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Financial Planning

Mar 20, 2016

In:General Articles

Introduction

There are so many stages in a person’s life, progressing from one level to the next. You would remember how exciting it was to graduate from college or university and securing your first job. And from there, moving forward to building your career and on to getting married and starting a family with your significant other.

Now that the both of you are thinking of conceiving, one of the most important things to have is financial stability. However, even if you do not have millions of dollars stacked up in the bank, by planning your finances wisely, you will be able to provide the best for your baby when he or she arrives.

Here are some tips and professional advice from Mr Loo Hock Long, Business Development Manager at FP Strategic Solutions Sdn. Bhd. on how to do just that!

ABCs of sound financial planning

A good financial plan is one that takes into consideration all aspects of an individual, or in this case, a growing family’s current and future needs. According to Mr Loo, insurance coverage, emergency reserves, education and retirement funds, estate planning and monies for investment are all essential factors in building a solid foundation.

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Insurance

One of the most important steps for couples who are wishing to conceive for the first time is to obtain proper insurance coverage. “Insurance is the key to building strong financial foundation especially for young families who do not have a lot of reserves should something happen to one or both parents,” explains Mr Loo.

This is because when you purchase an insurance policy, you transfer the risk from yourself to the insurance company. In the event of a tragedy, the proceeds from the policy(ies) can be channelled towards your child’s education or the family’s expenses. As such, good insurance policies should include coverage for life, medical, critical illness and personal accidents.

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Reserves

Aside from insurance, you should also have cash reserves as much as three to six months’ worth of total expenses just in case, to be able to tide you over during rainy days.

On top of that, extra funds should also be saved for the baby’s delivery. The total amount can differ depending on where and how you decide to welcome baby into the world. For example, Caesarean births would generally be costlier than natural births and delivering at a private hospital would undoubtedly be more expensive than a public one.

“Parents should set aside at least RM5,000 to RM15,000 (S$2,000 to S$6,000) should they wish to deliver at a private hospital. I have had an experience where one of my customers delivered twins and the total hospital expenses were over RM13,000 (S$5,200)! Not expecting it to come up to such an amount, they had to pay the hospital using a credit card which took them three years to finally settle it in full,” shares Mr Loo. Therefore, adequate cash reserves are important in your preparation to start a family.

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Budgeting

If you are not doing it already, you should start a good monthly budget system to manage your combined incomes and control the family’s cash flow. Mr Loo suggests that families work around the formula of ‘Income – Savings = Expenses’. In other words, families should ideally limit their expenses to whatever total that is leftover after setting aside a portion of their income for savings.

“The principle behind sound financial management is important in disciplining anyone towards a financial goal. It is only with discipline that we can create excess money that is necessary for wealth accumulation,” Mr Loo opines.

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Investment

Investing your money in stocks, bonds, mutual funds and/or real estate is also another way to further solidify your financial standing. According to Mr Loo, the safest types of investments are Fixed Deposits (FD) and bonds that are purchased through Unit Trust Companies and these investment options are ideal for families who do not like to take risks.

However, as safe as it may be, the returns from these types of investments may not be good enough to mitigate certain external factors such as inflation. “For example, the FD rate in Malaysia is at 3% and the inflation rate is almost at 3%. Looking at this, there is no real gain by investing in FD. At the same time, the returns for bonds are currently at 4-5% per annum, and should the inflation rate rise, then it is unlikely for any real financial returns,” elaborates Mr Loo.

Nevertheless, Mr Loo advises individuals to first undergo risk profile tests to assess their risk appetites as the perception of ‘safe investment’ as well as their financial circumstances may differ from one individual to another.

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Employers

Following that, the terms and conditions of your employment can be factored into your considerations of starting a family. Benefits such as maternity and paternity leave as well as medical compensation are now the norm in most employment contracts, making it easier for most people to start a family.

“Employers definitely play an important part in a family’s financial plan as most companies offer good comprehensive benefits including policy coverage in terms of death and/or medical needs of the employees. With this in place, should something happen to employees, the proceeds from the employer would be able to provide some financial relief to their families,” Mr Loo states.

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The right time to start planning

When asked about the ideal time to start planning financially, Mr Loo says, “There is actually no such thing as the ‘best’ or ‘right’ time to start. Anytime is a good time as long as you know where you are financially and what your financial goal(s) is.”

However, Mr Loo stresses that knowing where you are financially is not equivalent to knowing how to achieve your goal. To do that, you can always increase your financial literacy or even enlist the services of a professional financial planner to help you towards your goal.

“We are very fortunate today as there are various courses, seminars and articles on financial planning and management to help people along their way, and they are beginning to reach out to the younger demographic. With that, we hope that people are able to attain financial freedom at a much younger age in the years to come,” Mr Loo says.

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Introduction

Caring for your baby and watching him or her develop in both mind and body as the days go by is something truly magical. However, at times, despite baby’s healthy appearance, you may find him or her crying frequently or for a long time, showing signs of distress and extreme discomfort for reasons that are not immediately obvious to you. Incessant crying can sometimes carry on well into the night, depriving you and your family from your much needed sleep.

Your baby may also suddenly refuse to be fed, become restless and fussy. Whatever you try to do to alleviate baby’s discomfort – feed, burp and lull to sleep, do not seem to work. Trying to identify what is causing your baby’s pain is anything but easy. So when should parents rush babies to the hospital? What alternative ways can parents adopt to calm baby?