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All You Need To Know About Emergency Fund Planning
“Save one third, live on one-third, and give away one-third.” – Angelina Jolie Although Angelina Jolie is not a financial expert, but her suggestion maybe one of the most prudent advice we must take it seriously enough.“Prevention is better than cure”.Yes, you heard it right, you should prepare for your future, a step ahead, and so you will not suffer later. An emergency fund is a readily available source to help you solve financial crises due to unexpected reasons. This fund can help provide financial security by creating highly liquid cash to meet any emergency and reduce the use of unsecured loans. What if you had a job loss, a major sickness, an accident or a natural calamity? Imagine what you would do, when there is no one around? Or when none of them can help you financially? Difficult isn’t it? Here comes to rescue, your “Emergency Fund” Have you set aside enough money, for an emergency?If yes, how fast can you access this money?Can your family access this money, if youare not around? If yes, How much and how fast can they access this money? What if you said you have already enough money in the bank?Some people who may think they have funds in the bank, may find themselves in dire situation to realise it’s not enough when they need it the most.Hence the money for emergencies should not be used for any other purpose; it can be used only for emergencies.People worry about some situations, they don’t want to face but can happen, like a job loss, accident or other such unexpected situations.BUT IF you have already put aside the funds and are ready for the worst. You may suffer and it can’t be fully eliminated, but the intensity will be reduced, at least financially. Here is a Sure Way to Start an Emergency Fund1. List your monthly expenses The first step is listing all your monthly expenses. Differentiate between expenses that are a must and which are not. Considering unnecessary expenses will help you cut down these and increase your savings. Include all kinds of expenses like rent, electricity bills, movies, dinner out, clothing, etc. 2. Decide your emergency fundHow much to set aside as an emergency fund?Keeping aside 3 to 6 months’ worth real living expenses is a thumb rule. If you have a stable income you may plan for the lower figure i.e. 3 months. If your credit limit is near and your income is less secure (job insecurity), you must plan to save for the higher figure i.e. 6 months.E.g. you earn $5,000 a month and you spend $3,000 for meeting your expenses, then your emergency fund should be in the range of $9,000 TO $15,000.To calculate the exact amount, you need to calculate what 3 or 6 months worth of expenses is for you. Add up what you spend each month and multiply by 6 (if taken for 6 months) and 3 months (if taken for 3 months). 3. Plan to saveYou have to develop a plan to save for your emergency. Your plan should include specific and measurable targets. Like how you saw in the above example, you have to decide whether you have to save for 3 or 6 months. ✔ If you are the only breadwinner in your family : You will have to save a bigger sum of emergency funds. Because if you lose your job, there will be no income at all. So you will need it as there is no one to support you. ✔ If you have an unstable job : You must have a larger emergency fund as the chances of losing your job is higher and you should be prepared. ✔ If you or your family have serious health issues : You should have a higher emergency fund as you may incur a lot of medical expenses. Talk to our consultants who can help you with an “income and expense tracker along with the Planner for Emergency Reserve Creation”. 4. Make emergency fund accessible It is better to put your funds in a liquid asset, as it is easily convertible into cash. If you invest in non-liquid assets like land, real estate, etc, it will be hard to liquidate them and take months to receive cash from sales. So for emergency funds, it is best to invest in liquid assets as you will be able to withdraw it when you need it with no delay. You should also ensure you are not fined.It may be a savings account that provides return and lets you withdraw at any time without penalty. 5. Follow the plan If your goals are realistic, sticking to the plan is easy. One way is to set up a systematic transfer from your savings account. The emergency fund should be separate from your regular savings account so you are not tempted to spend it and also don’t think you have more cash than you do. Questions you must ask yourself before using the Emergency Funda) Is it an emergency?b) Is it a need or a want?c) Do you need it now?So only when in an emergency, this money should be used. Underestimated Benefits of Emergency Fund Peace of MindThere is psychological power in knowing you have funds to rely on, in case of unexpected expenses. This emergency fund can give you peace of mind by assuring you that you can manage an unexpected expense. Financial stress can affect your health and life.By minimizing financial stress, you can improve other areas of your life. Experts say all should have an emergency fund, regardless of their financial situation, because it protects you against all the unexpected expenses that may damage your financial plans. It helps maintain discipline in investing.It will help you in the habit of saving regularly. As it becomes a routine, you will always save and have enough money for an emergency. You will look for reducing your daily expenses, so you will have more money to invest. This will stop you from being in debt and also pave the way for spending on things that are most important to you. The protective layer of your financial life.It helps protect your financial life, as you are ready for any emergency that could come your way. Your finances will not be affected due to crisis, as you have saved for all your emergency needs. You will be financially safe if there are future mishappenings or unexpected expenses. ConclusionAs you have seen the Importance of Emergency Fund, it is suggested you set aside some money for this purpose. If it is used for some other purpose, then in an emergency, you will not have funds, especially if it is a huge sum.So on the safer side; it is better not to use it for any other purpose. When in need, you will have the funds to use. You will not suffer much as you have already planned.You can save 3 to 6 months’ worth of real living expenses, according to your requirements. You can invest in a savings account, fixed deposit or liquid funds.What in case you are still not saving an emergency fund?When emergencies happen, you will not be able to manage and fail badly. You will have no safety and no way to access cash. Not able to pay an emergency can cause personal and relationship stress as well. Ending up in debt can be the worst you can face.Why take this risk? Are you ready to start saving for emergencies?Once you have 3 to 6 months of living expenses set aside; you will have peace of mind. You will be happy you saved for an emergency.
