say No To Insurance
• Have You Started Your Retirement Planning?
• Larry Winget Says: You’re Broke Because You Want To Be
• The Debate over Whole Life Insurance and Term Insurance
• Financial Planning Tip #7: Know Your Needs Versus Wants
• Understanding Your MediShield (Medical Insurance) Plans
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I have  this comment from a Miss Cecilia Yong who asked on this blog post,

“Question on mortgage reducing insurance: what is the relationship between bread winner (person serving the property loan) and the dependant? Must is be parent-child relationship? What about husband-wife relationship? Can this suffice?”

First and foremost, thank you for visiting and reading my blog and definitely for this valuable comment! And I will try to answer this to the best of my knowledge (my answer is rather personal and there can be some legal element to this, so for better clarification, you may have to consult a lawyer and such)

Let’s first break down the question into different definitions:

1. Bread-winner: this is the general term used to describe someone who is providing the main financial income to the family. Should anything happen to this particular person, there could be some drastic financial crisis unless plans have been made beforehand.

2. Dependents: I have done up a few searches and most sites give the definition as those who depends on the so-called bread-winner for a financial income. So people who can be called dependents could be a) your parents b) possibly your grandparents c) your children d) your siblings (if in some situation, they do depend on you).

3. Mortgage Reducing Insurance: As mentioned in my post, there’s an existence of a mortgage loan between two parties – owners of a property and a Financial Institution who provides this loan. And do note in the case of a mortgage loan, it may not just be the Bread-winner being the main owner of the loan, and one can always add the names of their spouse, parents or siblings to be in the mortgage loan agreement.

Should anything happen to any of the parties as mentioned above, the remaining parties will still continue to bear the remaining loan repayment term.

And to apply for the Mortgage Reducing Term Insurance, the presence of the loan agreement must be there and this also mean that those name(s) listed in the loan agreement are allowed to get covered with the Insurance. Terms and conditions do apply (e.g. home-makers have a maximum limit in insurance coverage and may not be allowed to get covered in full – matching the actual loan)

So What Happened When There’s A Claim?

As mentioned earlier, I am not the expert in terms of claim or in terms of the distribution of claim proceeds. So my answer is really based on my views and opinions.

So when there’s a claim on the Mortgage Insurance and the claim is properly done – there’s a payout of the proceeds according to an arrangement (if done so earlier) – to either the bank (if there’s initial arrangement to pay the bank first), to the estate of the deceased or to the nominees done in a legal arrangement like a Will.

For example, if the insurance is arranged so to pay off the bank, and after settling the loan, should there be any remaining amount left from the insurance proceeds, the dependents have the right to get a share of it (please kindly clarify this with the proper authority) and at times there’s a need to prove the relationship of the dependents – to what extent do the dependents depend financially on the deceased (covered under the insurance) to justify that they deserve a share of the remaining insurance proceeds.

The procedure (to prove) may also apply even if the proceeds should be paid to the estate. The arrangement of the payout is usually much clearer when done like in like a legal document like a Nomination or a Will (please kindly clarify with the proper authority as well)

As such, legal relationships like parent-child (<- legal), husband-wife (<- legally married with certificate of marriage) can usually have the surviving party be listed as dependents.

Lastly, I hope with this post, I do answer the comment posted by Ms Cecilia Yong. If you have some experience or knowledge with regards to this, please kindly share as well. We can open this up for a discussion.

Related Posts:

• Your Comments – My Replies #1
• Underwriting Requirements For Your Mortgage Insurance – Part 2 Of 3
• Mortgage Insurance For Your Mortgage Loan – Part 1 of 3
• Just How Expected Is Unexpected, Question Is – Are You Prepared Today?
• Is There A Need (For People With No Dependents) To Buy Insurance?

Happy 2010!

Phew! 2009 has been a rough year for many and there are many valuable lessons that one can learn from and apply to in 2010.

