This article was written by DollarsAndSense as part of a content series with OCBC Life Goals – Imperfect Journeys. This series hopes to open-up honest conversations about the many uncertainties we all face in life, and the benefits of implementing well–grounded plans to overcome them. To understand how you can start planning for your own Life Goals, watch Gurmit Singh open up about the challenges he faced planning for time with his kids, career and retirement.
Leon and Emma, who are in their early 30s and late 20s respectively, got married in 2016 after having dated for three years. In 2017, they were blessed to have their daughter, baby Lois, joining their family. Not surprisingly, life has changed a lot for them since.
Before Lois was delivered, Leon worked as a partner in his family business (he still does) while Emma was working in the civil service.
Financially, they were stable and didn't have any money-related challenges. Emma described it best by saying that "though we were married, financially speaking, it was more like two singles living together. We didn't have any financial challenges to discuss about, or work out."
However, as those of us who are already parents would know, having a baby will change this...completely.
DollarsAndSense.sg (DNS): Leon and Emma, thanks for chatting with us. Being new parents, we are sure both of you have experienced your fair share of challenges, both expected and unexpected. What are some of the challenges that both of you were anticipating for prior to the arrival of Lois?
Emma: We definitely anticipated a fair amount of challenges, and our personal experience did not let us down!
Firstly, the physical exhaustion is very real. And unlike working or studying, where you can still come home at the end of a tough day and grab some sleep, taking care of a newborn is essentially a 24/7 responsibility.
Beside coping with the absence of sleep, we also had to tackle other financial challenges.
I will admit. Prior to Lois joining us, we didn't have much financial concerns weighing down on us – and why should we? We both have good jobs and didn't have to support anyone, except ourselves. I (Emma) do give an allowance to my parents each month.
When it comes to the financial cost of pregnancy, we were prepared for cost areas such as the gynecologist and hospital fee incurred during delivery. Even then, the cost was higher than what we expected. For example, we spent close to an additional $1,000 for extra visits to the gynecologist due to some complications and scares during the pregnancy.
Another unexpected challenge was the caretaking arrangement for Lois. Initially, the plan was for my mom to help out with the caretaking after Lois was delivered. However, because of other unforeseen circumstances, this arrangement was no longer possible. Hence, we had to engage a domestic worker which meant incurring additional cost. This costs us about $1,000 each month, inclusive of living cost.
I'm glad that we manage to settle these things on our own. I'm sure that our challenges are far from unique, and that it may pale in comparison to other Singaporean parents who have to deal with far tougher situation.
DNS: What about additional unexpected financial challenges once Lois was delivered?
Emma: This was an eye-opener. Healthcare expenditure can be really expensive for babies when they fall ill.
Breastfeeding was not as straightforward as we expected. Between the lactation consultants and massage sessions that I used, I think we spent an additional $2,000.
Lois also had an adverse reaction to her BCG vaccination and we had to bring her for additional checkups. This costs us a few hundred dollars. Thankfully, she recovered fully without needing a surgery.
On its own, each of these expenditures already cost a bit. When added together, it becomes a large sum. Nobody ever shared with us about these additional costs and we were extremely thankful that we had savings that we could tap on when we incurred these unexpected costs. We heard stories of other couples who have been through circumstances that are worse.
DNS: Did you buy any health protection insurance for Lois?
Leon: Thankfully we did. Recently Lois fell ill and had to be warded for a couple of nights. The hospital bill came up to $4,000 which was a shock to me.
Fortunately, we already bought for Lois a private integrated shield plan which would cover the bulk of the bill. However, we still had to pay the bill first and was only able to claim on the insurance payout after that.
This made us realize the importance of health insurance coverage for children, and also the necessity of having emergency savings. It's not just for you, but also your family as well.
We may also want to look at other areas of insurance coverage for Lois, beside the existing private integrated shield plan, that she currently has.
DNS: Have you done any financial planning for Lois for her future education? Any plans on how that will be done?
Leon: It's something we thought of doing but we just haven't done it yet.
Ideally, we would want to buy an endowment plan for Lois for her future education. While I have tried investing on my own, my results, thus far, have not been too promising (laugh). So, I think it's a better and safer idea to buy an endowment plan so that we do not have to worry about making the right investments.
Before committing long term to an endowment plan, we want to build up our emergency savings first which is a more immediate need. Cash flow is tight for the time being as Emma isn't working so we want to work that out first.
Living On A Single Income
After her maternity leave, Emma made the big decision to leave her current job. Financially, this created a new challenge for the couple.
With a single income, the couple found themselves stretched financially.
DNS: Emma is currently not working so you are operating on a single income. How's that like financially for the family?
Leon: It's tough. We were used to being able to buy the random and unnecessary stuff that we want, such as gadgets for myself and online shopping for Emma. These days, we find ourselves having to budget for where our money is going into, and finding ways to cut down on unnecessary expenditure. For example, we no longer eat out as often as we used to.
On a monthly basis, we are still able to cope. However, we have to tap into our savings whenever we incur unexpected expenses. Seeing your savings slowly declining each month brings with it its own stress.
DNS: Given the current financial circumstances, is Emma intending to resume working?
Emma: Yes, I'm looking to resume work. Hopefully, this will alleviate the current financial pressure on the family.
