There was the once-in-a-lifetime wedding, honeymoon, moving into your new home, and then baby makes three. With children, planning for the future becomes a necessity as parents always want the best for their children and some of that evidently means higher expenses for the parents.
“In the long-term, parenting budget will cover heftier costs like tuition fees, and tertiary education expenses. The earlier you start saving, the more you can accumulate to allow time for your money to compound and grow,” recommended Mr V. Maheantharan, Director of IFL, MoneySense-Singapore Polytechnic.
The future is an unknown so having some form of security is always good for peace of mind. No idea how to get started? Here are three easy tips to help you.
Accumulate Six Months’ Worth of Family Expenses
Planning your finances should never be thought of as a “rich people only” habit. All income earners should cultivate the habit of saving, and work out a steady financial plan for their future goals, such as funding their children’s university education, dream home or a comfortable retirement.
“It is a misconception that financial planning is reserved for the uber-rich, or can wait until life settles down. Life has a funny way of never settling down,” shared Mr. Kelvin Ang, Families for Life (FFL) council member, a father of 3, who is a family blogger and financial services consultant.
Prioritise your financial security and set aside an emergency fund equivalent to at least three to six months’ worth of salary. Say you and your partner’s total income is around $10,000 monthly, then you should amass at least $60,000 in your emergency fund. This will help buffer your expenses for any emergencies that crop up, or cover your family expenses for a few weeks when you are in between jobs.
Be Conscious About Your Insurance Coverages
Healthcare costs can be steep, especially if the condition is chronic and requires long term care. It can take just one unforeseen illness to exhaust your hard-earned life savings.
“Families should always consider the worst case scenario where the main breadwinner’s ability to work is threatened,” advised Mr. Ang.
He recommends that Singaporeans protect their family members from unexpected circumstances such as hospitalisation, disability, and even death through sufficient insurance coverages. Some of the recommended key insurances that couples with children should have, are:
1. Hospitalisation insurance: Singaporeans have a basic health insurance plan, MediShield Life, which is funded by CPF and covers major treatments and subsidies hospitalisation bills. However, it does not cover a number of other conditions, so you may want to consider topping up to an Integrated Shield Plan from a private insurer to protect yourself from high hospitalisation bills, should the need arises.
2. Disability insurance: If a family breadwinner is unable to work due to a disability as a result of an illness or accident, disability insurance will come in handy. It ensures that you still receive a certain percentage of your income, and you don’t have to dip into your emergency fund.
3. Life Insurance: In the unfortunate event that a family’s breadwinner is incapable of providing for his/her family due to terminal illness, permanent disability, critical illness or even death, life insurance can help to cover immediate expenses for your children and spouse for a period of time.
Tip: Mr Ang shared that a good gauge of coverage for a life insurance policy should cover 10 times your annual income. This will adequately provide for existing expenses, funeral expenses and provide your family with a financial safety blanket.
“Educate yourselves on CPF schemes that cover healthcare, life, and health insurance needs. Don’t rush to buy insurance coverage based on hearsay and always align your insurance coverage with your long-term needs,” advised Mr V. Maheantharan.
Get Your Children Involved
Studies suggest that children cultivate their money-spending habits by the time they reach seven years old. In addition, Beth Kobliner, author of the New York Times bestseller, Get a Financial Life, affirmed that children as young as three years old are able to grasp the financial concepts of spending and saving.
“Parenting is not only tough, but also very expensive. This is why I recommend parents to involve their children when they do the budgeting for household expenses. If everyone is able to see and understand how the budget is planned, it will be easier to support each other and stay on track with our spending and saving goals,” stressed Mr Ang.
True to his words, Mr Ang’s family only splurges on restaurant experiences on special occasions like birthdays. Mr and Mrs Ang also refrain from spending unnecessarily on toys for their children. It is also an Ang family tradition to save their money in a jar to save up for a holiday!
This article was written in collaboration with Institute for Financial Literacy, MoneySENSE-Singapore Polytechnic, who is committed to helping Singaporeans develop core financial capabilities through its free and unbiased financial education programmes.