Thursday, December 22, 2016

Save for a rainy day

In my talk on financial planning, I advised ordinary people to set aside 15% of their income as savings for the future. This savings is to be invested in an index fund and not in a life insurance policy. It is to be used for emergencies and to retirement.

This the saving is set aside in this manner, it should not be used to purchase a property. The HDB flat or private property should be bought without touching this saving. It also mean that the worker  should buy a smaller property, as their disposable income has been reduced the amount of saving that is set aside.

An important use of this separate saving or emergency fund is to supplement the income during a recession. The recession may lead to loss of job or to a reduction in the regular income, e.g. when the worker has to take mandatory no-pay leave or earns smaller commission on sales.

By tapping on the emergency fund, the worker does not have to pay high interest charges by borrowing from the bank, loan shark or other sources. The high interest charges will add to the financial distress.

This concept is explained in my talk on Financial Planning. I hold this talk every few months. The next talk is on 14 January 2017, but all 60 places have been fully taken up.

No comments:

Blog Archive