And some of these which I personally feel that it’s worthy to keep in mind at all times:

1. It’s wise to be more knowledgeable in what you are investing – nothing is safe till you know the risks involved.
2. It’s always good to diversify – not just your investment portfolios. Big companies with many years of history may just go bust overnight so do not put all your nest eggs into just one basket. In other words, it’s okay to have the same type of insurance plan with other companies. You need it too!
3. Not everybody will tell the truth – learn to listen and ask good questions and to put the feedbacks or answers down in writing (do verify after the writing)
4. What “goes down in March” will “come up in August” – this is an investment lesson or experience that I have personally went through. A unit trust that went real down in March 2009 (also the time when many people choose to sell off) climbed back up in August 2009 (and it was higher than the normal times). So do not follow what other average people do, learn to differentiate and understands from within.
5. Not all are down during the recession – many stock prices are down but not all and it’s evident in the property market (especially in Singapore) and in the prices of Gold (have you seen how it climb at the last few months of 2009). What this mean to all of us is that we need to understand how the financial market really work – relationship between various investment options like Equities, Commodities, Properties and Cash.
6. Take good care of your health. 2009 is the year that many people are concerned about their financial health but they are unable to get the insurance that they need. Common illnesses: Hypertension, High Cholesterol and Diabetes!

So will the new year in place, have you set aside some of your resolutions to start and improve on your financial planning?

If not, how about getting some pointers and guidelines from this blog?

For Newborns And Children Starting School (Kindergarten or Primary School)

• A good start to plan well would be to look into a Private Medical Insurance Plan (payable with your CPF Medisave) with the “As Charged” features. This special group is easily prone to common diseases like fever, food poisoning, colic and sudden attack of rashes and asthma or even small accidents. Being thoughtful parents, most of the time, will be direct admission to a hospital. Medical bills are usually small for this kind of treatment and Medical Insurance has this deductible portion which make it quite hard to claim – therefore if your budget allows, do throw in the Rider (payable with cash)
• Next, as mentioned that this special group has the tendency to meet with small accidents and such incidents do not usually require hospitalization – so to take care of such, get a Personal Accident Plan and if you are worried about diseases like Hand, Foot and Mouth (HFM), there’s such a plan called the Personal Accident Infectious Diseases Plan.
• Get a Whole Life Critical Illnesses Plan (with profit). Main reason – it’s cheap to get them in when they are young. And with most such plan offering limited premium term, it’s manageable by many parents. If you have a really tight budget or concern for higher coverage, coupled the coverage with a Term Insurance or Group Term Insurance.
• Focus more on University Planning. University Education is very costly in Singapore and it’s even more when it’s overseas. Planning for this can be done with either an Endowment Plan or Regular Investment Plan.
• Let this Special Group learn the importance of Compounding. This is one important financial skill.

For The Young And Aspiring (Starting Work)

• Emergency Fund. Learn to set aside at least 6 months of your current income at any times.
• Learn the skill of budgeting. Monitoring your daily expenses and income will help you to go a long way.
• A Private Medical Insurance Plan. Upgrade the coverage (to either “A ward” or “Private Hospital) or do consider adding in Riders to enhance the coverage - if your parents have not done so for you as a child.
• A Personal Accident Plan to cover yourself while you are out. You will never know.
• Travel Insurance if you need to travel overseas for work or just for a holiday. Food poisoning cases have been on the rise.
• Additional Whole Life Critical Illnesses coverage or Term Insurance. This is to enhance your coverage till your retirement or to cover any existing loans especially for some – study loan and tuition loan.
• Savings/Investment Plan – discipline yourself by setting aside 10% of your bring-home income into a regular saving plan. This is for your retirement and to help you achieve your dreams – expensive and long holiday, luxurious items like car.

For Those Settling Down And Starting A Family

• Enhance your medical insurance coverage. Look into a private medical insurance plan and the riders.
• For critical illnesses coverage – look more into a term or group term insurance. Settling down and starting a family has its high cost.
• For extra protection if you have gotten a property and a mortgage loan. Look into a Mortgage Reducing Term Insurance, the premium is cheaper as compared to a Term insurance.
• For the Bread-Winner(s) – do consider getting a Disability Insurance to protect up to 75% of your regular income should you meet with any illnesses that render you unable to work in your professional field.
• Travel Insurance if you and your family travel overseas for holiday.
• Savings Plan – in the form of Single Premium Savings Plan and/or Regular Savings Plan. You need the money for your retirement.
• Property investing – Property is a good hedge against inflation. Proper planning and investing can help to get you another regular income through rental or sale.
• Look into your health – this is the time where most working adults will start suffering from Hypertension (work stress induced), High Cholesterols (those good food) and Diabetes (sweet stuffs perk you up but kill you in the long run). Start to exercise, go for regular health screening and have a balanced diet.

