2017: Try Budgeting Yearly

budgetingAs the year 2016 draws to a close, I invite you to try something different for the coming year: yearly budgeting.

If you’ve done any kind of budgeting exercise, you’ve probably made lists or spreadsheets of your monthly expenses. Things like rent or mortgage payments, utility bills, and student loan payments.

Why should we budget for a full year? It’s because if you set aside just enough money to cover your monthly bills, you won’t take into account all the unexpected or one-time expenses that are bound to happen. Such expenses do not only include bad stuffs like car repairs and medical bills. One-time expenses include holidays too!

Budgeting yearly makes it easier to save up for those expenses. By working those items into your budget, you can work backwards and save a little each month toward your goal.

If you’ve tried monthly budgeting in the past and found yourself coming up short because of unexpected expenses, try yearly budgeting to give yourself a cash cushion.

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A Quick Guide To Retirement Planning

Many people work their entire lives with one goal in mind – retirement. It’s one of the most important life events that is experienced by most people.
From a personal and financial perspective, achieving an easy, well-funded retirement is a lifelong process that requires early planning and commitment to a long-term goal. Once you reach retirement age, you can then enjoy the benefits of a comfortable retirement in which you have more than enough money to cover your living costs.

Managing Your Retirement

When it comes to retirement planning, the earlier you can start in your career, the better off you will be.

The problem, however, is that most young people are not thinking about retirement. After all, when you are in your 20s or 30s, being 65 or older can seem like forever.

Even for older people, it can be daunting. While everybody would like to retire in comfort and financial security, the amount of time and complexity of creating a successful retirement plan can make the whole process somewhat intimidating.

As a matter of fact, retirement planning often can be done very easily. All it takes is a little homework, an obtainable savings and investment plan, and the long-term commitment to preparing for your retirement years.

How Much Do You Need for Retirement?

After you stop working, your expenses don’t stop. In fact, given the fact that you probably will be dealing with more health issues, they are likely to be higher.

So how much money do you actually need to fully fund a comfortable retirement? While an exact answer is impossible to give, there are some factors that should be considered:

Medical Expenses – If and when you become ill, you are going to want the top-quality medical services that are available. Most people don’t want to have to depend on charity or welfare. In Singapore, everyone is entitled to MediShield Life benefits. But this publicly funded program only covers minimal expenses. And there often is a gap between what the government will pay for and what you actually need.

Living Expenses – You are still going to have to live indoors, wear clothes, eat food, and have heat and fresh air to breathe when you are retired. All of these things cost money. Even if your mortgage is paid off by the time you retire, you are still going to have to pay property taxes, homeowners insurance, and maintenance costs.

Other Expenses – A comfortable retirement includes such non-essential expenses as entertainment, transportation costs, and other expenses that don’t fall into the other categories.

Add these all up, add the rate of inflation between now and your retirement date, and you have a general idea of how much money you are going to need for your retirement. Now all you have to is multiply that number by how long you expect to live!

Start Planning Now

Retirement planning is a process that takes decades of commitment in order to achieve the end result: The comfortable retirement you deserve. The concept of saving and investing money in a retirement fund may seem daunting, but with a few basic calculations and commitment to a realistic plan, you can achieve it.

4 Reasons Why People Underestimate Their Retirement Savings Need

retirement mistakes-435cs052221

DBS survey of 800 people in 2014 showed that:

  • 73 per cent of the people polled plan to retire between 55 and 65, with an average savings of $571,715.
  • At the same time, more than 85 per cent of those polled expect to live on a retirement income of $3,500 per month for the next 15 to 20 years and more.
  • However, there is a big gap between both sets of numbers as the average retirement savings amount would only last 13 years and not 15 to 20 years.

These statistics are worrying but fret not! The rest of this article explains the 4 reasons people underestimate how much retirement savings they need, which will give you greater clarity in planning for your future.

1. Length of retirement

Two things determine our length of retirement – life expectancy and retirement age. According to Department of Statistics Singapore, our life expectancy is 83 years. This means that if you desire to retire by age 60, your savings will need to last for 23 years. This is a huge 10 years difference with DBS’s survey findings!

However, when you actually retire might vary as many people choose to work part-time even after they stop full employment. For instance, many retirees become private tutors or piano teachers, or work part-time in their professions as consultants.

2. Not adjusting for inflation

It is important to note that the final sum you will actually need depends on when you will retire and the actual figure you will need to save because of inflation. Let’s say you desire to retire 30 years from now and will need to spend $3,500 monthly in today’s dollars, assuming an average inflation rate of 3%, your monthly expenses will grow to $8,500 in 30 years’ time.

On the other hand, if you’re planning to retire tomorrow, you won’t need that much as expenses today are definitely much less than they’ll be in a few decades’ time.

3. Overestimating investment returns

Some people belong to the group of more aggressive investors. Being human, they may tend to have optimism bias in terms of investing. Since your stocks have been performing well on the market over the past few years, you start to expect to enjoy a steady 5% return per year for the rest of your life. And everyone just assumes that property values will accrue over time, never mind that there’s a downtrend in the property market now.

When estimating your investment returns, it is best to project modest gains or you would risk getting a rude shock when you investments do not perform as well as expected and you have to delay your retirement plans.

4. Not accounting realistically for discretionary expenses

We may be able to survive on a few hundred dollars a month by eating bread and drinking water every day. But I’m sure nobody would think of living life like that when calculating how much we need to retire. Other than healthcare expenses and insurances, you might also want to spend on things like travel, stuff for your kids or grandchildren, your hobbies or simply the finer things in life. As much as you want to retire as early as possible, you have to be realistic about your spending.

