5 Financial Planning Misconceptions: Are You Safeguarding Your Family Finances Right?
Let's be real. We've all got big dreams – that dream ride, the ultimate vacation, or buying your dream home. However, often we overlook an essential aspect of life while working towards our goals: our financial well-being. Sometimes, we even fall for common myths that can pull us back from attaining a rock-solid financial foundation.
In this article, we will debunk these misconceptions and explore the essential aspects of financial planning that ensure you and your loved ones are adequately protected from unforeseen circumstances.
By addressing these misconceptions, you can proactively safeguard your family's finances and provide them with the stability and security they deserve.
1. I have other priorities in life
The hustle of our daily routines often makes us prioritise current needs over long-term financial planning. This tendency to prioritise the “now” over the “later” is quite common, as highlighted by recent research.
According to the OCBC Financial Wellness Index 2022, nearly half of Singaporeans reported not having sufficient emergency savings to sustain themselves for six months in the event of a crisis. That’s a big number of people who could face a tough time if things suddenly go wrong.
Imagine the following scenario: An unforeseen event disrupts your income flow. This disruption could be due to various circumstances – an unexpected critical illness, job loss, or even a global economic downturn. Without safeguards in place, such as a sizable emergency fund, these sudden disruptions can cause considerable financial stress.
So, how can you navigate this?
The key lies in striking a balance between meeting your present needs and planning for future security – an essential part of good financial management. Begin with having clear, well-defined goals to help you prioritise your spending and savings. Knowing precisely what you’re working towards can motivate you to save and plan more effectively.
Building an emergency fund is another crucial aspect of this balance. By setting aside money specifically for emergencies, you can ensure that an unexpected expense doesn't derail your financial stability.
An ideal emergency fund should cover about six months' worth of living expenses. While this might seem like a lot, remember that it's okay to start small and gradually build up this fund. Even saving a small portion of your income regularly can add up over time.
2. Life insurance is too much of a commitment
For those who have yet to get a life insurance policy in Singapore, this purchase might seem like a heavy commitment due to the frequency of premium payments. This can lead many to overlook its essential role in financial planning.
Let’s shift that perspective, however, and think of life insurance as a security shield for your family's financial future. In situations you didn’t see coming, life insurance steps in to ensure that your loved ones’ financial well-being isn't put at risk.
Concerned about the cost of premiums?
There are various types of life insurance policies available, each offering different levels of coverage, terms, and premium costs. For example, term life insurance provides coverage for a specific period (the term) and is typically more cost-effective than whole life insurance.
Income Insurance’s Star Term Protect, for instance, offers affordable term coverage against death, terminal illness, and total and permanent disability (TPD before the anniversary immediately after the insured reaches the age of 70). If that’s not what you’re looking for, you can also check out Family Protect to support your loved ones.
Yet, if you are looking for both comprehensive insurance coverage and the opportunity for savings growth, a whole life insurance policy is a strong candidate.
Whole life insurance, as the name suggests, covers you for your entire lifetime. It ensures peace of mind and solid financial security for your loved ones, no matter what happens.
A perfect illustration of this is Income Insurance’s Star Secure Pro. This policy lets you customise your protection level up to 500%1,2 of your sum assured until age 75 or 80. Given this, there’s a good chance that you can find an option that fits your budget while providing targeted protection to what matters to you most.
3. I will always have a stable income
Relying on a consistent income is not always viable in today's fluctuating economic climate. Even the most secure occupations can be disrupted by technological advancements, industry changes, and health crises.
Despite these uncertainties, your financial obligations – spanning daily expenses, mortgage payments, and future necessities – remain constant. Therefore, part of wise financial planning is anticipating these scenarios and diversifying your financial strategies to prepare for them. An all-inclusive financial plan, which balances savings, investments, and key insurance products, acts as a reliable safety net for you and your loved ones in Singapore.
This comprehensive approach not only prepares you for a secure retirement but also provides a financial cushion to navigate unpredictable life events.
4. I have adequate insurance coverage
Additionally, believing that your existing insurance coverage is adequate can also expose you to financial risks. This is common among individuals who rely on corporate insurance policies, which are typically basic and may not extend beyond their term of employment.
To determine if you're adequately protected, consider evaluating your current insurance coverage. Here are a few steps to help you determine if your coverage is sufficient:
- Identify your insurance needs: Start by identifying what you need to protect. This includes your income, your health, your life, your property, and any dependents or financial liabilities you have. Each of these aspects requires a different type of insurance coverage.
- Assess your current insurance coverage: Check the extent of your current coverage, including all policies you hold (both personal and employer-provided). Make sure you understand the specifics – what's covered, what's excluded, the term of the coverage, and the payout process.
- Estimate financial obligations: Consider the financial impact if the insured event occurred. For instance, if you were unable to work due to an illness, how much would you need to replace your income and cover additional medical costs?
- Compare needs with coverage: Now, compare your financial obligations with your existing coverage. If there's a gap, you're underinsured.
- Consider future changes: Keep in mind that your insurance needs will change over time. Factors such as having children and purchasing a home will all affect your insurance needs.
Online insurance calculators can be helpful in quantifying these factors. Professional insurers can also provide valuable insights tailored to your individual circumstances.
5. I have already set aside a budget
Having a budget is a great first step in managing money. However, the scope of a budget primarily focuses on addressing immediate and short-term needs.
On the other hand, financial planning goes beyond budgeting and takes a more comprehensive approach to managing your money. It involves developing a long-term strategy to secure your financial future in Singapore, encompassing various aspects such as wealth accumulation, retirement planning, and legacy planning. In this way, financial planning provides robust protection, preparing you not just for emergencies, but for achieving your long-term financial objectives as well.
The Right Start
Overall, financial planning is not about choosing between current gratification and future security; it's about making strategic decisions that enable you to enjoy the present while securing the future.
At Income, we understand the unique needs of individuals and offer a wide range of policies tailored to provide comprehensive financial protection.
Whether you're looking for life insurance, coverage for your elderly parents, or even your beloved pets, we are committed to ensuring your family's well-being.
Don't leave your family's financial security to chance. Start your journey towards lasting financial stability today.