financial planning singapore

Financial Planning 101: A Beginner’s Guide

Everyone wants financial freedom and adequate savings for retirement, yet, not everyone has a financial plan. Some may think that financial planning is complex or only for the wealthy. The truth is, it is for anyone who wants to achieve their financial goals, and it’s best to start early.

Moreover, you don’t need to be a pro to succeed in financial planning. In Singapore, you can find many financial planners who can guide you through the entire process. Nonetheless, transparency about your current financial situation, goals, and priorities is crucial in this choice. 

On that premise, you should set your foot on personalizing your goals and staying committed to working towards them. So, read on and get a clearer view of financial planning and everything in between.

Financial Planning, Explained

Financial planning is the process of managing your finances so that you can achieve your short and long-term goals. It is a holistic approach that looks into multiple areas in your current financial situation. These areas include budgeting, investing, saving, insurance, retirement, and many other financial aspects. 

The process involves addressing financial realities, implementing the best solutions, and allowing individuals to make the most of their lives. Financial planning could be overwhelming for many beginners, so before diving into it, let’s break it down more manageably. 

 

What is a Financial Plan?

A financial plan is a roadmap or a complete overview of everything you must do to achieve your needs and long-term goals. It includes your assets, debts, and goals. This plan is customized based on objectives such as paying for your children’s education, getting health insurance, earning passive income, or building your retirement nest eggs.  

Many tools and resources help you online, and you can do financial planning independently. Still, a financial advisor is your best option if you want to save on time or your situation is quite complicated.

businessman fighting for market share

The Importance of Financial Planning

Financial planning and its many benefits could lead to a positive effect on your life. Aside from growing your finances, a few of the most significant ones are

  • Boosting Your Savings

A financial plan will give you a better view of your income and expenses. As you get a sense of your cash flow, you will be able to figure out ways to cut down on e save more. Also, the younger you are, the more time for you to save and make your money grow.

  • Preparing for Significant Life Events

Financial planning helps you prepare for major financial decisions like purchasing a home, getting married, starting a family, and funding your child or children’s education. By starting as early as possible, you will also have peace of mind knowing that you are financially ready for them when the time comes.

  • Financial Emergency Preparedness

Another core of financial planning is putting away cash for emergencies. It can also include building credit and getting insurance to protect your family, especially if you are the breadwinner.

  • Better Standard of Living

Managing your funds means being able to pay for bills and other expenses without compromising your comfort. And with a realistic plan and budget, you will never run out of cash or go into debt problems.

Retirement Planning

Often, building a retirement plan is the last thing in mind in the early years of one’s career. Yet, retirement planning is a wise decision that every Singaporean should consider. Everyone should build a retirement plan that allows them to pay the bills and live a comfortable life even when they are no longer drawing income.  

Yet, it involves many financial aspects, such as:

  • Looking into retirement accounts. Divert a portion of your income into an individual retirement account or take advantage of your CPF savings and retirement accounts.
  • Growing your money. The earlier you save, the more you will be able to take advantage of the power of compounding interest.
  • Finding investment options. Check investment options that won’t erode your retirement funds.
  • Getting excellent insurance coverage. Health care costs increase as you age, and you may purchase additional coverage to supplement out-of-pocket costs when you are already retired.
  • Saving on taxes. Take advantage of the available tax benefit or tax relief for saving on your CPF accounts.

Stages of Retirement Planning

Here are some guidelines at different stages of your life that could also be helpful in your retirement planning.

  • Young Adulthood

Your adult life, between the ages of 21 to 35, is a critical time to make valuable investments because you have fewer financial obligations. At this stage, you can take advantage of the power of compounding interests as your savings may grow faster exponentially through the right investment products.

At this stage, it is best to start an emergency fund. Financial planners recommend saving at least three to six months’ worth of salary. Treat this fund as a non-negotiable monthly expense that you can use for unexpected shortcomings. Invest this fund in a savings account or a money market account, otherwise, inflation will erode its value. 

  • Middle Adulthood

This stage is where most financial strains like paying off mortgage loans, credit card debts, and insurance premiums happen. Still, it is recommended to continue saving up for your retirement even in these crucial times. It is not yet too late to build an emergency fund if you haven’t.

 If you are not where you would like to be, don’t panic and make necessary adjustments to your saving and spending habits. Stay focused on your long-term goals and build other sources of income if possible.

  • Later Midlife

At this stage, you may be at the peak of your career or  your earning potential. Still, your investment accounts should be geared conservatively. Having rental income from your real estate investments, or investing in blue-chip stocks are a few ways to add to your nest egg.

Find out more on how to save money in Singapore.