4 Life Insurance Myths Debunked

Life-Insurance

Do you have a contingency plan that can protect your family just in case something bad happens to you? Assuming you are the main income earner in your family, it will be difficult for your loved ones to pay for school, food and other amenities in the event you pass away. Let’s be honest, it’s a rather scary thought. If you don’t have life insurance ready, you could be leaving your family in serious financial distress. Having life insurance can help support your loved ones.

However, if you’re not familiar with life insurance policies, it can be difficult to distinguish what is true about life insurance and what is a myth. To help clear up confusion, here are some common myths about life insurance.

Life insurance is too expensive

To the uninformed, life insurance can seem costly, but this is one myth that can be debunked. The cost of a life insurance policy varies, as it depends on several factors such as your entry age and medical history. Life insurance costs less than what most people think. Depending on your situation, you can tailor your insurance and lessen your costs drastically. Keep in mind that insurance is cheaper when you’re young, as you get older, premium prices become higher.

If your employer provides coverage, it’s enough

While many companies do provide employees with life and health insurance, this benefit only lasts as long as you are still employed under that company. While you’ll be covered, this coverage is only temporary and the benefit that is put into your insurance policy isn’t much. Furthermore, the policyholder in this case is your employer which means they reserve the right to amend the terms of coverage with their chosen insurer. This leaves you with uncertain coverage.

It’s advisable to separately apply for your personal life insurance plan to ensure that your family will be able to receive additional funding long after you are no longer able to provide for them. Additionally, you’ll have peace of mind knowing that your loved ones have a reliable means of obtaining funds in the future.

Life insurance is only for those who have children

If you’re not married and don’t have any children, it’s still important to seriously consider getting life insurance. Keep in mind that you still have dependents—your parents or siblings, for example, could from life insurance, as it can still cover other costs such as funeral expenses, unpaid bills and debts. If you were to unexpectedly pass away without a life insurance plan, your loved ones will be left to pay for these costs. So, even if you’re single, do consider obtaining life insurance as early as possible.

My health condition can exclude me from getting life insurance

Even if you have health conditions you can still have life insurance, although you may need to purchase a policy with lower coverage limits. Essentially, life insurance isn’t restricted to people of a certain age, health or even salary. You can always adjust your policy based on all these factors. There are plenty of insurance options that can suit your needs and budget.

These are just some of the many myths about life insurance which can make it difficult for people to fully understand and appreciate it. This often leads to confusion for some people on whether they need insurance or not. While the idea of having life insurance seems intimidating, doing so will bring plenty of benefits for your loved ones.

5 Smart Money Moves for Newlyweds

newlyweds

Wedding season is officially under way, and odds are, couples en route to the altar have been fiscally focused almost entirely on the Big Day for quite some time.

But once you’ve said your I dos, financially (not romantically), the honeymoon’s over. It’s time to shift some of that energy from planning your marriage to successfully living as a legally wed duo, and that includes figuring out how you’ll handle your money. After all, marriage is an economic partnership too, and disagreements over money are the top source of conflict among couples.

To increase your odds of attaining (and sustaining) marital bliss, implement these five pieces of financial wisdom.

1. Draft Your Marital Money Rules.

Financial goals and household budgets are very important, but equally so are your marital money rules. Think of this as a contract between you and your spouse regarding how you will work together financially. Determine how you’ll handle the bill-paying and whether or not you’ll keep separate checking and savings accounts. Also, establish guidelines for how much money you can spend without having to “preauthorize,” or check in, with your significant other.

2. Live on One Salary, Bank the Other.

Perhaps you’re both working now, but that may not always be the case. If you decide to have children, go back to school, or start your own business someday, that might involve one of you scaling back or getting out of the workforce altogether. Set yourselves up for those possibilities by living on one salary and saving the other. You’ll have more options if you have enough savings to replace one of your salaries for an extended period without having to dramatically alter your lifestyle.

3. Get Rid of Debts.

Starting a marriage with no debt is ideal, but typically unrealistic. Many couples begin marriages with student loans or credit card liabilities. Devise a plan for reducing your debts. Start by transferring balances from high interest credit cards to one with a lower rate. If you’re not able to transfer your balance, pay off either the card with the highest balance or the highest interest rate first, while paying the minimum on all other cards. Cut expenses to pay down your balances as quickly as possible.

4. Review Your Retirement Plan.

A financial need that’s decades away might seem really abstract right now, but no one else will provide for your retirement except you. And the long-term impact of opening a retirement account now is huge, with compound interest accumulating over decades until you retire. Sock away as much as you can in your retirement plan at work. If you can eke out even more money from your budget, contribute to individual retirement accounts like the Supplementary Retirement Scheme (SRS) provided by the CPF Board.

5. Review Your Insurance.

As newlyweds, you need protection against catastrophic medical expenses and a long-term disability. Your employer likely offers disability insurance coverage up to a certain amount as part of a group plan. But make sure it’s enough to fund your and your spouse’s needs in the event you can’t work for a while. Increment of life insurance can generally be delayed until you have children, at which time you might supplement your coverage with either a term or whole life policy.

Put Marital (and Financial) Happiness at the Top of Your “Honey-Do” List

Just like your romantic partnership, your financial partnership is something you craft together as a couple. Take it seriously, and establish your guidelines early, even when it involves topics you might prefer to dodge. By doing so, you’ll limit future arguments, and your marriage will be better off for it.