For Those Who Are Going Into Retirement

• Make sure your medical insurance plan are there. You do not wish to have any sudden illnesses to take away your lifelong savings
• Property Investing - invest to get a regular rental income for your retirement
• Annuity – if you have done your savings plan well, by time of your retirement, you should have a certain lump sum of money for this planning. An annuity will give you an income for life.
• Take care of your health. Go for regular walks, light exercises, see the world or take up a new hobby.

There you go! A brief guideline to help you financially plan well ahead in 2010. If you feel that you are tight in all areas, learn how to budget first. Once you have done this well, you will have no issues planning for the future. Lastly, do it! Wanting to do it in the mind is not the same as actually doing it. Doing it will produce results.

Have a great 2010 ahead!

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• Are People Around You Living Longer Or Shorter?
• How To Plan With $200/month If You Just Started Working
• Financial Planning Tip #5: The Rule Of 100 – Use This To Plan And Invest In Long Term
• Have You Started Your Retirement Planning?
• The Factors To A Comfortable Retirement
• What Are Those Insurance Plans All About – Part #1
• Do You Terminate Your DPS And Eldershield Because Of The Premiums?
• Your Comments – My Replies #1
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If you have just started work, around the age of 25 and holding a monthly salary of around $2,500 (Gross, before CPF contribution, bringing home around $2000) onwards, then you would love to appreciate this post as I will be sharing with you on how to plan well (coverage in almost every aspect) with just 10% of your monthly “bring-home” income ($200/month).

Note: If you are finding it hard to set aside this 10%, please read my Financial Planning Tip #1 – Paying Yourself First…

Note #2: The plans discussed below are mostly offered by the Insurance Company that I am representing and should not be served as a direct guide. Any queries, please do contact your Financial Planner.

How To Plan With $200/month?

The premiums are derived based on a Male, age 25, and a non-smoker. Rates for Female may differ accordingly.

1. Medical Insurance (Compulsory) With Rider (Optional)

The Medical Insurance is one of the most important area to look into first – to cover any medical bills arising from Personal Accident or Sudden Major Sickness, and do not worry that you may not have enough to go into it once you started work. Usually on the second month onwards (after the first month salary is in), you can go into it with your Medisave Account (for the Main Plan).

Since the premium is from the CPF-Medisave Account and you do not see the money physically, there’s less pitch into it – we shall not factor that into “Bring-Home” income.

For the Rider, though it is optional from the early stage of your work life, but for the purpose of this post and also to emphasize of covering every aspect, you can take the Rider into consideration. The purpose of the Rider is usually to remove the Deductible and/or Co-insurance – making small bills claimable and big bills small.

An average cost of the Rider is around $120/year and on a monthly basis it would be at $10/month (leaving us $190 to plan with).

On this basis, if you are hospitalized for any reason, you Medical Bills are taken care of. Let’s move on…

2. Personal Accident

Why Personal Accident Plan? Based on MOH statistics, the top reason for hospitalization is actually due to Accident. What this mean is that most people are prone to Accident. Though the bills are taken care of by the Medical Plan (with Rider), there are situations whereby your injuries are taken care of by General Practitioners (i.e. clinics) and most Personal Accident Plan covers the medical expenses incurred.

An average cost of the Personal Accident Plan is around $36 per year and on a monthly basis it would be $3/month (leaving us $200 – $10 – $3 = $187)

3. Savings / Investment

You have your dreams, your goals or a comfortable Retirement to plan for. It will be good to start planning early for this so as to allow Compounding to work its magic.

Let’s put a higher commitment to this – $100/month and you can go into either an Endowment Plan (if you are conservative) or into a Regular Saving Investment Plan (risk-taker and using the Dollar Cost Averaging Method).

This leaves us with $187 – $100  = $87 per month.

Assuming that our Mr. Customer is also very concerned about protecting himself against Critical Illnesses and that he would like to plan for estimated 5 times of his annual income ($2500 x 12 x 5 = $150,000).

Do you think we can still continue to plan? If you are shaking your head… please continue to read below…

4. Whole Life Insurance (with Profit)

Whole Life Insurance is one of those insurance plans that gives you coverage against Death, TPD (before age 65), 3o Critical Illnesses for throughout your whole life span (usually till age 99) and let you enjoy increasing coverage and participate in company bonuses.

