Dec 14, 2009

Money and the Big Picture of your Life

An email from a reader, J Singh:

    Dear Mr Wang,

    Having been an avid reader of your blog for over 2 years now, I feel somewhat inclined to write in to you to ask for your advice. While it is common knowledge that you are in the finance industry and have made a successful life for your family and yourself, it would not have happened without sound financial planning. It is on this subject that I would like to seek your thoughts on, if you can spare the time.

    As a fresh graduate, I find it hard to reconcile the fact that there is close to nothing in our education system that touches on how to prepare oneself financially for the years ahead. Now that I am out facing the world on my own, my lack of preparedness is telling especially since I have taken an issue like this for granted. It seems that the onus is upon the individual to read, source out elders and common media to seek their advice on what insurance policies to purchase, how much should one save and where should one invest one's savings, what does one do with the CPF accounts(invest, insurance?) and how is one ever going to afford a HDB flat (among other pertinent questions).

    These questions are mind boggling and daunting for someone trying to make a mark in this world. My peers in the US, of the same batch not the same age due my NS obligations, are way ahead in this respect as the literature suggests that one should start such planning around the age of 22 to ensure success in the long run. Perhaps, I digress by sharing my fears with you and you would rather I come straight to the point.

    My point is, what do I do? Where do I start? What do I need to know to make the S'porean system work for me to ensure that my future will be a comfortable one? I have financial advisers bombarding me with tons of insurance policies and insurance-savings plans while others are recommending unit trusts, stocks and other instruments. I have turned every single one of them away as I fear committing to something I can't grapple with. I don't think you will have the time to tell me in detail what needs to be done but I would appreciate if you could point me in the right direction. Admittedly, depending on an individual's preference, background and risk appetite, the advice doled out would be different but I am certain there are some basic tenets of financial planning that everyone should do or know about. Your thoughts .....?

Well, it's not as complicated as that. Or maybe I should put it this way - you don't need to know everything there is to know about money, in order to manage your own finances with reasonable soundness.

You could start by listing your own financial goals and needs, and identifying which ones are most important. Then work out a plan for your most important goal/need, and put the plan into action. Repeat with the next most important goal/need.

People have different goals and needs (because their circumstances are different) and what's important to one person may not be important to you at all. For example, life insurance is important to the average parent with young kids, but it's not terribly important to a young adult with no dependents.

Also your goals and needs will change over time, so you need to review and adjust your plans periodically. Don't look for a magic formula to the question of how to manage your money. There really isn't any. Money issues are intimately linked to almost every part of your life (for example, your home, your career and your family's needs) and basically, life is too complicated to be reducible to a single magic formula.

You will need some long-term strategy, but the fact is that as the years pass, you'll probably end up revising and changing it beyond recognition. Nobody really knows what will happen, in 30 or 40 years time (to you, Singapore or the world). That doesn't mean that you shouldn't plan for retirement. It does mean that you'll keep changing your plans many times as the years pass.

In other words, life is complex and uncertain. And you just have to get comfortable with that.


louist said...

On the writer's grouse about the education system lacking such preparation - I agree that it would be useful to educate the children about this, but when should it be done?

Most kids aren't interested at secondary (or even JC) level, so should it be done at polytechnic and university level? What about the students who don't fall into either group, then? Or should we just 'save' who we can?

KAM said...

Mr Wang, you should be complimented when such a person writes such a request to you.

Looking back 20 years, I should have had someone to ask this profound question too.

Your answer is short but I think it suffices. Thank you. It brightens my day to read your blog.

Ape said...

Somehow, ape feels this is typical of most people who have gone through our education system - dunno how to think and decide and expect standard answers from teachers, lecturers or "people-with-authority"... ape was once like that... maybe ape still is. What do you think, Mr Wang?

James said...

Yes, I have often found this phenomenon very perplexing. For a country that is so pragmatic and money-minded, it is absolutely mind-boggling why personal financial planning is not made a compulsory course in pre-tertiary institutions.

The typical young adult (university age) is woefully ignorant about money matters. Many of them aren't even sure how much their parents earn, what are their insurance entitlements, how to use a cheque, etc. All they know is to ask their daddy or mummy for money when they run out of cash.

IMO, those 18 years and above should be mature enough to start thinking about financial matters. And if they haven't, a course in personal finance would be a good way of spurring them to become more sensible and knowledgeable in this area. It needn't be a full course on par with a typical A-level subject, but a "personal development" type of course more akin to PE or moral education (or whatever it is called nowadays).

Anonymous said...

God forbid that the university becomes the target of criticism here. The mission of the university is not to teach financial planning.

Anonymous said...

It is mind boggling for a fresh grad - I am sure.

Personally, if you are not born with a silver spoon- then first goal is to not spend beyond your means. The number of young kids who blow on their credit cards are scary. Still, govt or MOE should have a brief session on how much is the mean salary of a Singaporean - how much a HDB flat may cost, what is the monthly instalments and what may be left for retirement after a housing loan is paid up.

Errrr - maybe the MOE should not do that cos the young ones may not be ready to hear all that!!


chengguan said...

schools teach u sex education, not how to mate. hence, it's probably sufficient for schools to teach u elementary maths and english, so that you can learn financial planning on your own.

Anonymous said...

ok - seriously the Sunday times has a weekly investment column..... with pretty sound advise.

Anonymous said...

Because SG culture is so conservertive. Parents forbid kids from "gambling" and we should only get rewards from "real work", that whole generations have been lost to "pragmatic" worker attitudes resulting in cheaper salaries and no talent situation of 2000 era.

Bloom said...

'k - seriously the Sunday times has a weekly investment column..... with pretty sound advise.'

Is that a new column? Last time I read (ages ago), it had a section that interviewed people from various walks of life. I don't think that's a good column at all because it often feature people who do not diversify at all. It's often you find them all invested in stocks or property. I didn't think that was sound advice.

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