Financial Planning Tips for Singles

3 December 2016
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Category Singles
3 December 2016, Comments 0
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With modern day life, financial planning for singles has become increasingly important. People are either putting off getting married until later on in life, or are getting divorced and becoming single again.  However, one thing does not change, and that is the need to address their financial planning so that they have adequate financial resources to meet their requirements later when they reach retirement age.

If the objective is to ensure that the pool of investments has grown to the size you need by the time you are ready for retirement, the important thing is to start planning for it as soon as possible. Getting an early start is advisable simply because there is a compounding effect on the investment values and the compounding effect.

Once you have determined the investment goals the we can work on a plan on how to achieve these goals.

The areas in which singles need to plan for are:

  • Financial planning for household and home ownership
  • Financial planning for healthcare
  • Financial planning for retirement

Home ownership

When you are young, one of the main assets that people normally consider is their own home. In many places people are not able to afford to buy, and will choose to rent. Renting is just paying someone elses mortgage and can be considered as money down the drain and not a good long term plan.

Home ownership on the other hand is better for the longer run if you consider that the price of you property may increase in the long term and you will have a capital gain. Owning your own home also protects you from long term inflation as you will have a foot on the housing ladder and in future when you wish to upgrade, if prices has increased the jump will not be such a stretch.

Buying a home normally involves a downpayment or deposit and the balance can be financed by a loan or mortgage. Mortgage means that you borrow from a financial institution but they own the rights to your house until you have fully paid off the mortgage. It is their way of lending money to you at a favourable rate and reducing their own credit risk to you.

The amount that you place as deposit can determine the cost of the loan as the interest rates will reflect the risk that the bank undertakes in their loan. Getting that deposit that you require can come from personal savings or in some cases people may consider taking a loan from parents if they need it. Normally parent loans are cheaper and have more flexible repayment terms.

When taking out the mortgage it is important to consider both the term of the loan and the amount of the repayment instalments. Generally the longer the tenor the lower the instalment. It is important to make sure you do not take out a loan that you cannot afford to repay as your home is at risk if you are unable to keep up with the mortgage payments.

The other important consideration for the mortgage is fixed or floating rates. In a fixed rate mortgage, the rate is fixed for the stated period. This means that even if rates go up or down the mortgage rate is the same for the stated period. Floating rate mortgage on the other hand means that the rates will go up or down depending on the prevailing market rate and your monthly instalment can keep changing from time to time. Which ever you choose is up to you and your view on the direction of interest rates but with global interest rates at very low levels, the only way is up and locking into a fixed rate may be an attractive proposition

Before taking the leap into home ownership and the financial responsibility that comes with it, make sure that you have adequate cash flow to service the loans. Whether you are single, married, with have other dependents, there are many things that need to be paid for when you have your own home. Items such as renovation, taxes, repairs and maintenance are just those expenses that are related to your home. This should form only a part of your overall expenses as you may have other outgoings for car, personal, entertainment, grocery, health and even the long term plans for retirement.

Healthcare plans are important to consider too. While you are young it is generally less likely that you will require expensive medical treatment unless you are unfortunate and have a chronic or genetic condition that needs constant monitoring and follow up. If you are in this category, healthcare planning becomes even more important because medical expenses could form an larger portion of your expenses than the average person.  If you are just an average Joe and fortunate not to have any illnesses or pre existing condition then you should consider taking out medical insurance to cover you in the future. Generally the younger you are the cheaper the insurance will be so is advisable to start planning early.

The older you start your medical insurance the more expensive the premium will be simply because the risk factors will be higher.

Retirement Plans take a long term view and are there to help you when you are no longer working and have no income. How much you will receive from such plans will depend on how big the fund is so it is important to know what kind of lifestyle you wish to lead when you are no longer working and having a salary. In some countries the government may have a policy to ensure that all employees contribute to their pension fund so that they have enough to live on once they retire. It is always possible and advisable that you have more than enough to maintain the standard of living that you require. It would be very sad to run out of money in your old age and have no means to support yourselves. Your dependents now may not be in a position to support you in your old age.

Rules may be different in Singapore, Malaysia, Vietnam, Myanmar and Thailand. It is important that you find a professional financial advisor in your home country and seek their advice before making any major decisions.

Insurance Protection for Yourself

When considering insurance it is important to answer why you need insurance in the first place. What is the risk you wish to cover and what is your appetite for risk.

Risks

Insurance involves the payment of a premium to a third party so that you transfer the risk to that third party.  An unforeseen future event would be very costly to you and significantly impact your finances. This kind of event is unplanned but the worst thing that could happen is that you are faced with such an unfortunate set of circumstances but the financial cost to you is too much and you are unable to make ends meet. If you are risk averse which means you do not like to take risk, then you can buy protection in the form of an insurance policy and the insurer takes on the risk of this event happening. The cost of the premium is much lower than the payout that you can receive. The reason for this is because of the probability of the risk event happening.

Types of insurance coverage

There are many types of insurance that you can buy. There are health insurance schemes, motor insurance, home insurance, personal accident insurance, life insurance and holiday insurance. All of these types cover different risks.

Health Insurance

Health insurance will cover the medical risks of you becoming ill and need expensive medical treatment. In some countries like the United Kingdom, the medical treatment is covered by the public funds ie the NHS but the waiting list is so long that you simply cannot afford to wait. In this case the health insurance will help you because you can use this to go private and not have to rely on waiting in the queue

Insurance for critical illness

Some insurance companies offer insurance for critical illnesses that are defined by the company. Typically this will include things like cancer, where your disease is so severe that you will not be able to work anymore and pay the medical bills you are likely to incur.

Disability insurances

If you are unfortunate and you suffer a total and permanent disability, have you wondered how you will ever work again? It may be possible to work as a disabled person but you can be sure that life will not be the same again and there you need to make many adjustments to your life in order to survive. One such change will be the modifications to your house so that you can get around in a wheelchair. Another thing may be to install a lift to the stairs in your house so you can get up and down the stairs. How will you cope with the expense if you are no longer able to work? You better be insured. The other costs that you might need are the costs or a carer to help you with the basic activities such as cooking and cleaning and assisting you generally as you live your daily life

Motor Insurance

If you drive it is a legal requirement in some countries to ensure that you have adequate coverage for accidents. This could cover third party liability only or it could be fully comprehensive and cover all risks related to driving. This will include the risk of someone crashing into you and it is not your fault. If you aren’t in the car at the time and they hit and run without you getting their details then you will need to come up with the repairs out of your own pocket if you didn’t have the cover.

Worse still if you are the one at fault and you hit another vehicle or injure a third party. If that accident results in injury or death you can expect a huge insurance claim that if you were not covered you could be bankrupted.

Much better to have a good coverage when it comes to motor insurance.

Generally the higher the insurance excess the cheaper the insurance but whatever you choose to do, it is advisable to have enough coverage

Home Insurance

If you own your own home it is likely to be your biggest asset and liability. Some mortgage companies might even insist you have insurance coverage for the property that they lent you the money for. There are many things that can happen to your home. There could be fire damage which occurs because someone got careless with the gas cooker or it could be flooding if you have blocked pipes or even burst pipes. There could be an act of God where a Hurricane or tornado passes by your house and it suffers damage. Whatever it is these are events that you cannot control but if they happen then you suffer a significant cost and is a loss.

Far better to have that peace of mind and buy some coverage so that you are protected.

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Summary

Whatever the losses you want to consider covering, speak to your insurance agent who will be able to explain in more detail and arrange for you.

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