Everyone can benefit from financial planning, especially amidst global economic uncertainty and stagnating wages. It is not exclusive to the wealthy, as it includes many areas. According to Moneysense, Singapore’s national financial education programme, financial planning consists of 6 areas: cash flow management, risk management, investment planning, retirement planning, tax planning, and estate planning. Individuals or entire households of varying networths can improve their financial well-being with effective planning.
Before you dive headlong into investing, first evaluate your current financial health. Gather a list of all your income sources, active and passive, and your monthly expenditure. Include your recurring liabilities, such as insurance premiums and mortgage loans, as well. Determine how much of the savings you have can go into investments. This first step also helps cultivate a discipline to budget your earnings regularly. Your financial adviser should also analyse your existing financial plans, if any, to determine their effectiveness.
As with any plan, establish realistic and manageable goals next. Set quantifiable goals, e.g. earn a passive income of $1000 in 15 years, or have an investment portfolio of $200,000 in 20 years. Doing that gives you a clear idea of the investment time horizon and the monthly contributions to that end. Remember to adjust your expected yield for inflation, so that they possess similar levels of purchasing power in the future.
Whatever investment class you pick, it is necessary to conduct research on the type of asset class and the risks they are exposed to. Find out if your returns are subject to fluctuations, or even if your principal sum is guaranteed.
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Now you are ready to being your investing journey. The type of investment vehicle suited for you depends on your financial goals and your risk tolerance, which should be evaluated by a qualified financial adviser. If you are in your thirties or can take on higher risks, you may consider equities, which are essentially shares in a listed company. The potential returns are higher, but so are the risks of significant losses. You also have to conduct extensive research on the companies and their finances to make an informed decision.
If you are looking to boost your passive income, consider investments with a lower but stable yield, such as corporate or government bonds, or Real Estate Investment Trusts (REIT). Such instruments consolidate investments from a pool of investors and invest in development projects or property. Returns are paid out in the form of regular dividends.
Whatever investment class you pick, it is necessary to conduct research on the type of asset class and the risks they are exposed to. Find out if your returns are subject to fluctuations, or even if your principal sum is guaranteed. Always keep in mind the extent of losses you may incur, as it can derail you from your initial goals. Manage your risk exposure by investing in various asset classes (unit trusts, bonds, shares) across diversified industries.
Finally, you and your consultant should constantly review the progress of the initial plans and adjust strategies accordingly. Unpredictable market events, like currency fluctuations and interest rate changes can affect your projected returns. Contingencies and unexpected events such as medical emergencies can sabotage your ability to continue with premium payments, resulting in diminished returns. Or you might need to change your financial goals to support new priorities, like a new child or housing mortgage.
Financial planning is understandably an essential but laborious endeavour. You do not have to go through it alone. Our YTA advisers are equipped with accredited skills and expertise to guide you on this journey, using the steps outlined above. Simply drop us an email, or complete the form on the ‘Contact Us’ page, and we will contact you soon.