The end goal of financial planning is to be able to enjoy a worry-free, comfortable retirement.
Wouldn’t you agree with me?
A recent FinFit survey by HSBC shows that young working adults in Singapore aged 24-39 are weakest in their retirement planning as compared to other aspects of financial planning.
These young working adults could be single, married without kids or married with young children.
The Earlier, The Better
When it comes to personal finance matters, one of the biggest missed opportunities for people today is not starting their financial planning early enough. Young working adults need to understand the importance of having some kind of financial plan sooner than later, instead of waiting till they have a sizeable sum to invest or allocate to their financial goals.
Reality: As you grow older, your family structure will change. Your financial obligations will change. Expense will usually increase and this has an impact on how much you can save in the future.
Therefore, unless you intentionally put in place a financial plan now, you may have to make compromises along the way and end up with a less than optimal outcome.
This article aims to debunk some myths that younger people have when it comes to financial planning.
Myth #1: Retirement is decades away. I have plenty of time. It is too early to plan for it now.
Reality: Why plan for your retirement well in advance? Because of the way compound interest works. The sooner you start saving, the less capital you will have to invest to achieve the retirement fund that you need.
Remember, time is your friend. Start saving and investing regularly, however small the amount may be. The discipline of systematically investing on a regular basis can go a long way in building your retirement nest egg.
Here’s an example:
Myth #2: I need to earn more before I can save and invest
When do you expect that promotion or be rewarded with a handsome bonus? What if this does not materialise for you?
After settling in to your first job, you would probably realise that the starting salary is nothing to shout about. You start telling yourself that when you make double the salary, you would have earned enough to save and invest your surplus cash flow.
Well, you are probably wrong.
The main reason why those who earn a good salary and yet cannot save and invest as needed is because of their spending habits.
Call it peer or society pressure, their lifestyle must always keep up with the increment of their salary. I’ve seen how earning more means more luxurious holidays, frequent high end restaurant meals, lavish shopping sprees, high performance cars etc.
Reality: How much we earn in life is not something we have control of. On the other hand, we have absolute control over how much we spend. So, this is where we should focus our effort on.
Myth #3: I’m well qualified so I know how to save and live prudently within my means. I don’t need to plan or invest.
Reality: Failing to plan is planning to fail. How you get from point A to point B does not happen by chance. It is a journey that is deliberately planned for and with the help of a qualified and Certified Financial Planner.
You have established a good start but just simply budgeting and saving will not take you far. You need to invest in assets that will appreciate in value over time and in some cases, generate regular income (interest, dividend, rental income etc.) in the future.
These assets could be stocks, unit trusts, real estate or other assets as per your investment objectives, investment time horizon and risk appetite.
Investing is not gambling. Yes, it does involve some risk but this is calculated risk. When done right i.e. adequate diversification across asset classes, regular reviews and proper rebalancing of investment portfolio, you can expect positive results.
Assets do not spring up overnight, so start your investing journey now.
Try to save at least 20% of your take home pay every month. This can be channeled in to investments to meet your medium term and long term goals. Remember – the early bird catches the worm! With time on your side, you have more time to learn, experiment and build your investment portfolio.
Myth #4: I’m young and healthy. I won’t fall ill so easily. There’s no need for insurance now.
Reality: Diseases can strike anyone and younger adults are not ‘invincible’. It is always better to be safe than sorry. I have witnessed a few cases where it was too late to get any insurance protection.
Why is it important that you get insurance coverage sooner than later?
Some of us believe in insurance and some of us not as much. However, it is an undeniable fact that an insurance plan (especially one that covers early, intermediate and severe stages of critical illnesses) is the best performing ‘investment’ for us on the day we are told the worst news of our lives. Think about it – the leverage effect is significant and the odds of materialising this ‘investment’ is rather high.
I don’t think I’ll retire or I have my own property and some savings so retirement planning, investing, etc. are already taken care.
It is great that you own a property and have some savings to start with. But without proper planning, your retirement may not materialise the way you had envisioned it to be. Retirement planning is more than just owing a property and having some savings.
Some questions to ask yourself:
DIY retirement planning? Think again. Retirement planning is not a straight forward thing. There are many planning aspects to consider and it involves a good amount of number crunching too.
The last thing you want is to jeopardise your retirement because you did not engage a qualified financial planner to analyse your data and implement a customised plan based on your needs.
Don’t leave your golden years to chance. Get professional help today!
I want to leave you with this.
6 Key Benefits of Having a Financial Plan:
Time and tide wait for no man. The one thing you can do for yourself before the year ends is to establish your financial security plan today.