What is financial planning?
Financial planning is the preparation for an unforeseen future by comprehensively evaluating your current financial situation. Usually, individuals set goals and determine the path taken to monitor their finances.
A factor of financial planning is to establish milestones according to which you would make major financial decisions.
Another essential factor to be considered is that not all plans are final, and they can be adjusted accordingly as per the situation. Financial plans above all should be flexible and are not meant to be followed without a second thought.
They merely help you in mapping a path to a safe and secure future. Think of it as a blueprint where all your milestones are highlighted.
Why is financial planning important?
Financial planning is vital to figure out your financial condition at a certain point in time. When unforeseen circumstances occur, financial planning helps in chalking out finances, which helps you better handle it.
Today’s fast-paced lifestyle and growing needs require you to plan and prepare for all types of situations. You may be young, but you will never realize how fast time passes by, and sooner than later, you will discover the importance of being prepared.
With this, we help you highlight the key financial milestones you will face in your life and how you can prepare for them ahead of time.
Key expenses for Singaporeans in their 20s
Studies find that Singaporeans usually start saving up and planning their finances comparatively later in life. They define financial independence as a serious topic but most only deal with it in their late 40’s.
However, as we all should know, financial planning should start as early as possible so that you are ready for any situation that comes your way.
Milestone 1: University Education
Being an average 20-year-old can be stressful. Education is a crucial factor when considering your financial expenses. What makes it troubling is that you probably haven’t started working yet and are thinking of going to a university.
And those university fees are… expensive.
Fortunately for Singaporeans, the government provides tuition grants where they subsidise your tuition fees. Other organisations offer you bursaries, subsidies, and even scholarships.
However, you will still need to pay part of your tuition fees despite all the subsidies you get. And tuition fees for local universities can go up to S$32,000 for a 4-year course!
Thankfully, there are two clearly defined schemes you can pay from: the Central Provident Fund (CPF) and the Ministry of Education loan (MOE).
CPF savings can be taken from your parents’ OA account, and you are given the leverage to pay back the amount plus any interest accumulated up to 12 years after graduation.
A critical factor to take note of is that only a handful of courses can be paid for using the CPF scheme.
For MOE loans, students are eligible for tuition fee loans wherein most of the tuition fee is covered, and the student can pay the amount plus interest over 20 years.
Hence, there is more flexibility for you in making the loan payment. Unfortunately, you’ll never know what the interest rates are until you graduate, and it’s usually decided by the bank from where you took the loan.
For the CPF scheme, the minimum interest rate is 2.5% per annum, while for the MOE student loan, the minimum interest rate depends on the market conditions of the year you graduate. You can set it at 5% per annum for safety reasons and make your calculations from there.
The ideal way to decide which of the schemes is suitable for you is by knowing your education timeline. Depending upon the number of years being spent on your education, you can calculate the principal amount and interest payable accordingly.
Milestone 2: Marriage & Honeymoon
After the initial struggle of education and landing an upscale job is done, you move onto starting a family and settling down. Knowing the standard of living in Singapore, marriages are also an expensive affair.
The median age for Singaporeans to get married is between 28 to 30 years of age. That’s 5 years to save after your graduation!
Once you’ve found your soulmate and you’re ready to tie the knot, you need to think about how much you’ll need for the wedding and maybe a honeymoon after.
An estimate of $27,610 should be kept ready for marriage preparations. It’s best to discuss with your partner when you guys would like to get married. This way, you can create a timeline for yourself and start saving up and budgeting your finances accordingly.
You may also want to consider applying for a built-to-order (BTO) so that once you get married, you’ll have a house you can move into.
On booking a BTO, you would have to furnish the proof of marriage within three years of securing it. The essential thing about the wedding is the proposal with an engagement ring. These trinkets can cost a bomb if not planned well.
Does your 20s sound scary? Don’t worry.
Assuming you graduate when you’re 25, you land your first job and begin on the path of financial independence.
At this point, you have to start segmenting your savings. You should set aside a portion (20-30%) of your income to save future key milestones. This can also act as an emergency fund for when you need it.
The rest of your income will be used for all types of planned and unplanned expenses. To get ahead of your peers, you can set aside another portion of your income for future expenses.
What you can do
Depending on your expertise, you can start investing in different types of investment tools. If you’re financially savvy and can spend time managing your investments, you can consider investing through robo advisors or purchase mutual funds and stocks on your own.
Otherwise, a financial advisor can help you invest your money through investment-linked policies (ILP) or an online brokerage.