To plan $150,000 with this single plan would be impossible and you could be saying – “I should have guess so…”, I would still be offering this plan but at a lower sum assured – I would suggest coverage of around $50,000 with limited premium term of 25 years.

Such planning would take an average $840 per year (I would suggest annual mode to get some discount) and that would give me around $70 per month. Leaving us with $17 and $100,000 to plan with.

If you think I would just say to this Client that it’s impossible to do so… You will be wrong and rather I would say… if you do not mind… I would just like to extend your budget by the most around $3 per month.

5. Group Term Insurance

A Group Term insurance is one of those insurance offered exclusive to members of a particular organization – e.g. SAFRA, HomeTeam, Public Officer Group, SAF, NTUC Union. Though there’s a membership cost to it, I would not take that into consideration as there’s benefits to gain for joining any organization.

And lastly, an average cost of taking a Group Term Insurance Coverage (also covers Critical Illnesses) of $100,000 is around $20/month.

This would mean that my $150,000 coverage against Critical Illnesses is fulfilled!

With a final budget of:

1. Rider of a Medical Insurance – $10/month
2. Personal Accident – $3/month
3. Savings / Investment – $100/month
4. Whole Life Insurance  - $70 / month
5. Group Term Insurance – $20 / month

Making it a total of $203/month!

How is that? If you think that Financial Planning is impossible with a low budget, I hope this will change your mind today!

Related Posts:

• 2010 – A New Year To Start And Improve Your Financial Plans
• What Does It Mean When You Say No To Insurance
• What Are Those Insurance Plans All About – Part #1
• Just How Expected Is Unexpected, Question Is – Are You Prepared Today?
• What You Really Need To Know About Deductible, Co-Insurance, Rider and Pro-Ration
• Understanding Your Private Health/Medical Insurance Scheme
• Questions To Discuss For Your Critical Illness Protection
• 30 Critical Illnesses – #1 Killer – Major Cancers
• What You Need To Know Between Policy Loan and Bonus Encashment?
• Understanding Your MediShield (Medical Insurance) Plans

I got a chance to meet up with a Prospect today armed with a Brochure from other Insurance Company, trying to size me up after being “brain-washed” by the other Financial Planner on how bad (the plans, the company, the claim, the structure, in short everything is bad…).

End point is that the Prospect is very much convinced to get the Plan after the “brain-wash” and just need to make sure that he is doing the right thing and everything that the other Financial Planner has said is true…

So here I am wondering, why does the Other Financial Planner need to do that – just to get the business? Can’t he/she convince the Prospect with the level of service, sincerity, and competence?

As such I decided to do up this post to share my views on the Four Effective Habits Of A Good Financial Planner:

Here Goes…

Four Effective Habits Of A Good Financial Planner

1. Shall Not Bad-Mouth Their Competitors

There is something called “what goes around, comes around”, in my early days of financial planning, I have tried to get more business by downplaying my competitor and when my previous company decided to retrench the whole sale force, I got into the same company that I have downplayed all these while…

My previous Clients did not want to follow me along because I have bad-mouthed. They do not see their future being planned well with the company that I have downplayed. This also means that I have no repeat business.

2. Shall Be Truthful All The Time

This is something I hold personally to. Being truthful at all times. If the Plan is made up of a Guaranteed and Non-Guaranteed Portion, explain this truth to your Potential Clients. If your Plan has a lot of Charges and Fees, explain the truth to them. They need to know.

I have came to know that many Customers had set aside their Whole Life Savings into a Plan that’s not guaranteed, has a lot of charges and a lot of potential risk… Ending up only to have their Capital returned at the end of the investment tenure – with no interest earned. Better off with a normal bank savings account!

3. Shall Not Be So Pushy

This is applicable to those who are representing just a single insurance company. Not all products are created equally for all people. There are some benefits that’s being offered by other companies and not the company that you are representing. If you know that your product (in particular) does not suit your Client, do not push! This will not do good.

As a good Financial Planner, it’s your job to make sure that your Clients are well taken care with the right Solutions – even if you have to give up an area of planning that your company does not fit well in.

4. Shall Explain Clearly And In Simple Terms That Your Customer Can Understand

As a good Financial Planner, it’s our duty to explain well on the insurance plan, application procedure and what to expect to the Customers.

