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Penny for Your Thoughts

by Leong Hiong Yee

Written from an interesting angle of a father to child, Leong Hiong Yee shares his personal take on managing finances. 

My dear child

PF101 – Personal Finance 101 – is not a subject covered in universities. Learning to manage personal finance will be part of your lifelong journey. To ace this subject, you must have the willingness to learn continually and the (financial) discipline. Let me impart some valuable lessons to you.

First and foremost — filing. You might ask, what has filing to do with managing personal finance? Everything, my child. Being organised is the first step to managing your finances. A starting point is to keep at least two ring files; one for all your expense statements such as bills and the other for all your income / bank statements.  You will then know which bills to pay, when to pay them and how much you have in your bank accounts.

Now for the five big-ticket items in your life: wedding, home ownership, children’s education, medical expenses and retirement. At the time of writing, I have yet to go through all of those phases.  Nonetheless let me share with you my thoughts on these areas.

Your Wedding. Have a budget before you start planning. A wedding is a once-in-a-lifetime affair so the tendency is to overspend as you progress in preparation. A budget will keep the expenditure in rein. With the banquet prices inflating, your “ang bao” money might not cover the full banquet costs therefore be prudent. Have a budget that gives you an idea how much you can afford to spend rather than how much you can recover. Consider less expensive venues to hold the wedding. Church weddings, for example, can be more affordable.

Buy property you can afford to pay off soon. Presently the government is promoting asset enhancement through home ownership but I subscribe to a different maxim: “Your first property is a liability; your second property is the asset”. Let me explain. You and your spouse would need to live in your first home so you are unable to profit from it through rental or sale. If you have committed too much to your first property, you might end up servicing the mortgage loan right up till age 65.

That property would not be an asset but a “long term liability”. However, with a second property, you have greater flexibility to rent or sell. This second property becomes your “current asset”. Consider carefully when buying a house, do you want to work for the bank (loan) till your retirement?

Children’s education. Save up for your children’s education. The most financially draining stages are pre-primary schooling and tertiary education. Set aside funds for these stages especially for their tertiary education which would coincide with you approaching retirement.

Medical expenses can blow off your entire savings. Insure your family and yourself adequately against death, permanent disabilities, critical illnesses and hospitalisations. However do not over-commit to insurances since you cannot “double claim”. Meaning, most policies do not allow you to claim compensation for the same loss which you have already been compensated for by another policy. These days insurance and investment are intertwined, therefore be clear what you are getting, whether it is for financial exigencies or investment.

Retirement. At this stage of life, you’ll be dependent on your savings and the money in your Central Provident Fund (CPF). Plan ahead for retirement, estimate your monthly financial need and extrapolate that over your retirement years. If full retirement is not possible, consider semi-retirement. Take up a part-time job that you will enjoy working till you retire to the Lord.

To pay for the above 5 big-ticket items, you need to earn an income. I trust you won’t count on me for allowances when you’re an adult. Work for your keep as suggested in 2 Thessalonians 3:10. Once yo