Crucial Factors in Building a Retirement Plan

Retirement planning is a life-long process and a successful one will lead to financial security and comfort during the retirement years. The minimum retirement age in Singapore is 62 according to the Ministry of Manpower (MOM). With this, you have more time to boost your retirement savings. 

But there’s more to consider when it comes to building a retirement plan. Let’s look at some crucial factors: 

  • Time Horizon

The time horizon between your age and your expected retirement age plays a significant role in creating your retirement strategy. Building a retirement portfolio varies for ages. If you start younger, in your twenties, you can set aside a more considerable portion of your income for investing. 

Depending on your risk tolerance, you may invest most of your assets in riskier investments such as stocks. You should also consider rebalancing your portfolio from time to time to keep your risk level in check. You may begin focusing on insurance solutions, low-risk investments, and capital preservation as you progress towards your retirement years.

  • Expected Retirement Needs 

The cost of living in Singapore is increasing every year. Singaporeans are also living longer and would need more income for a longer time. Hence, there is a need to save and invest accordingly. 

It is essential to have an accurate estimate of your retirement needs to know how much you need to save. Mortgages and childcare needs could be over and healthcare, longevity, and lifestyle are new factors to consider.

  • Inflation

We all know that inflation erodes the value of money. We also don’t know what prices will be like in the future with this inflation rate. And while you might not feel the effects in the early years of saving, it could significantly impact your finances over time. So, you must plan for decades ahead and factor in day-to-day and overall expenses. 

  • Risk Appetite

A risk appetite depends on one’s commitment, lifestyle, and goals. Yet, age also plays a part in this factor. Generally, the younger you are, the more risk you may afford. You should continually carefully assess your risk tolerance, whether you or your financial manager is in charge.

Make sure you are comfortable with your investments and know what you can or cannot afford to lose. 

  • Estate Planning 

A well-rounded retirement plan would also involve having a proper estate plan. This process will ensure that your assets are distributed according to your will. You will need the expertise of lawyers, accountants, and tax experts as the process could be a daunting task and may involve complicated financial aspects. 

How Can I Start Planning My Finances?

Determining how you live today and in the future starts with how you plan your wealth or finances. There are appropriate steps to be carried out in developing this plan. Here are the typical steps that professional financial planners follow. Still, you can choose to learn these steps for your personal planning.

Also an article on how to have healthy money management.

Step 1: Outline Your Current Financial Condition

First and foremost, you must determine your current financial circumstances. Key information on the following aspects is needed.

  • Income
  • Expenses
  • Cash flow
  • Savings
  • Assets
  • Debts or liabilities
  • Insurance
  • Estate plans
  • Taxes
  • CPF savings 

You should prepare documents that contain information on these for proper assessment. Relevant things to do under this process are to determine:

  • Your net worth and liabilities.  List your assets and deduct your liabilities from this value to compute your net worth. 
  • Your cash flow. Determine your spending habits by knowing where and when your money is being spent and adequately document it. This flow includes credit card expenses, mortgages, utility bills, and others. 
  • Your priorities. This factor will depend on your personal status. For parents, it could be funding their children’s education, while for newlyweds, it could be paying for their new home.      

 All of these are crucial and provide an insight on how you could proceed to the next steps.

Step 2: Set Quantifiable and Realistic Financial Goals

Moving forward, you need to develop financial goals that are specific, measurable, realistic, attainable, realistic, and time-based (SMART). It should also align with your current finances. Include short-term goals, those that should be achieved in the next few years, and long-term and retirement goals. 

As you develop these goals, you should be able to set priorities and differentiate between your needs and your wants. Always think of the big picture and ask yourself questions like

  • How soon can I become debt-free?
  • How can I grow my money?
  • How can I retire earlier?

Creating a worksheet could also be a helpful tool in this process. In this worksheet, you can list tasks according to priority and set time frames and target dates. 

Sample: Goals Worksheet

Short-Term (less than one year)
Goals Cost Duration Target Date
Intermediate  (1 to 10 years)
Goals Cost Duration Target Date
Long-Term  (over ten years)
Goals Cost Duration Target Date

Step 3: Analyze Current Course of Action and Develop Strategies to Work Towards These Goals

In this step, current strategies are reviewed to determine if these are effectively working towards your goals. Otherwise, you should develop alternative strategies to meet your goals and objectives. 

As such, you should consider investment alternatives or recommendations from your financial planner. Consider your timeframe, cash flow, risk tolerance, insurance coverage, tax strategies, and financial products and services to suit your needs. You should be able to weigh the pros and cons of each option. 

