Financial advice for young parents
by Mr Tan Kin Lian
Chief Executive Officer, NTUC Income
Many people do not plan well for their future financial needs.
They spend most of their regular income on meeting their immediate needs. They spend too much on luxuries, such as fashion, entertainment and holidays. They make the wrong decisions and pay more than necessary. They rely on credit and pay a high interest rate.
They make the wrong investments and get a poor rate of return.
It is important for young parents to have a proper financial plan, so that they can provide financial security for their family, save for their future retirement needs and for the education of their children.
They need insurance to protect against the risks of premature deaths, accidents or major illnesses. This can be purchased at a low premium.
Every working person should have a simple budget. It helps them to have financial discipline. Preferably, they should save 10 to 20 percent of the regular earnings. Saving is more important today, as jobs are less certain. We can draw down the savings during an emergency, to meet our cash flow needs, if we are out of work for a few months.
I advise most young parents to save and invest in a flexible investment plan. You should invest for the long term and aim for a higher rate of return. You should invest in a large, well-diversified fund, to reduce the risk of a few bad investments. By investing for many years, you can average the good and bad years and get a better return.
The Ideal Plan from NTUC Income has lower charges, compared to similar plans in the market. A higher proportion of the regular savings is invested during the initial years. It can amount to 12 months of additional savings and can contribute to a larger payout in the future.
You can invest your savings in the Combined Fund from NTUC Income. It has $3.7 billion of investments, is well-diversified and has low charges. It earned an average return of about 16 percent during the past three years (2003 to 2005). This is exceptional. Even if the return is at a more modest rate of say 6 percent, it can give a substantially higher return compared to other types of investments.
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