Raising a young family amidst rising living costs and inflation? It pays to be forward thinking about your finances.
With a family to care for, young ones to feed, bills to pay, education expenses, possible medical needs, and rainy days to cater for, maintaining good financial health is key to a sound future. The basis of this is the habit of saving. Coupled with comprehensive safety nets, it should form the foundation of longterm financial planning. Here’s why you should start saving in a disciplined manner.
This sum of money is necessary for the unfortunate unforeseen circumstances that life may throw on you, such as in the event that you are out of a job, or are in sudden need of cash. To ensure that you have enough standby funds, you can start off by putting aside at least 5% to 10% of your income each month. In total, the fund should cover at least three to six months of what you need for basic living expenses, such as food, utilities and mortgage.
This has to be separate from your emergency fund. Otherwise, your final long-term targeted amount could easily be eroded by sudden cash withdrawals. Perhaps you can set another 3% to 5% for this purpose. This money can then be invested in safe tools, such as 20- to 30-year endowment savings plans, which mature at the start of your retirement.
- Credit Card Expenses
Many people are saddled by credit card debts. Pay them off as soon as you can. Pay off the ones that incur the most monthly interests first, and if necessary, transfer the remaining balances from a higher rate card to one that is lower.
- Education Costs
A child’s education expenses can be expensive. Coupled with inflation over the years, the final amount can be substantial. By starting earlier, there are advantages of having more time to save up, especially if you’d like your child to pursue their tertiary education. According to the Ministry of Education, the cost of a four-year university degree in Singapore, depending on the courses and universities, varies from $30,000 to $87,000. But with the impact of inflation, the amount could leapfrog in a decade. A popular savings instrument today is still the traditional endowment plan, which is essentially a life insurance policy combined with a long-term savings account. Such plan offers a specific maturity date, along with stable returns and growth in value over time.
- Insurance Cover
To complement your savings, you should also review your insurance coverage. This is because the financial fallout that often results from insufficient coverage can drastically affect any well laid-out savings plans that have been put in place. You should always have adequate life insurance to protect against financial challenges brought about by death, disability, critical illness and accidents, especially when your earnings are vital to support your family. As an estimate of how much insurance coverage you should have, it should be at least five times, or better yet, 10 times your annual income. Do include hospital and surgery insurance as part of your overall insurance review as well.
Every three to six months, do a self-check on your financial health and savings strategy. You can then tweak it accordingly, such as adjusting your budgets and timelines, or steadily increasing the money you save.
Save and sound – live that mantra – and you will be well prepared to face financial challenges of any kind. What are other financial planning tips you have for us? Drop us a note down below.