More now than ever, these issues highlight the importance of having sound financial disciplines. But what about those for whom practices were not cultivated in younger years, such as taking out medical insurance or saving for children’s education? Is it still possible to rectify this?
Financial expert Lim Ming Liang believes it’s better late than never. “While it’s always easier to start early, financial planning is a lifelong practice,” he told FMT.
According to Lim, a Capital Markets Services Representative’s licence holder, it is important to have a positive cash flow every month. “So firstly, sort out your commitments and liabilities in detail, and settle debts that have higher interest first.”
One could look into credit-card balance transfers to consolidate some of these commitments at a lower interest rate. You might even consider refinancing your existing house loan to enjoy a better rate – assuming you have a good payment history and are earning more income than before.
“Furthermore, if you are refinancing based on your current property value that has increased over time, you might enjoy some additional cash out, which you could use to settle your debts,” he added.
Lim said it is important to differentiate between one’s wants and needs. “Don’t exceed your allocated budget; record how much you spend and what you spend it on. Keeping close track of your expenses can help you better identify areas where you can reduce.”
Medical insurance
Once you have a monthly positive cash flow, Lim advises those who do not have medical insurance to apply for it if they can.
“Even though getting medical insurance at an older age is expensive, your medical fees would be even more so,” he pointed out.
According to Lim, the general maximum age to apply for medical insurance is 65, depending on the applicant’s health condition. It is, therefore, best to take out medical insurance while one is still healthy.
If you have children, he advises getting medical insurance for them, too.
Medical, however, is not the only type of insurance one should have. “If you have the additional budget, get comprehensive coverage that includes life, critical illness, and personal accident,” he said.
“This is important especially if you have kids. As an income earner, you need to ensure that, if something happens to you, your family will not be left in the lurch.”
Retirement planning
With positive cash flow and insurance coverage in place, Lim advises planning for retirement. “Start your retirement planning and rely on the power of compounding interest to accumulate funds for your golden years,” he said.
But what about those who are in their 40s or above but have yet to save for retirement? For Lim, it depends on one’s risk appetite – that is, the balance between benefits and the amount of risk one would like to take.
“I recommend a combination of investing in mutual funds and EPF,” he said. The latter declared dividend payouts of 6.1% for 2021, higher than pre-pandemic levels.
Lim also stressed the importance of keeping one’s life simple. “Sell off items that you don’t really need, such as luxury bags and expensive cars. Use the money for savings and investment, and live within your means.”
Children’s education
Once you have the above three in place, only then does Lim recommend saving for your children’s education.
“Retirement is a priority over children’s education because most people don’t seem to have sufficient funds for retirement and end up relying on their grown-up children to look after them,” he observed.
“Hence, by ensuring you have sufficient retirement funds, you are also helping your children.”
What, though, can you do if you’ve only just begun to save for your children’s education, and they are already in secondary school?
Lim has two suggestions for those with kids aged between 13 and 15. The first is the National Education Savings Scheme (SSPN), a shariah-compliant programme designed by the National Higher Education Fund Corporation (PTPTN).
“You might also consider allocating some of your budget to mutual funds,” he said, stressing, again, that the type of funds selected ultimately depends on the risk appetite of the parents.
As for those who are only starting to save when their children are 16 or 17, he does not recommend mutual funds due to the risk factors. “Go for safer options such as SSPN or fixed deposits,” he concluded.