This is Part 1 of a 3 part series on tips and tricks of managing family finances.
With a growing family of 6, it is prudent that my dear husband and I are careful with all our resources. Of course the root of all our resources is really money. So, if we manage our money well, then each dollar would go a longer way in providing our needs. This is not to say we turned into tight wads, but it is more not to squander our hard-earned money on poor purchases or extravagant spending. What I am going to be sharing is based purely on personal experience and in no way, be viewed as professional advice.
In the first part, I would like to share some of the measures we put in place for our long terms goals and emergency financial readiness.
1 Have a will done
We have been advised early on in our planning by our financial adviser to have will done. Being the sandwich generation of having 4 kids and 4 parents to support, it is imperative that we have a plan should anything happen to us. Having a will done here in Singapore amounts nothing more than a few decisions (e.g. who to execute your will, who will be the legal guardians of the kids), some time, and a fee to the lawyer. After going through it, I strongly recommend that you put this at the top of your priority list to safeguard your family's future. Another thing to note is that, after the will is done, it should be revisited every few years to make sure changing needs are met (e.g. additional kids, change in financial status)
2 Sort out your insurance strategy
I am no expert and leave it to them to advise on the various products on the market. For us, we approached an independent financial adviser to help us evaluate this portion. As he is not attached to any individual firm, he had access to products from many different companies. As such, we were able to compare the features and premium attached to each product and evaluate more fairly what we need. After the exercise we had the following in place:
- Life Insurance
This was in place before we spoke to our FA, the decision is to keep it going as the coverage is fairly complete.
- Health Insurance
Even though we each have various forms of health insurance from our employers, we wanted to make sure everyone in our family is covered in a comprehensive surgical and hospital plan. We figured, the payments for normal illness would be affordable but we don't want to be hit with things like cancer, organ transplant, heart attacks, strokes, which requires long term expensive care.
- Education Plans
In Singapore, we contribute 20% of our gross income into CPF (Central Provident Fund) that we can use for housing, education, healthcare and retirement. By the time our first 2 kids are ready to attend university, we should have enough to fund a local university education for both. However, for our next 2 kids, the funds may already have been depleted. Thus, we bought 2 education plans with an annual premium. This will ensure that we have a plan in place for their future educational needs.
- Home Insurance
Most Singaporeans, whether living in public or private housing, would have some kind of home insurance in place. However, these normally only cover the external areas of the housing. So any fire or theft INSIDE the housing will not be covered. Losing all the valuables and especially our precious family photographs is painful enough. This is something I bought to ensure that we get to replace the contents of our house.
- Home Mortgage Insurance
Again, most of us would have some kind of insurance if we are in public housing. The premium is usually a really small price to pay. Should one of the spouses dies or has a permanent disability, this insurance would cover for one or both mortgage payments. For private properties, this is especially important since the mortgage is usually much higher than for public housing.
3 Start an Emergency Fund
The usual standard that you will read everywhere is to have at least 6 months worth of expenses saved up in your Emergency Fund. My suggestion is to have a up to a year. This is my reason - a large part of our income is going towards payments of mortgage, car and insurance premiums, thus, if I lose my job, I may not have much time to reduce that amount. It takes time to sell the car or adjust the payment amounts on the mortgage and insurance premiums, which may take a few months. Having an Emergency Fund of up to a year's worth of expenses would give us the time we need to adjust the family spending and put in other strategies to increase income.
4 Invest Invest Invest
Old advice I know, but very important. A lot of my friends choose to be conservative and not invest or invest in instruments that result in low returns. Time is on my side, I choose to invest slightly aggressively while educating myself on the various instruments. When I talk to my financial advisor, I am well informed and thus, able to make good decisions around what to invest. This will make sure my money work hard for me in the long run. Yes, we win some we lose some - the eventual goal is to have a good net positive on the returns of investment. Not investing will ensure I will not have any growth at all. In fact, with inflation, not investing is a sure way of ensuring my money drops in value.
5 Manage your debt
Seems like the most common sense thing to do. This needs to be employed in tandem with the above strategies. If not, all the growth that we gain will be eroded our debts. My debts at this point of my life includes housing and car loans - these are relatively low interest loans. I avoid all kinds of consumer debt e.g. outstanding balances on my credit cards or credit lines. I pay up every month. I go as far to consolidate my credit cards and have no credit line. If you have a healthy Emergency Fund, you really do not need a credit line.
In the next part, I will be covering tips and tricks that I use on a daily basis to stretch every dollar we earn.
