Financial Planning (2) - What are your future needs?

Your savings are required to meet your future financial needs, of which the most important are:

a) to provide an income after retirement
b) for your children's education
c) for unexpected events, such as unemployment, disability, medical expenses

The amount of savings that you have to set aside from your monthly income will depend on how much money is needed for the future. What kind of lifestyle do you plan for the future? What is the future cost of educating your child?

You have a range of choices. If you want to have more money for retirement, you have to save more and spend less now. You should have a balanced approach. You need to enjoy some luxuries now, while you are young, instead of keeping most of the money to spend when you are old (and weak).

Educating a child can be very expensive at a good overseas university. You may want to give the best for your child, but is this a sensible way to spend the money? Will the investment in an expensive education give a good return? Will this money be taken away from your own retirement fund?

I suggest that you should adopt a practical approach. You can set aside 10% to 15% of your earnings for your future needs. If you want to sacrifice for your child's education, you can increase the savings to 20%.

Your total savings can go into a fund that can be used for the various future needs. Try to keep as much flexibility as possible. When the time comes, you can decide on how much you can afford to spend on educating your child, and how much should be set aside for your retirement.

You can buy insurance to cover some of the risks, such as medical expenses, temporary disability and premature death. As insurance cost money, you should find a suitable policy that gives you the adequate cover at a reasonable cost. Do not pay too much for your insurance, as it will take away from your savings for other purposes.

There is no commercial insurance available for unemployment. You have to take care of this risk on your own. It can be achieved by having adequate savings. If you are unemployed for a few months, you can draw down on your savings, but you should restore the savings as early as possible, when you get back a new source of regular income.

Tan Kin Lian