For the Her World August issue this year, I had the privilege to contribute to a story titled “Are You Ready To Leave The Family Nest?”.

The article also highlights some of the findings from Her World’s Women and Money Report 2023. 

I’m sharing with you my answers to the concerns that the article aims to address.

Here goes:

HW question 1:

A growing number of Singaporean women are looking to move out and live alone. In your opinion, what financial factors should they consider before deciding whether to move out or not? (As a financial advisor, what advice would you give women to help them “cover their bases” before making such a big decision?)

Karen’s response: 

Do you have enough of a financial reserve buffer and surplus cash flow to sustain the expenses of moving out and for how long?

Expenses involved when living on your own (not exhaustive):

• Rent / mortgage repayment
• Utilities
• Food (cooking less, inviting friends over)
• Transport (increase in spending i.e. travelling more by cabs)
• Household items and appliances
• Maintenance (repairs, replacements, servicing)
• Home / tenant insurance
• Hiring part time helper
  
  Will moving out bring more free time and peace of mind so that you can be even more productive and happier? 

The client may have to take an equanimous approach of a scientist – meaning, this is an experiment and the results of her action will be clear in a few weeks or months.

What is the plan B in case the decision to move out does not work out as hoped, and you want to go back home

Moving out requires financial discipline and responsibility. Consider your spending habits and assess your ability to manage expenses wisely. Develop good financial habits such as tracking your expenses, avoiding unnecessary debt, and saving consistently.

HW question 2:

If they’ve determined that they’re in a good financial position to purchase or rent, what questions should they ask themselves regarding the mortgage, getting a loan, use of CPF funds, rental deposit and ability to afford a long-term lease, etc?

Karen’s response: 

A lot of factors need to be considered before one makes a decision to buy or rent a home. Affordability is the main consideration. 

Mortgage: What is the monthly repayment? What if interest rate goes up, how does it impact your cash flow

CPF funds: Bearing in mind that CPF-OA gives you a return of 2.5% p.a., you should strike a balance between using cash and CPF for mortgage repayment. This decision can be boiled down to balancing your long-term retirement needs (keeping money in our CPF OA gives us a good foundation to build upon) and your short-term requirements (monthly cashflow and meeting mortgage payments).  

Income stability: How stable is your job / income? Consider the stability and growth potential of your current income source. If you have a stable job or a reliable source of income, it can provide you with financial security. Assess your employability in the job market, as well as opportunities for career advancement and salary growth.

Emergencies: Do you have an emergency fund in place? Building an emergency fund is essential before moving out. Aim to save at least six months’ worth of living expenses. This fund will provide a safety net in case of unexpected events like job loss, medical emergencies, or major repairs.

Debt: Do you have any existing debts e.g. credit card outstanding, car loan? If you have any debt, focus on paying it off before you move out. This will free up more of your income to spend on other things. Also, being a guarantor means you are liable for a certain amount of debt.  

HW question 3: 

Many people might be in a good position to rent or buy, but they may not factor in things like the cost of utilities and unexpected repairs, home/contents insurance, and so on. How much should they be putting aside for these, or should they have a special fund for such expenses? How can they determine if they can afford these costs to begin with?

Karen’s response: 

Renting and buying are two very different strategies, with different consequences. It is good to have a gauge of the different types of expenses incurred. Listing them down and putting a realistic budget against each item can help to give you a better sense of the monthly outflow. Include a healthy buffer so you’re better prepared when expenses are higher-than expected. It is crucial to ensure that your income is sufficient to cover these costs without compromising on your existing insurance plans, savings and investments.

HW question 4:

In your experience, what are some of the most common financial mistakes young women make when they decide to move out of home and live alone in their own place? Have you seen them run into financial trouble because of this decision to move out, and if so, what kind of trouble? 

Karen’s response:

Overspending on housing:
Rent or mortgage payment is often a significant expense when living alone. Hence, it is crucial to set a realistic budget and avoid the mistake of splurging on a place that is beyond your finances. Before committing to a rental or property purchase, work out your cash flow. 

Ignoring retirement savings:
When starting your career and living alone, retirement may seem far off. However, it is crucial to begin saving for retirement as early as possible. 

Relying on credit cards excessively:
It is convenient to pay with credit cards, even more so when banks and merchants dish out rewards month after month. Excessive usage and not paying the balance owed in full and on time can lead to high-interest debt. It is important to use credit cards responsibly.

I’ve not seen major financial troubles of clients who are living on their own. However, for some of them, their investing for the future has taken a back seat. 

In summary:

Every client is unique. There is no one-size-fits-all set of solutions out there. 

Full financial planning needs to be done, that means proper data collection, organisation, and analysis. Besides the numbers, one has to also consider the personal preferences, desires, and concerns of each individual – what are their unique motivations in thinking about one option over another.