We all crave financial security for our family, as it provides the foundation upon which we would be able to live life to the fullest and feel financially confident. But how do we ensure that our family is financially secure? Where do we start? This might seem like a complex task to do, especially when there are many parts involved. But the truth is, it doesn’t have to be. Here are 5 simple questions you can use to start assessing your family’s financial security:
1. Is your family sufficiently insured in times of crises?
Having Sufficient Insurance Coverage
The importance of insurance cannot be understated. Think of it as establishing a good defense before building a good offence. Life and health insurance serve as an overarching shield that guards your family against unfortunate events. Insurance is considered an expense and cost in exchange for protection of your income but the key is to buy as much insurance as you need at as little cost as you can. For breadwinners, we recommend that there are life insurances to replace your income in periods of inability to work due to an illness or disability. Such insurance includes critical illness insurance, or occupational disability insurance. For dependents such as children or retiree parents, it is recommended that they have Health insurances (such as Integrated Shield Plans that supplements MediShield Life) in place to cover any potential large hospital bills arising from illnesses. Sufficient insurance coverage forms the bedrock of a family’s financial plan where every member is insured and protected. Do speak to our MoneyOwl Client Advisers if you would like to determine how much coverage you need.
2. Do you have a pool of funds set aside that covers at least 6 months’ worth of family expenses?
The recommended amount of emergency funds to have is at least 6 months’ of your family expenses. This is to provide for your family in a period of unforeseen circumstances (e.g., loss of job/retrenchment). This helps you pay for necessary recurring expenses such as bills, mortgage and food. without having to dip into your investments or go into debts.
3. Do you have a family savings ratio of more than 15% of the total household income? Are your debts/loan less than 40% of your household income (if any)?
It is good to ensure that you make efficient use of your income in order to keep your financial system well-oiled and efficient. Having surpluses from your household income reinforces your family shield in that you can be well-positioned to adapt to changing life circumstances (such as growing expenses of child or catering for any potential new additions to the family; new child/or even pets). A “Pay yourself first” system should be implemented to set aside your savings amount, before your spending. Budgets are recommended to apportion your spendings, so that you are able to keep your expenses tracked and surplus are consistent. While certain debts might be necessary (such as mortgage loans), it is wise not to overextend yourself in multiple loans (such as loans for personal purchases). Develop a good habit of saving up for purchases if they exceed your budget for the month.
4. Do you have a long-term sustainable investment portfolio for your family’s future?
An Investment Portfolio for Accumulation
Surpluses also play another key role on the offense, in that they can be used as ammunitions, to advance and accelerate our wealth through investments. Once a strong defense is established, the next step is to take measured risks in order to grow your wealth. Investing is not about getting rich but to able to provide the resources needed to enhance your family’s quality of life, and securing a brighter financial future in a reliable way. MoneyOwl offers Dimensional portfolios which employ an investment philosophy that is grounded on decades of academic research and empirical evidence, resulting in a more objective approach to evaluating markets. Through applying various insights derived from extensive financial economics, Dimensional portfolios offer a safe and reliable way to grow your money, as opposed to individual guesswork and predictions. If you’re looking for an investment portfolio that matches your risk appetite and time horizon, do check out our portfolios offered and speak with our Client Advisers for more information.
5. Do you have a trusted adviser whom you can trust to periodically review your family’s finances?
Having a Regular Review of Your Financial Health
Lastly, every year or two it would be ideal to do a holistic review of your family finances. At MoneyOwl, we recommend taking up our flagship Comprehensive Financial Planning service, which provides a personalised financial plan for you. It consists of features such as an assessment of your financial health, determination of your net worth, estimation and projection of your cashflow with CPF balances, to help you envision what retirement will look like for you. It also provides recommendations on how to grow your savings, meet short/long term goals, manage your insurance needs/gaps and plan for your retirement. This big-picture approach helps you take control of your financial situation at every stage and ensure that your life goals are always well within range. Just as it is important to keep our physical health in check, so is our financial health. Have a chat with our MoneyOwl Client Advisers for comprehensive and competent financial advice pertaining to your report!
If you have answered yes to all the questions above, excellent job! Your family’s financial plan is well secured and in good shape! In conclusion, understanding how to build a well-crafted financial plan for our families is more than mere financial knowledge; it is an act of love and responsibility towards our loved ones. We should also recognise the importance of both knowledge and application. While the principles of financial planning have been theorised for a long time, is it the ability of a person to apply these principles in real-life that is more important and far-reaching. When implemented well, families can create a comprehensive a well-secured financial plan.
While every reasonable care is taken to ensure the accuracy of information provided, no responsibility can be accepted for any loss or inconvenience caused by any error or omission. The information contained herein does not have any regard to the specific investment objective(s), financial situation, or the particular needs of any person. Buying insurance is a long-term commitment and should be bought according to your needs, and products’ suitability. The author and publisher shall have no liability for any loss or expense whatsoever relating to investment decisions made by the reader. You may wish to seek advice from our client adviser before making any financial decision.