Financial Planning: Get MAPPED
Contributed by: Estelle Heng
Intern from Gerontological Management Studies, School of Humanities and Social Sciences, Temasek Polytechnic.
‘I’m too young to think about this’ is probably the most common excuse not to start financial planning in Singapore. However, if we think twice, we’re never too young. Parents buy insurance for their babies as soon as they are born, some before they even take their first breaths. What’s so important about insurance that it is this urgent? The reality is that unexpected things happen. And when they do, you can’t afford to give up your future because of piled-up debts from hospitals or leaving your dependents to pay them off. So really, insurance is more than just protecting yourself, it includes supporting your loved ones as well.
As mentioned earlier, planning your finances will give you the ability to defray medical costs. According to the Ministry of Health, 35 residents in Singapore are diagnosed with cancer every day. That’s some scary statistics if you ask me! In addition, financial planning done right gives your loved ones crucial cash flow and leaves behind a meaningful legacy which you can distribute to your loved ones by writing a will in Singapore. Your financial worries will be reduced to some extent when you are insured.
If you share the same view as me, you must be wondering, how does one start financial planning? In a bid to achieve good financial well-being, Alvin Low (Financial Consultant at Financial Alliance) would ask his clients, “Is your wealth “MAPPED”?” He has adapted Financial Alliance’s 5 Pillars of Wealth framework to work with clients to ensure crucial aspects of their finances are being comprehensively addressed. Let me bring you through what this stands for below.
“M” is for “Maintenance”
The truth is that no one likes to be weighed down by debts, whether it is being unable to pay for credit card bills or taking loans for expenses. An individual’s cash flow should be sufficient to allow one to be free from any financial worries.
“A” is for “Accumulation”
What are some of your long-term financial objectives? The more common ones are saving for retirement and children’s educational needs. It is never too early to start planning for the future. Furthermore, the effect of compounding will be greater if done so from the beginning.
“PP” is for (Wealth) “Protection and Preservation”
In Alvin’s words, this part is the heart of financial planning. He shares with me the ‘A to H’ of protection needs.
1. (Personal) Accident: This is to financially cope with any injury, death or disability brought about by an accident, for instance, fractures or a broken tooth.
2. Basic hospitalisation and surgical: This includes inpatient treatments, and all Singaporeans and Permanent Residents of Singapore are covered for this under Medishield Life, which is basic coverage where the insured person still has to bear co-insurance and deductibles. Many Singaporeans and Permanent Residents complement this with “Integrated Shield Plans”.
3. Critical Illness (“CI”): There are more than 30 different dreaded diseases which may be covered for each individual. This is important as these types of major health disorders could appear unexpectedly.
4. Disability Income: Most life insurance covers the total and permanent disability of a person, but having disability income insurance as an additional form of insurance cover would mean that, in the event one is may be unable to work for the rest of his life, the disability income insurance payout would be triggered (subject to the policy’s wordings).
5. Early Critical Illness: In point three, CI is listed as one aspect to be insured against. However, most policies with CI usually cover the later stages only. By having this additional cover in the form of a rider, it will help the individual pay for treatment costs should early forms of major illnesses be diagnosed.
6. Family: Who doesn’t want to be remembered for a long, long time? Leaving a legacy would allow the next generations to continue their livelihood with less financial burden.
7. Geriatric: Singaporeans are living longer and we’ll be spending money for as long as we live. Whether it is paying for long-term care or maintaining one’s lifestyle, this requires retirement planning and the mobilisation of savings once one is retired.
8. Home mortgage / Home contents: It is advisable to have mortgage insurance in order to service any outstanding loans should the one who shoulders the loan pass on. Additionally, there are riders to protect home items – such as furniture – from theft or flood.
“E” is for “Enhancement”
Investments will allow one’s portfolio to grow and make one’s money work harder. This can be done through contributing funds into bonds, unit trusts and other investment vehicles. It is crucial to maximise growth potential of one’s assets to enhance investment returns.
“D” is for “Distribution”
How does one distribute one’s wealth? Estate planning means setting up trusts or writing a will to express one’s wishes. Financial consultants can give you advice on governing laws and what may be the best options to consider when planning for the future.
Once you have your finances MAPPED, you can scale to greater heights knowing that you have transferred much of your financial risks. Not only will your financial well-being improve, you will feel more reassured that your loved ones are better protected.
Special thanks to Financial Alliance’s Alvin Low for sharing his knowledge and experience to make this article possible.