After a health scare where my wife was hospitalised due to pregnancy complications. The hospital bill had to be settled with our savings which could have been fully paid for if we had upgraded our medical plans.
It dawned on me that our savings could easily be depleted in a medical emergency or serious bout of illness unexpectedly and I did not want to burden my family with the bills. I upgraded my insurance plan to provide better coverage for my dependents and persuaded my wife to do the same. I've also eliminated my habit of buying lottery and that saved me$60 a week. The money has been used to fund the additional policies’ premium for the family instead.
The importance of good financial planning within a family cannot be overstated. Many money-related stresses are likely due to poor budgeting, lack of financial planning and discipline and could result in strained relationships.
Here are examples of questions that a sound financial plan can answer:
Am I adequately protected against medical emergency or unforeseen circumstances that affect my livelihood?
How much do I need for the children’s future education and my retirement?
How much do I need to set aside every month in order to meet my financial goals?
Contrary to the belief, financial planning is not only for the rich. Money knows no owner. The more knowledgeable that you are of your finances, the probability of making sound and informed decisions throughout your life is higher and can lead you closer to your financial goals.
1. Plan Early
Ask anyone who has just gone through a significant event such as starting on a new job, marriage, getting a new flat, pregnancy etc, they would most likely realise that they should have started their financial planning earlier.
In my opinion, the best time to plan is yesterday. Most policies’ premiums are cheaper at younger age and rise in tandem with increasing age of entry. Furthermore, it is reasonable to assume that our health deteriorates over time, and the early protection will help to prevent major critical illness from exempted from policies incepted at a later age. Last but not least, as disruptive technology displaces jobs, having a safety net would come in handy and help to provide some capital for any cost associated with a career switch.
2. Ensure Adequate Protection
Our savings could easily be depleted in a medical emergency or serious bout of illness unexpectedly. In addition, if we should lose the ability to work, the financial burdens would fall on our family to bear. Hence, ensuring adequate protection against critical illness, hospitalisation, accident and loss of income etc are paramount importance to parents and should be our top priority.
3. Set Up a Family Budget
It is imperative to set up a family budget so that we can track our expenses and know where our money goes. When done in a truthful manner, the budget will serve to identify areas where we could cut back on frivolous and unnecessary expenses. This way, we can channel those savings to better use hence making our money work harder for better future. You could use the MoneySense Financial Calculators to identify and track your expenses.
4. Pay Ourselves First
While it is critical to pay our bills on time, it is even more important to pay ourselves first - setting aside a portion of our income as savings. It may seem insignificant or challenging for some of us. However, by prioritising savings over spending, it could help to cultivate a mindset of frugality and reduce unnecessary purchases. Slowly and surely, our wealth will snowball once we start to adopt this concept.
5. Set Aside an Emergency Fund
For years, it has been a common financial advice to set aside a sum of money for emergency or rainy day and the recommended amount is at least 6 months of the monthly household expenses. With the volatility in the job market and global economies, a good rule of thumb would be to set aside at least 12 months of expenses, to be prudent. This pool can be set aside as a joint account between parents so that any withdrawal would have been thoroughly evaluated and justified.
6. Adopt a Long-Term Mindset
Our financial visors can be marred by unexpected gains or short-term obligations such as inheritance, education, renovation loans etc. However, financial planning should be adopted with a long-term perspective. What we want to get out for the rest of our lives should matter more. E.g. if you have enough money to pay for the down payment for a studio apartment or a luxury car. What would you choose?
Where investment is concerned, it is widely understood that the longer the investment holding period, the higher the probability of positive returns as the investment ride out the market volatility.
7. Regularly Review Your Financial Plans
Once a financial plan has been setup, follow through with discipline and review regularly every 6 months or 1 year with your financial planner to ensure its relevance and its alignment to your financial goals.
Last but not least, safeguard your health. Don’t we want to enjoy wealth in the pink of our health?
*Opinions expressed are not, and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action. At all times, please seek the advice from your financial advisors accordingly.
Learn more about Our FFL Contributor Tan Chin Hock:
Tan Chin Hock is a bit of an adrenaline junkie - a former commando, no less! He is dedicated to empowering and advocating for strong families. With his passion for self-care and healthy living, he leads by example and encourages others to prioritize their family relationships. Through his social enterprise, he aims to inspire and uplift the less resourced communities through photography. Join Chin Hock as he combines his unique experiences and unwavering commitment to promote the importance of strong families and making a positive impact in today's world.
Read more of Tan Chin Hock's articles here.
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