Over the course my years as an advisor, I’ve had the privilege to encounter many clients whom have massive portfolios of insurances, and we’re talking about 20 – 30 insurances policies. My question to them would be why do they need that many? For a variety of reasons, ranging between “my brother made me take this, he wanted some help to hit some award so I thought I should support” to “that was what I could afford at that time and I just kept adding it on as I went along.” Just for the record, I won’t be commenting about anyone’s brother here, I don’t blame my clients (how could I?) or their advisors (even though they knew better? but do they?). I’m guessing that the term full financial planning wasn’t fully pronounced and people were doing what they thought was a fully financial plan at that point. Its far from the truth, that is in fact what we call “Piecemeal Planning”, we add things as we go along and Bob’s your uncle. So I decided to start on a new series that helps to clarify some of those practices that are still being practiced today (Shocking, I know). Today we’ll be covering what’s on the title over the course of the next few weeks I’ll be churning out more of this to help you my reader with your financial goals.
Let’s get started.
When it comes to managing your personal finances, there are two main approaches: comprehensive financial planning and piecemeal financial planning. In this article, we’ll delve into the benefits of comprehensive financial planning over piecemeal financial planning and explore how it can help you maximize your savings and achieve your financial goals as a Singapore resident.
Comprehensive financial planning is a holistic approach that considers all aspects of your financial life, including budgeting, investment strategies, risk management, retirement planning, insurance needs, tax planning, and estate planning. This approach provides a clear understanding of your financial situation and helps you make informed decisions that align with your long-term financial goals.
On the other hand, piecemeal financial planning is a fragmented approach that addresses individual financial concerns in isolation. This method may seem easier and quicker, but it often leads to missed opportunities and inadequate financial protection. This could still be a little vague even with this definition so allow me to belabour the point:
Background: The Tan family consists of Siew Ling (36), Wei Ming (38), and their two children, Jia Yi (10) and Kai Xiang (7). They have a combined annual income of SGD 150,000, with Siew Ling working as a marketing manager and Wei Ming working as a software engineer. The family lives in a middle-class HDB flat in a suburban neighborhood, where they own the property with a 25-year HDB loan.
Scenario: Over the years, the Tan family has made several financial decisions without a comprehensive plan, resulting in a piecemeal approach to their financial planning.
Siew Ling and Wei Ming each have separate CPF accounts, and they contribute through their monthly salary deductions. However, they haven’t actively reviewed their CPF balances or considered topping up their CPF Special Account or CPF Ordinary Account to maximise their retirement savings.
Aside from the usual tax deductible rebates that are apparent, The Tans are unaware of SRS and how it could possibly enhance their savings on tax while they grow their retirement funds as well.
The family has an emergency fund of SGD 15,000 in a regular savings account, but they haven’t considered whether this amount is adequate based on their monthly expenses or explored other options like a high-yield savings account for better returns.
They started saving for Jia Yi’s and Kai Xiang’s tertiary education but haven’t been consistent with their contributions. They have endowment plans that Siew Ling’s friend recommended her which had a maturity value of 50k for each policy that they took when the children were born. They haven’t explored alternative options, to save for their children’s education.
The family has life insurance policies through their employers, but they haven’t assessed whether the coverage is sufficient to protect their family’s financial future. They also have their basic MediShield Life and a Restructured Hospital Integrated Shield Plan with a private insurer allowing them them claims of up to C -Wards and below that their parents had gotten for them when they were in university. Since then, they thought they were adequately covered. They also haven’t explored other insurance options, such as critical illness insurance or long-term care insurance (e.g., ElderShield or CareShield Life). They do have some personal accident plans that they took on as a result from a sit down of signing up a credit card at a road show.
The Tan family has an HDB loan, car loans, and some credit card debt. They’ve made extra payments on their HDB loan but haven’t considered whether it would be better to prioritise paying off other debts with higher interest rates first. They also haven’t really asked the question whether they should be paying down their HDB faster or allow their CPF to accrue more interest. To the Tans, debt is bad.
Siew Ling and Wei Ming have basic wills but haven’t updated them since their children were born. They haven’t explored other estate planning tools, such as trusts, Lasting Power of Attorney (LPA), or Advanced Medical Directives (AMD), to ensure their assets are distributed according to their wishes and to minimize potential tax burdens.
The Tan family’s piecemeal approach to financial planning has led to a lack of cohesion and potential gaps in their overall financial strategy. They are unsure of their short term and long term goals.
By looking at the bigger financial picture, comprehensive financial planning allows you to efficiently allocate your resources and prioritize your financial goals. This ensures that you are making the most out of your assets and income, and prevents you from overlooking essential financial needs.
A comprehensive financial plan includes a thorough analysis of your risk tolerance and investment objectives, enabling you to construct a well-diversified investment portfolio. This not only maximizes your potential returns but also protects you from unexpected financial setbacks.
Understanding Singapore’s tax laws and regulations is a critical aspect of comprehensive financial planning. By taking advantage of tax incentives and reliefs, you can reduce your tax liabilities and increase your disposable income.
Comprehensive financial planning ensures that you make the most of Singapore’s Central Provident Fund (CPF), a mandatory social security savings scheme. By optimizing your CPF contributions and understanding the various CPF schemes, you can secure a comfortable retirement. Additionally, proper estate planning, including setting up wills and trusts, ensures the smooth transfer of your assets to your loved ones.
