Tuesday, 1 October 2013

Financial roadmap(II)

In financial roadmap(I), we looked at the typical financial situation for the 20s to 30. Here, let's look at the 30s to 40. In this phase, there are many exciting life events that will happen here, such as first job promotion, getting married, and in Singaporean mindset, this follows with the commitment to a residential property(actually, this one normally come first before marriage :)), maybe starting a family, then follow by excuse to buy car, etc.  As you can see, the life events here requires huge chunk of financial commitment as well. 

Savings. Remember in my previous post, a lot of the focus was on savings and aggressively building up the fund. Here is the reason why, because there are so much expenses at this phase. Now, if you apply, rule 72 for a 6% to 7% return, your $54,000 would have grown to close to $80k. This amount comes in handy for your wedding, honeymoon, or HDB renovation.
Continue to save, if you can't do 30%, at least 20% of your income and also continue your ETF investment as well. For those who have kids, it is also time to start planning and saving for their education as well. 

The action that we take in each of the phase, actually determines how easy or difficult financially your next phase of life going to be.

Debts. Due to these life events, the temptation to over-commit and over spent here will be even stronger. A lot of times, our financial outlay is bigger here for weddings, honeymoon, housing renovations, car, etc. I am not saying that we shouldn't pamper ourselves with these once in a lifetime events, but do constantly remind yourself that you have a budget to follow.
Becareful with credit cards, it can be a useful tool if you use it wisely, otherwise, credit card debts will cause a major setback to you financial goals. Think about it, does it make sense to pay 24% card interest when you are only getting 7% from your investment returns.

Insurance. Most of us would have started our family here. As you are the breadwinner, do ensure that you have enough coverage in the event if the worst happens. Do remember to also include medical shield plans for your kids. As to whether, you should or should not buy life insurance for your kids, this has been a hot debate for 2 different group of people for a long time. One group feels that since they don't bring any earnings to the household, then there is no need to insure them for life. The other group will argued that since they are young and free from sickness, it is better to insure them for life and premium is typically lower. I don't have an opinion on this as long as your kids are insured for medical.
Most of us forget our aged parents, in their time, medishield was probably non-existence, so do remember to insure them. The recent medishield life is a good initiative from the government to include all Singaporeans. 

Tax. In the late 30s, for some of the folks whose income may have grown a fair bit, do consider topping up the CPF of your loved ones to enjoy up to $7000 tax relief. Another scheme, Supplementary Retirement Scheme(SRS), also allows you to save on your tax as well. For more information, do refer to CPF and IRAS website.

Emergency fund. At some point in this phase, you might also want to start an emergency fund which  can last for 9 to 12 months. One of such use is when you got layoff and not able to get employed immediately.

Charity. Don't forget about helping the less fortunate.

Related post: Financial roadmap(I)

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