If you have just started work, around the age of 25 and holding a monthly salary of around $2,500 (Gross, before CPF contribution, bringing home around $2000) onwards, then you would love to appreciate this post as I will be sharing with you on how to plan well (coverage in almost every aspect) with just 10% of your monthly “bring-home” income ($200/month).
Note: If you are finding it hard to set aside this 10%, please read my Financial Planning Tip #1 – Paying Yourself First…
Note #2: The plans discussed below are mostly offered by the Insurance Company that I am representing and should not be served as a direct guide. Any queries, please do contact your Financial Planner.
How To Plan With $200/month?
The premiums are derived based on a Male, age 25, and a non-smoker. Rates for Female may differ accordingly.
1. Medical Insurance (Compulsory) With Rider (Optional)
The Medical Insurance is one of the most important area to look into first – to cover any medical bills arising from Personal Accident or Sudden Major Sickness, and do not worry that you may not have enough to go into it once you started work. Usually on the second month onwards (after the first month salary is in), you can go into it with your Medisave Account (for the Main Plan).
Since the premium is from the CPF-Medisave Account and you do not see the money physically, there’s less pitch into it – we shall not factor that into “Bring-Home” income.
For the Rider, though it is optional from the early stage of your work life, but for the purpose of this post and also to emphasize of covering every aspect, you can take the Rider into consideration. The purpose of the Rider is usually to remove the Deductible and/or Co-insurance – making small bills claimable and big bills small.
An average cost of the Rider is around $120/year and on a monthly basis it would be at $10/month (leaving us $190 to plan with).
On this basis, if you are hospitalized for any reason, you Medical Bills are taken care of. Let’s move on…
2. Personal Accident
Why Personal Accident Plan? Based on MOH statistics, the top reason for hospitalization is actually due to Accident. What this mean is that most people are prone to Accident. Though the bills are taken care of by the Medical Plan (with Rider), there are situations whereby your injuries are taken care of by General Practitioners (i.e. clinics) and most Personal Accident Plan covers the medical expenses incurred.
An average cost of the Personal Accident Plan is around $36 per year and on a monthly basis it would be $3/month (leaving us $200 – $10 – $3 = $187)
3. Savings / Investment
You have your dreams, your goals or a comfortable Retirement to plan for. It will be good to start planning early for this so as to allow Compounding to work its magic.
Let’s put a higher commitment to this – $100/month and you can go into either an Endowment Plan (if you are conservative) or into a Regular Saving Investment Plan (risk-taker and using the Dollar Cost Averaging Method).
This leaves us with $187 – $100 = $87 per month.
Assuming that our Mr. Customer is also very concerned about protecting himself against Critical Illnesses and that he would like to plan for estimated 5 times of his annual income ($2500 x 12 x 5 = $150,000).
Do you think we can still continue to plan? If you are shaking your head… please continue to read below…
4. Whole Life Insurance (with Profit)
Whole Life Insurance is one of those insurance plans that gives you coverage against Death, TPD (before age 65), 3o Critical Illnesses for throughout your whole life span (usually till age 99) and let you enjoy increasing coverage and participate in company bonuses.
To plan $150,000 with this single plan would be impossible and you could be saying – “I should have guess so…”, I would still be offering this plan but at a lower sum assured – I would suggest coverage of around $50,000 with limited premium term of 25 years.
Such planning would take an average $840 per year (I would suggest annual mode to get some discount) and that would give me around $70 per month. Leaving us with $17 and $100,000 to plan with.
If you think I would just say to this Client that it’s impossible to do so… You will be wrong and rather I would say… if you do not mind… I would just like to extend your budget by the most around $3 per month.
5. Group Term Insurance
A Group Term insurance is one of those insurance offered exclusive to members of a particular organization – e.g. SAFRA, HomeTeam, Public Officer Group, SAF, NTUC Union. Though there’s a membership cost to it, I would not take that into consideration as there’s benefits to gain for joining any organization.
And lastly, an average cost of taking a Group Term Insurance Coverage (also covers Critical Illnesses) of $100,000 is around $20/month.
This would mean that my $150,000 coverage against Critical Illnesses is fulfilled!
With a final budget of:
- Rider of a Medical Insurance – $10/month
- Personal Accident – $3/month
- Savings / Investment – $100/month
- Whole Life Insurance – $70 / month
- Group Term Insurance – $20 / month
Making it a total of $203/month!
How is that? If you think that Financial Planning is impossible with a low budget, I hope this will change your mind today!