Why should I even plan my finances?

Let me describe this using the perspective of me, a normal and simple guy living in Singapore.

Being in my mid-twenties and having recently graduated from Nanyang Technological University, I start to imagine the kind of life I want to lead. The quality of life I want to have. I start on the path of building a career. I also begin to search for a woman, someone I have chemistry with, to build this quality life together. Gradually I find one, and she is someone I am willing to cherish and to hold, for better or worse, till death do us part. I propose to this woman (assumed that the answer is ‘Yes!!’), and we go through a gate crash (ok, only my brothers and I), a wedding ceremony and a wedding dinner.

Then we apply for a house and start to pay our housing installments using money from CPF. Life in Singapore is hard work. Time to time, we may want to relax and chill in a nice café, or ghetto bar, or watch musicals. We would also want to visit interesting places overseas, to experience the cultures and life of people in other countries. Sometime later after some magic in the bedroom, a stork carries a baby into the house. This baby goes through primary school, teenage adolescent, university, and gradually becomes an adult. Suddenly, we find that we are approaching old age, and it’s time to retire. Thankfully, there is money from CPF Life. We leave our careers, and holding hands, take a walk along the beach and reminisce about the life that has just flashed past.

A simple life has been described, one that is normal, and probably what Singaporeans will experience. In this simple story, the couple has to understand the costs associated with a wedding, housing, living expenses, relaxation, raising a child, seeing the child through university, retirement, as they will have to finance them.

The couple may also want to know about how inflation affects these costs, how CPF plays a useful part in their financial plan, and how money instruments such as savings plans, stocks, funds, REITs can play a part in making the financial plan better, and their money work harder.

The exercise of planning our finances is not to frighten us about the future ahead. It is to allow us to understand the costs associated with living in Singapore, and how various systems such as CPF and money instruments such as savings plans can help to make the quality of our lives better.

Planning our finances helps to give us some assurance about our life ahead.

Should I compare the products of different insurance companies?

How much is the premium? Is this the best product in the market? That company has this feature, does yours have it also?

Many consumers have these questions in their minds. These are very valid and important questions. It is easy to understand why a typical consumer would want the answers to these questions. I encourage people to ask questions. It shows that they are keen to know more about the value of the things they purchase.

An insurance company is a profit-generating business. It sells products that are beneficial to the public. Still, there is no running away from the fact that it is a profit-generating business. There are several insurance companies in Singapore. Each of them is competing for market share. What this means is that each of them is always trying its best to come up with products which are better that its competitors. The products could be better in terms of price, it could be better in terms of coverage. These are the two aspects insurers always compete on – Price and Coverage. The guiding principle is “You pay for what you get”. This means that cheap, doesn’t mean it’s good.

Insurance is a unique product. It is not a product that is used and tossed away. When you purchase slippers, after it is spoiled you throw it away and look for a new, good pair of slippers. However for insurance, it is something you commit to for a long time. What this means is, once you choose to commit to a product, even if a similar but new and better product is launched the next year, you can’t just throw away the one you have and change to the new one.

I would like to share a perspective. I would like to propose that instead of chasing to see which company has the best products, I advocate chasing and sourcing for a good Financial Planner. This person will focus on your needs. New products could be launched every year, they may be different. The insurers may be strenuously competing with each other. You may or may not want to know all about their competition. The thing that you do know for sure is that your needs doesn’t change every year. It might change from time to time, but it doesn’t change every year. What you may want is a Financial Planner who knows about how the policies and economy in Singapore are changing, and how to make use of the products you already have to lead you to fulfil your needs.

Compare the Financial Planners instead of the products. Choose someone you are willing to work with. Choose someone you trust. Choose someone who is patient in listening.

3 reasons for working with Financial Planners

Personal finance is a private affair, not something one would share about easily with another person, especially a stranger. Majority of Singaporeans feel that they are the best persons to handle their own money. This sounds perfectly logical. Still, I would like to suggest 3 reasons to support working with Financial Planners.

Reassign

Singapore could now be considered a first world country. The immediate implication is that its citizens experience first world problems.

One major problem is the competition for time. A tourist once shared with me her observation of Singaporeans. We always seem to be rushing from one place to another. That observation is real. We are always rushing for time. Our jobs demand a huge bulk of our time. It takes time and effort to build a good, strong family. We are always looking to take time off to travel, or to pursue our hobbies.

It takes time to plan our own finances. Planning it on our own is an option; in fact it is the best option because you would know what you want best. One consideration: Taking out time to monitor our finances, would mean lesser time for other activities.

Now. Close your eyes. Dream a little. Imagine the things you like to do, that holiday you’ve been planning, your children who are yearning for your time, your chill-out sessions. Would you rather do that, or take time to research and plan your own finances?

Consider reassigning this work to Financial Planners. Go, enjoy, and live your life.

Resourcefulness

As a country progresses, it is inevitable that change will occur. Policies might change. Inflation rates might change. Cost of living might change.

An example would be our CPF system – Minimum Sum, CPF Life, Drawdown Age. There has been quite a bit of change since the last ten years. I do not want to comment on whether the system is good or bad. What I do want to highlight is that as a citizen having to  live through adjustments in policies and economy, change is inevitable. In order for our personal financial planning to be relevant, we have to keep track and understand what these changes are.

A Financial Planner is always keeping up with these changes. He reads up on the changes to understand what they are. For example, CPF Life is an annuity scheme that every Singaporean is involved in. However, how many actually read up on it?

Consider tapping onto a Financial Planner’s resources. It is his duty and job to keep up with these changes. He does this day in and day out. Just as you are proficient at your scope of work, a Financial Planner is proficient at his.

Relationship

In Singapore, one has to go through an insurance representative to purchase insurance. This representative is obliged to service the insurance plan purchased. Thus, a relationship is established. This relationship is unavoidable, welcomed or not.

Financial Planners rely heavily on insurance to craft out a plan. Look for a representative that is also a Financial Planner. An insurance salesman is not necessarily a Financial Planner. Look for a pleasant person who is genuinely concerned for you, the plans you made, your outlook towards life, your family, and your financial situation. It marks the beginning of a long relationship, whether business or personal.

Is your insurance representative a Financial Planner?