These strategies are evaluated based on the following considerations:

  • Does it meets your goals
  • Does it Integrate with other aspects of the financial plan?
  • Can it be implemented independently or with other strategies?
  • Is this a priority strategy?

Step 4: Implement these Strategies

Implementation could be the most challenging part of the financial plan as it entails discipline and consistency. This step is the action plan and includes budgeting, saving, and investing. The goal here is to implement as early as possible to grow your savings earlier.

Step 5: Continuously Measure Your Progress and Reassess Your Plan

While this step is often overlooked, it is a crucial factor in your financial plan’s success. Financial planning is a continuous and ongoing process because life changes are inevitable. Some changes that should be considered are marriage, career change, having children, leaving the country, and more. 

Thus, you need to regularly review your situation’s changes, including your goals, risk profile, and lifestyle. You also need to assess the returns and fine-tune ineffective strategies in your plans.

Optional Step: Get Professional Help 

Financial planning can be pretty daunting for beginners, and working with a consultant makes the process easier. If you need to do so, choose experienced and certified professionals licensed by the Monetary Authority of Singapore (MAS). 

Some factors you need to consider when searching for the right one include

1. Services and Products Offered
2. Length of Experience
3. Documentation
4. Terms of Payment

close up female hand calculator pencil writing on paper

4 Financial Planners / Advisors in Singapore

Financial planners can help you manage your finances if the financial planning process is too perplexing or you just want to save time. They can also help you decide better when it comes to investing. If you are opting for a financial planner in Singapore, here are a few best ones to consider.

1. Global Financial Consultants Pte. Ltd. 

Global Financial Consultants (GFC) have more than two decades of experience in the industry and offer generalized services in terms of insurance, pension plans, and investments. Whether an ex-pat, a permanent resident, or a Singaporean citizen, you will get unbiased financial advice and personalize

Key Highlights

  • Customized investment and insurance plans. GFC guides their clients in getting investment and insurance products that suit their needs, goals, budget, and lifestyle.
  • Detailed and personalized pension plans. Experienced financial planners will help you formulate a personalized retirement plan and keep you on track.
  • Comprehensive insurance protection. GFC offers plans that will protect you, your family, and your hard-earned income.

Other services include education planning, tax consultancy, CPF investment, and succession planning.

2. Expat Advisory Group

Established in 1983, Expat Advisory Group is one of the oldest and finest financial advisors in Singapore. They specialize in helping expatriates maximize the financial benefits of living and working in Singapore. They offer a wide range of financial services, products, and platforms, and their services are not limited to ex-pats only.

Key Highlights

  • University fee planning. They will show you the actual costs of your child’s education and propose realistic solutions to help you offset these costs.
  • Legacy planning. Strong connections with lawyers, accountants, and tax experts will make estate or legacy planning a breeze. 
  • International mortgage protection. They also have strong relationships with major banks and financial institutions to help you with international mortgages.

Other services include health and life insurance, tax efficiency, and business solutions.

3. Providend

Providend is an independent wealth adviser licensed by the Monetary Authority of Singapore. They offer various solutions in wealth management, and over the years, they have also gained expertise in retirement planning. 

  Key Highlights

  • Offers a fixed fee for their financial planning services. Client loyalty and providing the best-personalized solutions are the main focus.
  • Holistic financial solutions. They consider all aspects of your financial well-being and create the best plan to help you reach your goals.
  • Insurance comparison services. Allows you to choose insurance independently and give conflict-free advice as needed.

Other services include investment management, risk mitigation, and estate planning.

4. Great Eastern Life

Since 1908, Great Eastern Life has been empowering individuals to thrive and move forward in life. They are a trusted name in insurance with their comprehensive suite of innovative products and solutions. They are one of Singapore’s top 3 insurers and remain a leader in the industry.

Key Highlights

  • Professional advice based on the client’s unique needs and circumstances. Whatever stage of life you are in, they will give you quality advice to suit your financial needs.
  • Detailed presentation of financial products. All their products and services features are presented in detail, including the risks, benefits, terms, and conditions.
  • Employee benefits. They’ve introduced portable medical benefits that last throughout retirement as they understand the value of human assets in a business.

Conclusion

All of us would want to live our golden years in comfort, and early financial planning is the best way to achieve this. There is nothing wrong with doing it on your own, but sometimes a professional financial advisor’s guidance could be the best way. Either way, being consistent and committed is the key to success.

Key Takeaways

  • Financial plans vary from one individual to another, but more or less, all have the same goals of being financially independent.
  • Learning basic investment principles is necessary if you plan to engage in any investment.
  • Understand your CPF benefits so you can plan accordingly for retirement.

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