We’ve all watched or read stories about how successful financial planning could turn out. Images of young, successful individuals enjoying early retirement and financial freedom after some great investment decisions spring into our minds. We are led to believe that this should be the outcome of successful financial planning.
Forget about these stories of how successful financial planning would allow you to lie on the beach in your 30s, basking in the sun while enjoying a mojito. This hardly ever happens in real life, or for most of us average people.
If you want a sample of how our financial journey could look like in Singapore, the video below paints a much more accurate picture.
For the most part, successful financial planning should include making educated and logical decisions through some of the key milestones in life.
(1) Getting Your First Pay Check
One of the first financial decisions we will make in life comes when we get our first paycheck.
Unknown to many young graduates, what you do with your first paycheck is actually really important. In fact, it could even determine the success or failure of your future financial plans. Why is that so?
Standard of living is the reason for that.
Having gone through university as a struggling student who couldn’t afford splurging on many things in life, your first paycheck brings with it plenty of options and responsibilities. Weekly restaurant meals are now a possibility. Replacing your old laptop with the latest MacBook can be done without having to beg your parents for money. These decisions that your parents used to make for you are now in your hands.
However, a more expensive lifestyle means you spend more, and hence, save less. It also means you need more money to upkeep your lifestyle compared to the days when you were a student.
It is this inflation in our standards of living that will eventually cause us problems in the future.
As such, successful financial planning should first start off with keeping our spending in check.
Read Also: What Fresh Graduates Need To Know About Living Expenses
(2) Buying Your First Home
Shortly after getting your first paycheck, the next big life-changing decision would likely be buying your first home. And mind you, buying a home is DEFINITELY NOT a decision to take lightly.
Spending within your means is a concept that you should not forget about when buying your first home. As a rule of thumb, avoid spending more than 30% of your salary on your home mortgage. Remember, a home loan is a long-term commitment.
After you get the keys to your home, there are other things you need to manage. Get life insurance coverage for yourself and your spouse so that your housing loan would be taken care of should anything happen to either of you.
Remember to also get insurance for your own home. And we are not referring to the mandatory fire insurance provided by Etiqa, that only covers the building structure of your flat.
You should get a home insurance that covers the contents of your home and the renovation works done. In the event of unforeseen events such as fire or theft, the insurance company would pay out an amount to help you overcome the loss.
(3) Raising A Family
Even without taking into consideration the financial aspects, raising kids is already not easy. And now, with kids, you not only have to care for your own finances, but also be responsible for the little ones under you.
Aside from the day-to-day expenses incurred for necessities, there is also the need to get health insurance for your child, save up for their future education and budget for their childcare needs. You might even need a car, or spend a lot more on taxi rides, once you have kids. Travelling overseas for family holiday will no longer be cheap.
(4) Expecting The Unexpected
We don’t need to watch the video to understand that in life, bad things do happen, eventually.
All of us would have known of someone, maybe even our own family members, who have been diagnosed with an unexpected illness, an unfortunate accident or even terminal illness.
If we are fortunate, complete recovery can be made. Even then, time is required for this recovery to take place. And if that is not painful by itself, such recovery would also cost a lot of money, both in terms of the lost opportunity to remain gainfully employed during the difficult recovery phase, and the actual medical costs incurred.
If we expect that these bad things could eventually happen, the most important thing we could do for ourselves is to be prepared for them.
You can do that by ensuring you have adequate health and life insurance, and also a good buffer of cash savings to tide you over challenging times in life.
(5) Retire Happy
Being able to (finally) retire is something that we all look forward to when we first start working. Yet this is usually achieved only after we have managed to navigate through the various financial challenges of life.
Taking care of your personal budget, your housing loans, your family needs and your unexpected medical expenses are all financial matters that you need to handle, even as you work towards your retirement.
Successful financial planning is not just about earning a lot of money through a high paying job or making smart investments. It is also about managing your finances well and being able to catch the curve balls that life throws at you.
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This article was written in collaboration with the CPF Board. All views expressed in the article are the independent opinion of DollarsAndSense.sg
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