Financial planning for singles

The amount that you earn every month and the manner in which you deploy this money determines your financial well-being. If you spend your entire income and have a negligible amount of cash at your disposal when the end of the month approaches, you will find it difficult to meet a financial emergency.

If you are single, this problem will be magnified as you will not have anyone to fall back upon. Although it is true that many singles have a lower level of financial responsibility than couples, they also suffer from a great disadvantage. When a sudden need for funds arises, they have to fend for themselves. They don’t have a spouse they can turn to for financial support.

However, with a little care and planning, singles can ensure that they are prepared when they have to tackle an unexpected demand for money. This could be in the form of the need to undergo expensive medical treatment or to deal with a loss of income.

 

Maintain an emergency fund

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You should resist the urge to spend every last dollar that you earn. Singles who do not have anyone to support can often be extravagant in their spending habits. But they should remember that it is absolutely essential to put aside some money in an emergency fund. This amount should take care of your essential expenditure for at least three to six months.

If you lose your job, you may be lucky and find new employment immediately. You could also face a situation where it takes several months to land a suitable job. How will you manage during this period? Spending on your credit card and rolling over the balance is not a good idea. You would be paying the card issuer interest of at least 20% to 24% per year.

Building up an emergency fund could serve other purposes too. A medical emergency may require you to spend a large amount of money.

 

Do you have an adequate level of health insurance?

While it is true that the basic hospitalisation needs of Singaporeans are taken care of by MediShield Life, you may still want to buy additional health cover.

What are the reasons for this? MediShield Life only pays for hospitalisation in Class B2/C wards. If you want to seek treatment in a Class A/B1/B2+ ward, you would need to buy additional coverage. Several private insurers provide Integrated Shield Plans (IPs) that allow you to stay in Class A/B1/B2+ wards in public hospitals or in a private hospital.

Another reason that you may need additional health insurance cover is that there is a “deductible” portion to the insurance claim that you make. This is the fixed amount that you must bear each year for your hospitalisation. The MediShield Life payout will be made only after you bear the deductible amount. This is fixed at S$1,500 for a stay in a Class C ward and S$2,000 for a stay in a Class B2 and above ward.

The deductible is not the only sum that you need to pay for your hospitalisation. There is a “co-insurance” amount as well. This is the percentage of each claim that you must bear. It varies between 3% and 10% of your bill and depends on the bill’s total amount.

When you buy an Integrated Shield Plan, you can purchase an add-on, which is also referred to as a rider. By buying this additional cover, the co-insurance and the deductible portion of the bill will be borne by the insurer.

 

Planning for retirement

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Every working Singaporean will have access to the savings that have accumulated over the years in the Central Provident Fund account. When you reach the age of 55, certain amounts that are in the Special and Ordinary accounts will be used to form your retirement sum. This will be used to generate a monthly income for your old age.

But you have to ask yourself whether your CPF balance is adequate to fund your retirement. While this is a complex exercise, you can get some idea of where you stand by using this handy calculator.

Another way to arrive at the income that you will need during your retirement years is to take into account your current expenditure. When you stop working, certain expenses like the amount you spend on transportation will decline. Other expenditures, notably the amount spent on medical treatment, will increase.

If you currently spend S$4,000 every month, you can assume that you will need about 80% of this figure or about S$3,200, during your retirement years.

Will your investments provide you with this amount? Singles, especially those who have just started out in their careers, will do well to invest in equities. An index fund would be ideal as it would have low management costs and have the potential to deliver significant returns over an extended period of time.

The Nikko AM Singapore STI ETF could be a good option. At the end of April 2017, the fund had provided a return of 15.39% over the last year. Of course, you cannot expect returns of this magnitude on a consistent basis. The recent past has seen stocks on Singapore’s exchange making substantial gains. If you consider a longer time frame of five years, this ETF has logged an annualised gain of 4.22%.

 

Do you have any dependents?

You may have parents who are approaching retirement age. Do they have the means to support themselves? Or will you be helping them financially when they retire? It is best to consider this possibility while you still have the time to accumulate funds specifically for this purpose.

It is important to remember that not having a spouse does not necessarily mean that you do not have any dependents.

 

Create a financial plan as soon as possible

If you don’t already have a financial plan, make one now. It would be a good idea to seek professional help. The experience and insights that a good financial adviser can offer can be very valuable.

When you put your plan into practice, you will see yourself making progress towards achieving your goals. Remember to suitably amend your plan as circumstances change. When your income increases, you should review your savings goals and increase the amount that you are putting aside every month. 

(By Ravinder Kapur)

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