Great Expectation: How To Plan For Your Family’s Future (Part 2/3)

How To Plan For Your Family’s Future (Part 2/3)
No matter what your income level is, early planning for financial security is always the best course of action. Here, some tips on how to get started!

Click here to read Part 1

FIVE TIPS TO BASIC FINANCIAL PLANNING FOR YOUR FAMILY

TIP 1: PREPARE AND STICK TO A FAMILY BUDGET TO KEEP EXPENSES IN CHECK

A budget is a useful tool for families to monitor their income and expenses. Without a budget, we may not be able to keep track of the many bills and expenses we incur.

Steps to prepare a family budget:
1. Create a list of all monthly income, e.g. salary and wages.
2. Create a list of planned or targeted expenses and a list of all actual monthly expenses. If an expense is not incurred monthly, pro-rate it on a monthly basis.
3. Set aside a fixed amount of savings every month. You should aim to save at least 10 per cent of your monthly income and have savings equivalent to six months of your salary as emergency funds at any point in time.
4. Make sure your expenses and the amount set aside for savings do not exceed your income. If you are overspending, reduce your expenses accordingly.
5. Review your budget regularly.

You may also wish to consider involving your family members in drawing up the family budget so that it becomes a shared responsibility.


TIP 2: DIFFERENTIATE BETWEEN “NEEDS” AND “WANTS”
Our decision to spend is usually motivated by “needs” and “wants”. “Needs” relate to the essentials in life, something you cannot live without, e.g. rent or mortgage or food. “Wants” are usually things that we desire, such as the latest IT gadget or a new fancy handbag. Do a reality check before taking the plunge. Ask yourself the following questions:

1. Do we really need the item?
2. Is it worth waiting and saving up for?
3. Is there a cheaper alternative?

TIP 3: IDENTIFY FINANCIAL PRIORITIES
Priorities change at different life stages. For example, a family with young children may have the following priorities:
1. Ensuring sufficient income to maintain household expenses
2. Saving for the children’s education
3. Retirement planning

Do review your priorities regularly, especially at different stages of your life and whenever your family circumstances change. These could include events such as starting work, getting married, buying a home, having children or reaching retirement.

TIP 4: TRANSLATE PRIORITIES INTO FINANCIAL GOALS
Once we have identified our priorities, we can proceed to take steps to make them our financial goals. For each goal, determine how much funds you need to accumulate and the time available to accumulate the funds.

For example, if your priority is to ensure adequate income for your family in case of unexpected events, you may wish to review your insurance policies and calculate the optimal level of insurance coverage required.

Similarly, if your goal is to save for your children’s education needs, you may wish to start by projecting how much tuition fees might be by the time your children start university and the time available to accumulate such funds.

NEXT: TIP 5 – TAKE CONCRETE STEPS TO ACHIEVE YOUR FINANCIAL GOALS

This information is provided by the Insurance and Financial Practicioners Association of Singapore (IFPAS) and Life Insurance Association (LIA) as part of the MoneySENSE national financial education programme.

Source: Great Expectation: How To Plan For Your Family’s Future (Part 2/3)