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Personal Financial Plan

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Personal Financial Plan

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What is the Personal Financial Plan?

The Personal Financial Plan lists out a list of requirements based on your profile.

Step 1. Emergency Fund

What is an emergency fund?

The emergency fund is a sum of money set aside for unexpected events. When unforeseen circumstances like accident and loss of job happen, you know you have a sum of money to help you out in the short term.

Why is this important?

You never know what will happen. It is good to have some cash when you need it.

How much emergency fund do you need?

We recommend having 6 to 12 months of your monthly expenses in your emergency fund

If your job security is high or your monthly income doesn’t vary → 6 months

If your job security is low or your monthly income varies → 12 months

Example

Mary had a little lamb is earning $5000 each month (monthly income) and is spending around $2000 each month (monthly expenses).

The job security of her career is high. Her monthly income doesn’t vary much. Thus, we recommended for her to have 6 months of monthly expenses in your emergency fund.

She needs to have $2000 x 6 = $12,000 as emergency fund.

Recommendations

Expected emergency fund amount

How many months of monthly expenses do you need in your emergency fund?

⁠

months

The expected emergency fund amount is $

18000

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Current savings

Your current savings is $

10000

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Progress:

The current progress is

55.6

⁠

You didn’t hit the expected emergency fund amount. Continue to save until you hit the amount.

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Tips

Put the emergency fund in a high-interest saving account.

2. Health Insurance

What is health insurance?

Hospitalization insurance is an insurance that protects you from the expensive bill.

Why is this important?

Everybody falls sick. Everyone has to pay some medical bill.

There are 2 types of medical bills

The medical bill that you can afford → In the range of tens to low thousands.

The medical bill that you cannot afford → In the range of thousands and above.

The hospitalization insurance protects you against 2. The medical bill that you cannot afford.

What hospitalization insurance do you need?

If you are Singaporean or PRs, you will get MediShield Life which is paid using Medisave.

MediShield Life is enough for most of us.

If you want to, you can upgrade to Integrated Shield Plan or IP Riders. If you don’t want to, it’s ok too.

Recommendations

If you are Singaporean or PRs, there’s nothing to do.

If you are a foreigner living in Singapore, go and get one.

3. Death Benefit

What is the death benefit?

The death benefit is a sum of money to be paid to the person of your choice when you passed away.

Why is this important?

This is not needed if you don’t have any dependents.

This is needed if you have dependents (people who rely on you to survive). If anything happens to you, you want to ensure that your dependents can survive for the next 5 to 10 years.

Examples of dependent include non-working spouse, non-working parent and children.

How much death coverage do you need?

We recommend having 5 to 10 years worth of expenses.

Example

Mary is earning $5000 each month (monthly income) and is spending around $2000 each month (monthly expenses).

Mary has 2 children depending on her for a living.

She needs to have $2000 x 10 years = $240,000 as death coverage.

Recommendations

Expected death coverage

You don't have dependent(s). You don't need to have death coverage.

How long do you want to plan for if you have dependents?

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Years

The expected death coverage to plan for is $

252000

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Current death coverage

Your current death coverage is $

200000

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Progress

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You don't have enough death coverage. Just go to any insurance company and purchase term life to cover the shortfall.

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Tips

Term Life Insurance is a lot cheaper than Life Insurance. There is a lot of debate if you should get term life or life insurance online. Make your own call and decide which one you need to get

If you are getting term life insurance, you should be able to afford the premium easily.

If you are getting life insurance, you will find that the premium too expensive for the death coverage recommended above. In that case, you can choose to let life insurance cover part of your death coverage and let term life insurance cover the remaining.

4. Income Allocation

What is Income Allocation?

Income allocation is the percentage of your salary that you assigned to different categories.

Why is this important?

Income allocation is important as it forces you to plan out how you plan to spend your income. Without planning and tracking, you will not know where your money goes.

How It Works

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Suppose Mary are earning the figure below

Salary: $3500

Dividend: $500

Rental: $1000

Total income is $3500 + $500 + $1000 = $5000. This is the total money coming in to Mary.

Here is how Mary is spending the money

Expenses: $2000

Savings: $3000

Investment: $0

This is the income allocation of Mary

Money coming in

Salary: $3500 | 70%

Dividend: $500 | 10%

Rental: $1000 | 20%

Money going out

Expenses: $2000 | 40%

Savings: $3000 | 60%

Investment: $0 | 0%

What is the Recommended Income Allocation

There are many different recommended way of managing your income. The recommendation above is just one of the many recommendations.

You are free to arrange it however you desire.

Recommended income allocation

Money going out

Expenses: 50%

Savings: 30%

Investment: 20%

Recommendations

Current Allocation

Money coming in

Total income: $

5000

⁠

100

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Money going out

Total expenses: $

3000

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60

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Savings per month: $

0

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0

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Investments per month: $

1000

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20

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Targeted Allocation