DNS: What are some immediate financial goals that you have set for yourself, or your family?
Leon: The first thing is to build up our savings. It's really important to have that emergency savings fund set aside because you never know what are the curveballs life may throw you.
Once we nail that down, we want to start saving and investing for Lois future's education. We know that the expenses will continue to increase once she becomes older and starts going to school, so it's important for us to start planning for these cost items ahead of time. However, very often in life, it's about balancing between our needs and wants today, versus planning for what is required in the future.
Wealth Management Singapore
Leon and Emma's story is characteristic of many young families, who are actively juggling multiple financial responsibilities all at once, including taking care of an infant, maintaining their own household and providing some form of financial support to their parents.
It appeared as a standard script: Two well-paid adults fall in love, get married and start a family. Life was financially comfortable before a child. It should not get much harder with a single addition to the family, especially with adequate planning.
But a string of unforeseen circumstances had derailed much of their plans and caught them financially off-guard. Complications during Emma's pregnancy resulted in extra doctor visits, incurring costs above and beyond what was budgeted for. Unforeseen circumstances also forced the couple to alter their caretaking plans for their child. Engaging a domestic helper to do so meant more money each month.
Like most young families, Leon and Emma often found themselves stretched financially. Resources are finite, and there are many needs and wants. Prioritization can seem difficult when everything seems urgent. At times like this, it's best to take a step back and approach financial planning in a structured manner. Inevitably, it starts with assessing one's current financial standing, before looking at constructing a long-term plan that should help address life's challenges along the way.
The bedrock of most financial plans is insurance and emergency funds. Leon and Emma's experience with the unexpected brought to light the perturbing costs of healthcare and domestic help. Insurance helps to mitigate exorbitant health care costs whilst emergency funds can help tide through difficult times when options are limited. This is the safety net one needs to have in place before considering planning for other financial ambitions.
Indeed, it's right for Leon and Emma to focus on propping up their emergency funds as well as beef up insurance coverage for their child. They should look into reviewing their respective insurance coverage as well to ensure that they, as parents and their daughter's primary caregivers, are adequately protected should anything untoward happen. Periodical insurance reviews are important to uncover gaps in protection and to ensure adequate coverage amid potential changes to financial circumstances.
Like most young families, children's education is a key priority for Leon and Emma. A pertinent concern yes, but it should not be the only focus for the young couple. Young parents tend to prefer to concentrate all their financial resources in meeting nearer term goals like children's education, at the expense of planning for their longer term financial well-being. The thinking seems to be that a long-term goal like retirement can wait. Children's education cannot.
Yet, it need not be a "either or" decision. Couples can plan for both together. It's just about apportioning available resources to finance two different goals.
A long-term goal like retirement benefits from the power of compounding. The earlier you get started, the longer is the compounding period and the bigger is the return. Should spare resources be limited, more can be apportioned to meet the children's education goal, and less for retirement. Adjustments to these contributions can and should be made as financial circumstances change. The point is, never disregard long-term needs because it seems so far away. Precisely because it is further away in time that one should begin as early as possible in order to benefit from compounding returns.
In addition, it often helps to begin with a rough final number in mind when planning for goals like children's education and retirement. For children's education, these numbers vary depending on the type of education one wishes to be able to afford for their children, whether it is tertiary education at a local institution or an overseas university. Being specific and practical about the end-state you would like to achieve is useful to help derive a rough figure. Working backwards to construct a plan to achieve the goal follows naturally.
The same goes for retirement. The first step would be to understand the type of retirement lifestyle one would like to enjoy and calculating the costs to make this a reality.
Admittedly, figuring out the right composition of financial products to meet these goals can be challenging. Is a standard endowment plan the best way forward? Or is investing in an actively managed unit trust the best way to capture market returns for the long term? Or should it be some combination of both? Or something else entirely? Questions of affordability, the extent of financial commitment in time and money alongside questions of risk tolerance are salient issues to be addressed when constructing such a plan.
It is often tempting to work in isolation to address these issues. After all, personal finance is an intimate subject. Yet, it is primarily because it is an intimate subject that external help can be beneficial. Our own subjectivity and behavioural biases can lead us to pursue a course of action that may be suboptimal over the long run. Whether it be our fear of losses or just a general inertia to begin because we would like to avoid making a potentially regrettable decision, these can impede the planning and decision-making process. A third-party can provide a more objective point of view of our financial standing and the strategy we would need to adopt to reach our goal.
Sure, at the point where we do have to decide whether to buy a particular product, we would have to contend with the same behavioural biases. But being able to reach the point of having to make a decision on a plan is far better than not getting there at all because we find ourselves stuck every step of the way.
Indeed, the theory of comparative advantage and specialization work just as well in personal finance as it does in trade economics. Let the experts deal with it. After all they have the comparative advantage in financial planning – that's what they're paid to do.
Ultimately, financial plans are never cast in stone. Commitment to the plan is good, but life is unpredictable. Reviewing the plan to address any changes in financial circumstances and/or financial ambitions is important. The plan is an extension of your life; it should grow and change as you do. It should never be static.
At OCBC Bank, we believe in conducting annual reviews with customers to ensure they remain on track to achieving their goals because we are here for you for the long-term.
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