ok la just to share with people about what i learnt. not much, but to those who have totally no idea, hope this can be of help.
Basically in FP, our planning is for 2 scenarios,
the first being your Retirement.
the second being your Insurance.
Retirement
questions you need to ask yourself
What kinda of lifestyle do you want? How much do you need a month? without depending on your kids.
This will give rise to how much money you need to have by the time u retire.
an assumption we make is that you retire at 65, and that in the best (or worse) case you live up to 85. that means 20 years. also due to the freedom and amount of time you have to yourself, you will most likely spend more than you think. luxury will be common. surely you dont expect yourself to sit at home for 20 years right?
so how much you need for monthly after you retire, multiply the number by 20 years. do not forget to factor in inflation!
Insurance
sure none of us wanna die before our time, but lets face it, if 1 fine day you dont wake up again, what are the responsibilities you have to your family? if u r single, ok lor, make sure your insurance can cover your funeral. but if u r married with kids? how then?
you need to make sure your family does not suffer from the lack of your income. as such u need to plan adequately. simply take your annual pay and multiply by the difference in years to your retirement. meaning if you are drawing 30k annually, and you are currently 35, meaning 30 years more to your retirement at 65. take 30k x 35 to get 1050000.
Of cos that is in theory la. in reality, you wouldnt save 30k a year. you have your expenses and that will come from the 30k. so lets be conservative and take it u spend half of what u earn. that will leave 525000. out of the 525000, surely you have some savings before you pass on, so take that into consideration. so maybe after all your savings and investment you are only left with 300000. so go buy that life policy for 300000, instead of whatever others might tell you.
ok i feel damn stupid to share this but i guess i have to be truthful to myself and since i am sharing my knowledge with you guys, i should not hide anything.
There you have it, you do not need to cover yourself by a huge amount. insurance is meant to bridge the difference or shortfall. that is the conservative way of financial planning. planning just what you need.
Another thing to note about insurance is to make sure you MUST have these 3 types.
namely a Life or Term policy
a Critical Illness policy
an Accident policy.
and also to make sure that your policies have coverage for inpatient charges, as certain policies do not cover your hospital bills, which can come out to be quite hefty.
Other than Insurance and Retirement, i have list the other important things to plan for.
Savings
Investments
Insurance
Retirement
Having covered insurance and retirement. i will now touch on savings.
Savings is well for your daily expenses and for things like your kids education, your new car, luxuries in life and the wants and needs of your family. 1 thing to note is that the banks in singapore savings accounts, they do no cover the inflation rate, meaning every year your money lose its value due to inflation, and by putting it in a bank you are still losing the value but to a lesser extent depending on the interest rate.
so the ideal thing to do is to increase the interest rate or rate of return on your money to match the inflation rate so as to get the same value for your dollar. how to do it? this is where investment comes in.
Funds
Unit trusts
Equities and securities
are some of the instruments of investments. they belong to the higher risk higher return category.
Treasury loans
Bonds
Fixed deposits
belong to the lower risk category.
Also there are Investment linked insurance policies. which covers both insurance and investments. but as of now i am not very sure about these policies so i shall go into detail yet.
Hope what i mentioned above will help someone in their financial future.
bump to create awareness
Hi bladez,
Thanks for sharing, just adding on abit. Some Insurance, like Investment Link Plan can actually be prepared now as retirement plan. If one has a proper traditional life plan inforced.
Insurance should nt be used as a main investment tool
Life Insurance are bought with health not money, because once u certain serious health condition, insurance company will reject you. And no matter how much money you have, no company will insured you. :)
Just a penny of thoughts.
but ILP are actually term plan + investment. so if u can really invest properly on your own, ILP might not be that good for you.