Why financial planning isn’t just for the rich

Ever heard someone you know, or even yourself, say: “I’m not rich, I just want a simple life, therefore I do not need financial planning/advice”? Us too.

According to one study, 41 percent of Singaporeans do not have a financial plan; and even among investors, just 48% of Singaporeans turned to professionals for financial advice, another survey found.

So why is having a financial plan, especially if you’re not rich, so important?

Let’s break the reasons down:

What is financial planning really about?

Financial planning isn’t about managing millions, owning companies, having offshore accounts, buying a Good Class Bungalow, or any of those fancy things.

Instead, what financial planning essentially does is to convert your dreams and goals for yourself and your family into monetary terms – and making the most of what you already have to meet your current and future needs.

A basic financial plan, as recommended by the Monetary Authority of Singapore, constitutes:

• Budgeting
• Saving
• Investing
• Retirement planning
• Estate planning
• Financial protection via insurance

Whether you’re high income, middle income, or just getting by, these elements of wealth planning will always be relevant.

Read more: 4 ways to start your financial planning journey

Why does financial planning matter, especially if you’re not rich?

A rich person can easily afford to lose a thousand of dollars from poor financial planning; but the average person can’t brush off such losses.

Financial planning helps you in the following ways:

1. Financial security and peace of mind

Especially if you’re not a millionaire, unexpected expenses like medical emergencies, home repairs, or job loss can derail your finances. But proper financial planning ensures you have an emergency fund to turn to in such times. Likewise, the use of insurance policies such as Critical Illness Insurance and Integrated Shield Plans (ILPs) help you avoid getting into debt, even for serious medical conditions.

2. Smart money management

Financial planning isn’t just about growing your assets; it’s also about managing your money wisely. Setting financial goals, creating a budget, and tracking expenses can help you live within your means while still saving for the future. It’s a way to live well, and to make money management as painless as possible.

3. Preparing for retirement

Regardless of income, everyone eventually needs to stop working at some point in their life. Without a retirement plan, you may find yourself struggling to maintain your lifestyle in your later years. Even small contributions to retirement savings can amount to significant lifestyle improvements; especially if they’re allowed to compound over many decades.

With proper wealth planning, you can enjoy your twilight years even if you’re not super-rich.

4. Protecting your family

A well-thought-out wealth plan includes provisions for your family’s future, such as life insurance, wills, and estate planning. These ensure that your loved ones are taken care of if something happens to you. This can be taken even further in the form of generational wealth or legacy planning: with good wealth planning, even your grandchildren (or sometimes generations beyond) can benefit.

Read more: Why you need a financial representative, and how to suss out a good one

How can financial planning be done even if you’re not rich?

The following steps can be taken even if you’re not wealthy just yet. As a bonus, they are easier to do, and have an even greater effect, if you start young:

●      Work out realistic financial targets - With the help of a qualified financial representative, formulate a plan on how much you need to accumulate. This includes a target amount for long-term goals like retirement, or shorter-term goals like purchasing your first home.

●      Start investing with small amounts - You don’t need to be rich to own a balanced portfolio of stocks and bonds. You can use Unit Trust Funds, Indexed Funds, or other similar products to start investing, at reasonable amounts. Some insurance plans allow you to customise your portfolio and build generational wealth, whilst also providing a degree of insurance protection.

●      Ensure sufficient financial protection - You can use insurance plans such as critical illness policies, life insurance policies, and personal accident plans to minimise the cost of medical emergencies. Look for critical illness plans that can provide 100 per cent lump sum payouts even at earlier stages of an illness, and which have options to protect you again if there’s a relapse.

Finally, a financial representative can also advise you on the use of wills, or the right assets for estate planning, to safeguard future generations. So rather than consider wealth planning something for the rich, think of it as a systematic way to manage your money and ensure financial security; even if you’re just starting out on your savings journey.

You can speak to a financial representative about creating a financial plan or view all our wealth products here.