A comprehensive financial plan assesses your insurance needs and helps you choose suitable policies, such as life insurance, health insurance, and Integrated Shield Plans. This ensures that you and your family are adequately protected from unforeseen events.
Comprehensive financial planning takes into account all aspects of your financial life, providing a clearer understanding of your overall financial situation and enabling you to make well-informed decisions.
This approach helps you prioritize your financial goals, ensuring efficient allocation of resources and a higher likelihood of achieving your objectives.
Comprehensive financial planning involves assessing your risk tolerance and constructing a well-diversified investment portfolio, minimizing potential losses and maximizing returns.
With a comprehensive financial plan, you can take advantage of tax incentives and reliefs, reducing your tax liabilities and increasing disposable income.
A comprehensive plan ensures that you have the right insurance policies and healthcare protection, safeguarding you and your family from unforeseen events.
Time-consuming: Developing a comprehensive financial plan can be a time-consuming process, as it requires a thorough analysis of your financial situation and goals.
Comprehensive financial planning can be complex, especially for those unfamiliar with various financial products and strategies.
This may necessitate the assistance of a professional financial advisor.
Piecemeal financial planning is less complicated than comprehensive planning, as it addresses individual financial concerns in isolation.
This approach may appear to be quicker, as it tackles one financial issue at a time, allowing for faster decision-making.
Piecemeal financial planning lacks a cohesive overview of your financial situation, which can lead to suboptimal decisions and missed opportunities. You take what comes along and come what may because someone sold you an idea or some event has triggered a fear response within you to do something.
Focusing on individual financial concerns may result in insufficient insurance coverage, leaving you and your family vulnerable to unforeseen events. Worse still would be thinking that one has sufficient coverage when there are many factors that were not taken into consideration.
Without a comprehensive plan, you may not allocate your resources efficiently or prioritise your financial goals effectively, hampering your ability to achieve long-term objectives. Overpaying for protection is one the bigger concerns here and because the industry has too many variable, one tends to take the path that is less complicated and that can be understood easily, or placing trust in just that one and only financial product with the faith that it will cover all aspects. This is usually interlinked with the other points such as inadequate protection.
Piecemeal financial planning may not adequately address risk management and investment diversification, potentially leading to higher losses and reduced returns.
Focusing on individual financial issues may result in overlooked tax-saving opportunities, leading to higher tax liabilities and reduced disposable income. As mentioned before, one the benefits taken into consideration will be the use of SRS and other similar methods to reduce tax liability.
There are several myths and misconceptions surrounding comprehensive financial planning. Here, we debunk some of the most common ones:
Many people assume that comprehensive financial planning is exclusively for high-net-worth individuals. In reality, everyone can benefit from a comprehensive financial plan, regardless of their income or net worth. A well-crafted plan helps people at all income levels achieve their financial goals and secure their financial future.
Some individuals believe they are either too young or too old to benefit from comprehensive financial planning. However, it’s never too early or too late to start. Starting early allows you to take advantage of compounding interest, while starting later can help you make the most of your remaining resources and opportunities.
While investing is an important component of financial planning, comprehensive financial planning encompasses much more. It covers budgeting, risk management, insurance, tax planning, retirement planning, and estate planning, ensuring that all aspects of your financial life are considered and optimised.
Some people mistakenly believe that once they have created a comprehensive financial plan, they never have to revisit it. However, financial planning is an ongoing process that requires regular reviews and adjustments as your personal circumstances, financial goals, and market conditions change.
While a comprehensive financial plan significantly increases the likelihood of achieving your financial goals, it cannot guarantee success. Market fluctuations, economic conditions, and changes in personal circumstances can all impact your financial plan. However, having a plan in place allows you to adapt more effectively to these changes and maintain progress towards your objectives.
Although some individuals may have the knowledge and skills to create their own comprehensive financial plan, many others may lack the expertise required to navigate the complex world of personal finance. Engaging a professional financial advisor can help ensure that your plan is tailored to your unique needs and objectives, and that it is reviewed and adjusted as necessary over time.
Comprehensive financial planning is a crucial process that can significantly improve your financial well-being. By adopting a holistic approach, you can maximize your savings, optimize your investments, and secure a comfortable future for yourself and your loved ones. On the other hand, piecemeal financial planning often leads to missed opportunities and inadequate financial protection. Engaging the services of an independent financial advisor in Singapore can help you create a comprehensive financial plan tailored to your unique needs and goals.
Important: The information and opinions in this article are for general information purposes only. They should not be relied on as professional financial advice. Readers should seek independent financial advice that is customised to their specific financial objectives, situations & needs. This advertisement or publication has not been reviewed by the Monetary Authority of Singapore.
As an independent financial advisor, I am passionate about helping my clients navigate the often complex and overwhelming world of personal finance. With a diverse set of experiences and qualifications, I am able to provide a tailored approach to each individual’s unique financial situation. My mission is to educate and empower my clients, so they can make informed decisions about their money and work towards achieving their financial goals. Whether you are looking to invest, plan for retirement, or simply gain a better understanding of your finances, I am here to help. Let’s connect and start the conversation about your financial future.