If you’re not planning to get married in the next few years or have spare cash, you should invest for the next 10-20 years. You’ll thank yourself when you cash out your investments to get married, buy a house, and even have kids!
However, if you’re planning to get married in the next few years, you can consider getting a short-term endowment plan that is capital guaranteed. An endowment plan will force you to save and helps you fight inflation better than keeping it in the bank.
Here’s a list of the best endowment plans in Singapore.
You can also consider getting a short-term ILP to try and increase your returns. However, it will be much riskier if you do so.
At this age group, many will not think about getting any insurance. I mean, we’re all still young; what’s the worst that could happen?
In fact, this is the point in time where it’s best to get insurance plans for yourself. The main reason is that insurance costs are the cheapest when you’re young, and you pay much lower premiums. If you wait until you are in your 30s, you will have to pay higher premiums for the same coverage amount.
Financial advisors usually recommend that you get yourself a hospitalisation plan to increase your coverage from what MediShield Life offers. If you have dependents, a term or life plan might be beneficial for you.
Apart from the above, another type of insurance policy frequently recommended is early critical illness coverage for yourself. This can come in the form of riders on top of your life insurance or a standalone plan.
Key expenses for Singaporeans in their 30 & the 40s
Probably the most exciting age group where most of your financial milestones will occur! Expect heavy financial burden throughout this period. If you have invested in your 20s, you’ll start thanking yourself heavily.
Milestone 3: Housing
Settling down involves buying a home, and depending upon your interest in having children as a married couple, you would prefer a bigger home nearby necessary amenities.
In Singapore, married couples are very judicious with their decisions and prefer buying a house before getting married.
Either they would have invested in a BTO or an economic condominium (EC) to take things ahead. Usually, couples get stuck at this point and need to be rescued by analysing the costs involved and loans, if necessary.
Next comes the dilemma of choosing between a housing development scheme or a bank loan. It certainly depends on the interest rates, down payment, and the loan amount provided. An estimated budget of $300,000 should be kept in handy.
Milestone 4: Home Renovation
An estimated amount required for the renovation of your house is $55,000. Considering that most Singapore citizens live in a four-bedroom apartment, you will need a sizable chunk of money.
Before selecting an interior designer for your renovation needs, it is essential to know your budget and the packages available. It is necessary to set realistic expectations and be aware of all sales and promotions so that you can choose the most value for money package.
Milestone 5: Pregnancy & Kids
In Singapore, the total cost of caring for a baby ranges from roughly $14,425 to $21,780. The estimate excludes the supplemental nutrition, clothes, accessories, and enrolled classes if any.
The costs handled during and after the conception are a sizable amount that can be recorded and claimed through Medisave insurance schemes.
The government currently provides the baby bonus scheme wherein the first and second child is eligible for $8,000 and $10,000 respectively. Further, a baby support grant is worth $3,000, which helps provide additional support as raising a child is expensive.
Aspiring parents need to save up for the baby and the pre-natal care, scans when necessary, and different types of deliveries.
Let’s not forget you need to factor in when they get to pre-school, primary school, and secondary school. That’s a lot of money required just to raise kids!
And what if your kids are planning to head to a university? That cost just went up by a lot.
What you can do
Have Good Money Management
You need to be very good at money management during this period. You have loans to pay for and have heavier responsibilities as a parent and a spouse. Your parents are probably retiring at this age, and you will have to take care of them.
Be sure to have emergency savings of up to 6 months minimally for each parent. Once you have this amount saved up, you should first consider getting proper insurance coverage for yourself and your family.
Since you have dependents now (kids, spouse, parents), the first insurance you should get is a life or term plan. This provides your dependents a safety net to pay for their expenses over the next few years if anything happens to you.
You don’t want to be the primary source of income that your family members rely on and not leave them anything if you stop working.
Make sure you continue paying for your hospitalisation plan. As much as we all hate to get sick, our immune system gets weaker as we age, and we might end up in hospitals. Your health insurance plan should be sufficient to cover medical fees.
If your kids don’t have any yet, you might want to consider getting them a plan too. Kids are more prone to sickness and might end up in the hospital more often than you think.
Critical Illness Insurance
If you don’t have any yet, it’s time to get an early critical illness and critical illness insurance plan. If you’re hit with a critical illness, chances are you won’t be able to work until you recover. You definitely want to have enough money until then. Make sure you and your spouse are covered.
Only applicable for when you’re pregnant with kids. You might want to get yourself and your newborn insured with maternity insurance.
