The journey to begin to invest is a difficult path on its own. Most people are attracted by the high returns that investments could potentially provide but fail to understand the risks of investing. Many investors jump into the sea of investments and end up drowning. Fear strikes me when my peers get overly excited about “investment opportunities” and when they are too eager to begin investing before laying the foundations.

As with everything in life, we prioritise and take care of what is important first.

Debts, Emergency Savings & Essential Expenses

1. Debts

In our financial plans, we know that we first have to take care of our Debts. Do you know that many credit cards effective interest rate is at 24.9% and above per annum now? It would not be logical for us to invest before clearing these debts, loans and cash lines with high-interest rates. It is not possible to achieve 24.9% investment returns per annum consistently.

2. Emergency Savings

An Emergency Savings of at least 6 months of our monthly expenses is recommended because this take cares in an event of a stoppage of our income such as an unexpected retrenchment. The emergency savings is also critical to cover unexpected expenses such as medical expenses for our loved ones, household, vehicle repairs and other unfortunate events.

3. Important expenses

If we expect expenses coming up such as hosting a wedding banquet, a house renovation or the birth of a child, we should save up for these expenses in cash. (These expenses could easily add up to S$60,000 and more in cash requirement for a couple) We cannot afford to invest and be forced to sell off our investments at a low when the bills are due.

Protection From Financial Risk – Insurance

To protect ourselves from financial risk means to “insure”. There are a few events which can impact our accumulation for retirement or financial independence.

1. Medical bills

In the case where we have insufficient savings to cover for our medical bills, we would be loaded with a mountain of medical bills if we fall ill.

2. Loss of income due to medical crisis or death

Another risk of not having sufficient insurance coverage is that we are not able to provide for our dependents due to our loss of income (Eg. Spouse, children and parents) in our unfortunate death or disability.

The state of the insurance industry is that financial planners are mostly remunerated by commissions based on product sales. The amount of premiums we pay may not necessarily translate to the amount of insurance coverage we are covered for and need. The truth is that it is easy and possible for us to be adequately insured at a reasonable cost if we purchase the right insurance products.

Purpose & Type of Insurance Products

It is possible for one aged 35 years old with average income and moderate needs to be adequately insured for S$200+ a month.

Have You Done The Above Must-Dos?

If you have not, please do so now. We do not want to risk having our hard-earned savings and investment gains wiped out due to our greed and carelessness by not prioritising. We have to protect our existing assets and plan for any unexpected events first. The journey before investing could take years and it is important to be patient before diving into the markets.

Let’s encourage one another to clear our debts, build our emergency savings, plan for our important expenses and insure ourselves adequately now. We are not only doing ourselves a favour but a very important favour for our loved ones as well.