If your financial adviser is a typical insurance agent (very common), then your idea of financial planning might revolve around what insurance to buy? Indeed, this is furthest away from the truth!
We live in the modern world where money is critical to our existence. Not so if you live in on a farm or fishing village where you can mostly self-sustain yourself.
So, we need to ensure that for as long as we are alive, there is money to sustain us. Financial planning is just that; ensuring there is always money around when we are around.
Currently, that is the case, because you are gainfully employed with a good salary. So there is no problem, currently.
But that is not forever…
Either something can happen, or nothing happens.
By something happen, I am referring to the bad things, the 3D, not 4D.
Death, Disability, Diseases.
Yes yes, there is still insurance to talk about. When such things happens, we need to ensure enough cash will be injected immediately, to help us tie over the crisis.
But what if nothing happens? Congratulations, you sailed through life smoothly and lived to a ripe old age without suffering any disability or critical illness. What is the problem then? You need to ensure there is enough money to live to a ripe old age, for 20 years or more, without an income. CPF Life can take care of the basic ($1,600/month (year 2023) if you have the full FRS), but most people desire more, so we need to invest appropriately, with the right asset allocation, according to our risk tolerance and need to return, taking into consideration liquidity.
Financial planning is about wealth allocation, wealth in terms of income and assets.
Misallocation of wealth is the main cause of financial problems. We use financial ratios to check on the financial health. We need to make sure our income is allocated not just for current expenses, but for a better future, in terms of insurance and investment. Financial ratios such as solvency ratio, saving ratio, debt-to-asset ratio, debt servicing ratio, and investment-to-asset ratios. A thorough review of ratios will help identify any misallocation of income or assets.
The most important basic formula is
Expense = Income – Saving. If you just do this alone, you will be way more successful than most people.
Most people live by this formula instead,
Saving = Income – Expense
and wonder why they have difficulty accumulating wealth.
These 2 formulae, though the same in terms of algebra, are actually very different.
Because you build your financial future with savings, the first formula makes sure you have a clear goal for wealth accumulation, the 2nd one doesn’t.
And then there is will writing, or estate planning. Since we all will leave this place one day, we need to get this done.
Everyone agrees, but most people have not written a simple will. Why? Due to lack of urgency. But since we all need it, and we don’t know when we need it, when is the best day to get it done?
And some don’t find they need it, because they feel their instruction is very simple, just give my estate to my spouse and children. Really so simple? I can share with you 9 reasons why you still need a will even when your instruction is so simple.
Also, some people ask me isn’t will writing done by a lawyer? Actually, you don’t need a lawyer to draft a will, anyone can. But a lawyer is a safe bet because he/she should know how to ensure the will is valid. However, a lawyer is not a financial adviser, and may not consider all the financial considerations in designing the will. Will drafting is a mechanical step that has little value, it’s the design of the will that is the real value.
And there are more, financial planning also involve fixing specific problems / challenges that a person has, which cannot be listed out in this general article.
Wow, and we reached the end of this article! I’m surprised you read all the way! Thank you very much, you are amazing!! I hope you benefit in some way from this article.
If you think what I wrote makes some sense and you need someone to help you sort out some of your financial issues/questions, you can reach out to me at siaklim@fapl.sg
I don’t know if I’m the right adviser for you. We might not be a good fit. If so, I will let you know I can’t do your business. But maybe I can still add some value through a complimentary first consultation, and make a friend.
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.
More than 20 years in the financial advisory business, focus on mainly help people achieve a comfortable retirement through portfolio management, with diversification to reduce the votaility and still achieving the required rate of return.
Also helps wealthy family (>$3m estate, including property, investment and insurance proceeds) pass on their wealth to future generations, minimizing the 3C, confusion, cost, and conflict. Estate planning is probably best done by a qualified experienced financial adviser rather than a lawyer. The lawyer is able to draft a will, but because he is not a financial adviser, he is usually unable to put comprehensive financial consideration into the design of the will. Will drafting is a mechanical process that software can easily generate, there is little value. It is the architecting of a wealth distribution strategy with creative financial products and ideas that is the real value.