The benefits are two-fold, one being that your clients understand what they have just bought and would hold on to it to their benefit and should anything happened (bad) because of some misunderstanding, you are well-covered because you have done your duty well in the first place!

Related Posts:

• The Financial Planning Process And Its Importance To You
• What Does It Mean When You Say No To Insurance
• Are You Reading Or Hearing Your Guarantees?

After nearly a year of blogging and coming up with my series of Financial Planning Tips, I have finally come up with my #5 tip: The Rule of 100 – Use This To Plan And Invest For Long Term and for my other 4 tips, refer below:

1. Financial Planning Tip #1: Pay Yourself First
2. Financial Planning Tip #2: Learn How To Set A Budget
3. Financial Planning #3: Start Today, Not Tomorrow
4. Financial Planning Tip #4: Settle Your Basic Financial Planning

Why The Introduction Of This Financial Planning Tip?

There is a good sign that I am seeing in most people now – they are more open to the idea of

• Investment (concept of making your money work harder and realizing your retirement) and
• Dollar Cost Averaging (averaging out the volatility of the financial market to ensure steady growth).

With This Open-ness In Mind, What’s Next?

Once you are opened to the idea of investment, the next planning stage is actually to ask how should you be planning – Into What? What’s the percentage? What’s My Risk Appetite? For How Long?

Thus Introducing The Concept Of The Rule Of 100 To Answer The Above

The Rule Of 100 is a commonly used financial term or guideline to help balance your Investment Portfolio in the long term (plan according to your milestone like for Wedding Fund, Children’s Education, Retirement Funding).

For Risk Appetite

In Simple Term, how much risk can you personally take? If you have never asked yourself this, just take this into consideration: If you have a $1, how much can you lose out of it?

• If you can lose $0.90 or in return to earn extra $0.90 – you are a Risk Taker (more Equities as compared to Bonds related)
• If you can lose $0.50 or in return to earn extra $0.50 – you are a Balanced Risk Taker (balanced of Equities and Bonds related)
• If you can lose $0.20 and do not mind earning extra $0.20 – you are Risk Adverse (more of Bonds than Equities related)

For The Percentage Of Investing Into…

This is where the Rule of 100 will come in. Basically just take your current age (e.g. I am now 28) and I will take that and minus off 100 (i.e. 100 – 28 = 72) so this 72 would mean that 72% would go into Equities Related. And the remaining 28% would go into Bonds related.

Therefore Rule Of 100 says, at my age of 28:

• 72% would go into Equities
• 28% would go into Bonds

Take Risk Appetite into Consideration…

Now you know how to apply the Rule of 100, you can take your risk appetite into consideration and you can consider my suggestion: Risk Taker (+10%), Balanced Risk Taker (+0%), Risk Adverse (-10%)

So this would mean that if I am a Risk Taker, my actual investment portfolio would be:

• 72% + 10% = 82% of Equities
• 28% – 10% = 18% of Bonds

A Risk Adverse Taker:

• 72% – 10% – 62% of Equities
• 28% + 10% = 38% of Bonds

Taking Rule of 100 Into Long-Term:

As you slowly approach to your Milestone (also means that you are getting older), your initial investment profile would change according to the Rule of 100. E.g. if I am now 40 years old, my initial profile of 72% and 28% would change to 60% of Equities, 40% of Bonds.

What To Invest Into:

As can see from above, you do not have choices of just plain Equities and Bonds and you can have other choices, commonly known as Alternatives, like:

• Commodities
• Property Related – or known as REITS

The Above Chart Is For Illustration Only

And having a combination of the above would actually help you to smooth out the Economic Market Condition.

Do note that what I am suggesting above is not the only choice – please consult your Financial Planner in planning and investing for the long term.

And there you have it, the Rule of 100 to help you plan (what investment portfolio) and invest in the long term to help achieve your desired milestones!

Related Posts:

• 2010 – A New Year To Start And Improve Your Financial Plans
• Financial Planning Tip #7: Know Your Needs Versus Wants
• The Financial Planning Process And Its Importance To You
• Financial Planning Tip #6: Know Your Personal Financial Ratios
• Are People Around You Living Longer Or Shorter?
• Your Comments – My Replies #1
• What Does It Mean When You Say No To Insurance
• Have You Started Your Retirement Planning?
• Mixed Feelings: Should You Protect The Goose That Lay The Golden Egg Or The Golden Egg Only?
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