Achieving financial independence and retiring early is every Singaporean’s dream. But data has shown that Singaporeans tend to put off financial planning until later in life.

According to the Gobear Financial Health Index (FHI), the average age of those who have not started any financial planning is 30 years old. And among the Singaporeans surveyed, the motivation for saving money towards financial independence and retirement goals comes later in life, in the age range of 35 to 45 years old.

For young adults between 18 and 25 years old, they are concerned about paying off debts and affording tertiary education. Singaporeans between 26 and 35 years old covet big-ticket items such as a nice house, car or branded goods. The survey shows that while some of them also work towards becoming financially independent at this age, it is only until later that Singaporeans get serious about financial planning.

But why exactly is it important to map out your financial plan?

What is financial planning?

Financial planning involves figuring out how to achieve major life goals through saving, investing and spending money. To do that, first imagine when you want to achieve your major life goals. When would you like to own your own house, have a child, or retire?

These goals don’t need to be set in stone and are not meant to cause you stress when you don’t achieve them. However, they provide useful yardsticks as to how fast you need to prepare an emergency fund, and how aggressive or relaxed you need to be with your investments. This makes it easy for you to calculate how much to put into the different money pots in your life.

Tips on planning your finances

The most basic steps of financial planning involves securing an emergency fund that consists of 6 to 12 months of essential expenses.

Then, it is important to protect your income as well as your loved ones with insurance policies. The most basic policies are health and life insurance. Health insurance ensures that when you are hospitalised, the bills are taken care of. Life insurance, on the other hand, provides a payout to your loved ones when anything untoward happens to you.

As a bulwark against inflation, you should also think about investments when you are able to. You can start with a small sum with robo-advisors if you have no knowledge at all, or get knee deep to understand more complex investment instruments such as ETFs, REITS, and buying stocks.

Having your financial goals laid out in your plan allows you to have clarity so that when you are tempted to spend on things that only provide short-term gratification, you can resist by taking a step back and focusing on the long-term plan.

The Gobear FHI shows that it is only until the age range of between 35 and 45 years old do Singaporeans get serious about financial planning and achieving financial independence. Between the ages of 46 and 65 years old, Singaporeans who are surveyed say that they are most motivated by saving up for retirement.

It is never too late to start financial planning, but doing so right when you have earning power in your 20s gives you a longer runway.

When should you start planning your finances?

Planning your finances is just creating a blueprint on how to achieve your financial goals, so, the earlier the better. Even if you have just gotten your first paycheck, you can do simple short-term financial planning to save your first emergency fund, even as you are paying back your student loan, or saving up for a wedding. Listing your emergency as a priority is already a good first step.

Things will change as your life progresses, so go back to your plan every 3 to 6 months to revise it when you reach your life milestones: a wedding, a new baby, and so on. When you have established enough savings to rest easy, think about securing this income with insurance policies, or investing a portion of your disposable income. Or, start making new plans, such as putting aside an education fund to afford or provide a loan for your child’s future university fees.

According to the FHI, the average age of those who have not started any financial planning is 30 years old, and the average age of those who started to make real financial action towards retirement planning is 41 years old.

These ages aren’t too old at all, but it is more effective to start as soon as one starts work because of the power of compound interest. The younger you start saving and investing, the faster you will achieve financial independence.

Thankfully, according to the survey, the average age surveyed of those with sufficient funds to retire comfortably with is 51 years old, which is still younger than the official retirement age of 62.

But we all know an auntie or uncle who is still working well after 62, worried about finances and their health because they just don’t have enough to stop working. Without a financial plan, you might find yourself in the same situation where you cannot retire at your desired age.

The wiser thing to do would be to save, protect and invest at your prime, and resist chasing after bigger and better luxury items at your financial health’s expense.

GoBear team

Brought to you by GoBear Insurance Broker (SG) Pte. Ltd., a registered insurance broker with the Monetary Authority of Singapore