More About Financial Goals

J Singh wrote to me again and said that he would try out the "goal identification" approach mentioned in my previous post. So I will say a few more things about this approach.

Emergency Funds

For the average young Singaporean stepping out into the working world, one important early goal would be to save up some emergency cash. The main emergency I'm referring to here is the possibility of becoming unemployed.

The rough guideline is that you should have cash roughly equal to six months worth of your usual expenses. This will allow you to survive, while you look for another job. Six months is just a guideline. You might need more, or less - depending on how likely you are to lose your job, and how long the period of time you're likely to need, before you find another job.

This emergency money is to be tucked away in some very low-risk instrument (such as a savings account, a fixed deposit or an SGD money market fund). It is meant to protect you against emergencies and is not for investment purposes.

Medical Insurance

After you've established your emergency fund, you might want to consider medical insurance. Young, healthy persons might consider medical insurance less important, and there is some rationale in this. However, the longer you delay buying health insurance, the greater the risk that as the years pass, you may find yourself getting some medical condition (for example, high blood pressure; high cholesterol levels; ovarian cysts or whatever).

By then, you will have to pay a higher premium for your health insurance. Alternatively, the insurance company may refuse to cover you for the risks of particular types of diseases.

If you do have some pre-existing medical condition, make the effort to shop around a bit before you commit yourself to taking up any particular medical insurance policy. This is because different insurance companies do take a different view towards the same kind of medical condition. Some insurers would be stricter, others more liberal.

Depending on where you work, your employer may also provide health insurance. This is a nice benefit, but not terribly reliable. You don't know when you will change jobs, and when you change jobs, the insurance usually lapses.

Life Insurance

Life insurance is important only if you have dependents (such as aged parents or young children). After you die, you don't need any money for yourself.

There are several types of life insurance available in the market. For most people, the first kind of life insurance policy they should buy is term life insurance. You pay a small sum every month and are assured of a large payout, in the event of your death. The policy is purely for protection purposes, and if you don't die, you get nothing back.

If your key intention is to secure financial protection for your dependents, term life insurance generally works better than other types of life insurance, which try to add in some element of investment. The reason is that these other types of insurance pay out much less, if you die.

Financial Investments

If you've got spare cash left over, it's time to think about investing it. In my opinion, the average man in the street should avoid structured products. I would recommend ETFs and/or unit trusts for most people.

Don't buy unit trusts through a brick-&-mortar bank, because you can buy the same unit trusts more cheaply, through an online distributor such as Finatiq, Dollardex or Fundsupermart. If you feel that you need some financial advice on what to buy, there is a somewhat sneaky thing you could do. Visit a bank, talk to the financial consultant, ask your questions, get all the advice and answers you want and then say, "Well, I'm going away now to think about this matter." Then go and buy the unit trusts through an online distributor.