Disability Income Insurance
An overlooked insurance policy, this policy pays you a monthly income for as long as you are unable to work. This is not the same as severe disability insurance and TPD coverage in your life insurance plan.
Similar to our previous explanation, you should start investing with whatever you have left. If you’re in your early 30s, we recommend getting investment-linked policies, investing through online brokerages, or a robo advisor to make the investments for you.
Plan the maturity dates or make sure that you can withdraw for the significant milestones mentioned above—that way, you have liquidity when you need it.
If you’re in your 40s, ILPs and robo advisors still work fine, but maybe you’d like to consider getting annuities additionally so that you receive monthly income in your retirement years.
Key expenses for Singaporeans in their 50s & 60s
The last stretch before you retire. Your biggest worry here is whether you have enough to retire. If you’ve been following the recommendations above, hopefully, you’ll have enough. If not, there’s still hope so that you can enjoy your retirement.
Milestone 6: Your Retirement Planning
In Singapore, the age group ranging from 50 to 60 years is considered the last innings in employable age. Working hard all of your life has already drained you, and it is time to savor these moments with your family.
It’s time to ensure that all your financial goals are running just fine for the long-term. As an employee, you have been providing a considerable amount of your salary to CPF.
What you can do
Hopefully, your insurance policies are still in force, and you’re still paying your premiums. However, if your policies are old, you might want to get them checked to see if your coverage is sufficient.
Some policies are also outdated, meaning that you bought into a plan many years ago, and there are better ones with better coverage at lower or the same price.
Regarding investments, we suggest reading our retirement planning guide on the things you need to consider before you retire.
Key expenses for Singaporeans after 67 years old
Finally, you’ve overcome the most challenging years of your lives. Your children are all grown up, and you’re probably done with paying your remaining loans. It’s time to prepare yourself to enjoy retirement.
Milestone 7: Retirement
Though the minimum retirement age in Singapore is 62, the older population is bound to work up to 67 years old. The average life expectancy has shown a rise in the coming years, and people have at least two more decades to live even after they retire at the age of 67.
CPF Life Scheme
During your tenure as an employee in the company of your choice, you have contributed significantly to the CPF. Hence, after retirement, it is time to utilise the accumulated amount and retire happily.
Moreover, you have the complete freedom to keep adding to your retirement account until the amount has reached the Enhanced Retirement Sum value.
Between the ages of 65 and 70, you can choose from the wide variety of CPF Life plans so that the monthly payout from your account begins.
If you’re like most Singaporeans and only hit the Basic Retirement Sum (BRS) of $90,500, expect anywhere between $580 to $810 monthly. If you hit the Full Retirement Sum, which is double the BRS, your payout ranges from $1,070 to $1,490.
Singapore’s CareShield program is another uniquely designed government-sponsored scheme, an insurance plan that offers adequate financial support to disabled senior citizens in the form of a care package.
When affected by inadvertent circumstances, this scheme ensures that you or your parents can take care of themselves despite their situation.
Monthly payouts are available so that the disabled person need not be dependent on someone else. They’re fixed and start at approximately $600 monthly from the year of the claim, with the denomination increasing in value.
To claim the CareShield instalments and benefits, you have to undergo a disability evaluation to know the degree of disability and whether it is as severe as stated.
Though the assessment is expensive, varying between $150 to $250, the first evaluation under the insurance coverage is free. Further, if it is your second or third evaluation, you will receive a reimbursement of the money paid for the check-up.
What you can do
If you invested in an annuity plan earlier, you’d get even more monthly income on top of the CPF payouts. Otherwise, this might be your only income in your retirement years.
Insurance wise, get it all reviewed again to ensure you are paying the minimum for the highest coverage you need. At this point, insurance premiums are the highest for you, and many insurers will not issue you any new plans. But there’s no harm trying to see if you can lower your expenses.
The only way to be financially independent is to start early and save for the long-term. Setting goals and benchmarks helps you determine the amount to be saved and for how long so that you can attain financial freedom.
After all, the power of compounding goes a long way.
Though each of the financial milestones can exhaust your savings and money accumulated, you can also spend wisely if you have managed to save smartly.
With proper financial planning and planning for your retirement, you will not have to ask around for help and support.
Another crucial factor to be considered is that if you take up any education or housing loans, make it a point to be aware of the repayment flexibility and the interest rates.
If you need someone to help you plan your finances, help you identify your key financial milestones, and help you prepare for retirement, always engage a financial advisor.