Structure of Hospitalisation Protection Plan
Hospitalisation coverage can be complex. There are simply 3 main components of insurance to cover for a typical hospital bill:(a) MediShield Life (using Medisave) for basic coverage for all Singaporeans/PR,(b) Integrated Shield Plan (ISP) by the private insurer(secured using Medisave / cash) (for added benefits such as “as-charged” & to upgrade hospital ward to 3 different tiers: Tier1 Private A; Tier2 Gvt A; Tier3 Gvt B1 wards.(c) Rider(secured using cash) to cover for both deductibles (can go up to $3,500 for A wards) & co-insurances (10%), less a 5% co-payment (of total bill due to a recent government ruling to curb medical overconsumption).Effects of Not Getting Complete Hospital Coverage Case Study: Client X has component (a) & (b), without (c) rider, and is discovered with late-stage cancer early 2020, and requires frequent hospital visits (A&E), hospitalisation, scans & blood tests, chemo treatment, specialist consultations. Cost incurred includes (per policy year) of $2,500 as they chose the Gvt B ward, and 10% co-insurance of all bills. Interim medical bills put the overall cost at $30K, with $2,500 & $2,750++^ required as cash outlay & a significant portion using Medisave.. Note the premium for the rider under Tier 2, is $41.80/mth (age 51-55). This rider is recommended for this case because it would help to offset the thousands of dollars for this case, & the overall claims experience will be better as all bills are eFiled, instead of filing under medical reimbursement (ie pay cash, claim later, lead time 1-2mths). Also, note that different bill sizes require different amounts of cash outlay based on the formula. to find out more if you need someone to discuss the typical bill size & payment structure.. *$2,750++^ is because some of the CT scans related to the chemotherapy sessions are claimed under post-hospitalisation treatment with a window of 100days only. Such related bills incurred post this 100days window will not be reimbursed.. ‘Wrong Sized’ Hospital Coverage Case Study: Client Y got the ‘wrong sized’ hospital coverage, ie component (b) – Integrated Shield Plan (ISP) (Tier 1), without (c) – rider. When seeking medical treatment, client opted for B1/2 ward due to government subsidy & overall costing. If you do not intend to secure the component (c) rider, why opt for Integrated Shield Plan (ISP) (Tier 1), because you would most probably (in reality) be utilising it at tier 2 (Gvt A) or tier 3 (Gvt B).Let’s see how much does this ‘wrong sized’ hospital coverage mistake cost a 51 YO male client.Option A: If you are on (b) ISP (Tier 1) – Private A ward w/o (c) rider, the premium is $1,165 ($600 medisave, $565 cash), ie if you decide to stay in Gvt B ward (for subsidy), it will cover the bills, less $3,500 deductible & 10% co-insurance.Option B: If you are on (b) ISP (Tier 3) – Gvt B1 ward with (c) rider, ie covering the full bill incurred less a 5% co-payment, the premium is $503 ($215 medisave, $288 cash).. Summary: Understand what your plan covers, & under what situations how much of the bills are covered, and the premiums associated with the customisation of your hospitalisation plan. In this case study, if you are >51, probably using Gvt B1 ward for treatment, putting yourself on Option B would have the cost saving (premium difference) of $663, that is almost a -57% savings, with a peace of mind that the overall bill payment will not exceed 5% co-payment. Note: as your age increases across the age band, the cost savings quantum will be higher! . Note: there is real value in discussing with your consultant on the recent governmental ruling, as well as your considerations for the customisation of every plans, & to evaluate if they still hold true.Else you should discuss your options & to further customised the protection plan to suit you best moving forward.. What are the options for your parents? Case Study: Recently I’ve met up with many young working executives who are currently financing hospitalisation protection plan for their parents (retired, no active income). What are the options available? Most parents have been on Tier1 with riders all this while prior to retirement, is these plans (Tier1) still relevant? Typically client would choose Tier 1 during the prime working of their life (such that medical turnaround time is fastest to ensure that one continue working & bringing income home). However, as we age & transit into semi-retirement/ retirement, the real need for fastest medical turn-around will be greatly reduced. Furthermore, given the increasing premiums (age-band) of Tier1 plans past 50’s onwards, we will definitely need to review it.For client, age 51, to reduce (b) & (c) coverage from Tier 1 to Tier 2 (cost saving of $2,253^). For the newer riders (c) which has 5% co-payment, the cost savings would be $1,141. This cost savings will increase drastically with the increase of age band, eg for client age 71, the cost savings will be $5,345 & $2,561 respectively, and one might consider to reduce the coverage to Tier 3 even to ensure long term premium sustainability.Conclusion: regular review to revisit the rationale behind past decision will set the stage right for resource allocation moving into the future.^Figures extracted from AIA, accurate as of Apr 2020. What if I’m covered by Corporate Employee Benefits? Case Study: Recently few of my corporate clients asked if they are over-paying for their personal hospitalisation protection plans, since their company is providing some form of hospitalisation coverage. This question is applicable to most Singaporean working adults, as your company would have provide some form of hospitalisation & medical protection as part of the Employee Benefits. To answer this question, it is important to understand how a typical hospital bill looks like, & how does insurance company process the payout.There are 2 groups of hospitalisation policy holders in Singapore, one with the new rider (requires a 5% co-payment) & the other with the old rider (full coverage) (for component c), and there are many scenarios in which the Corporate Employee Benefits will come in to help offset part of the bill. If you wish to find out more about how your company benefits can work hand-hand with your existing coverage, you can arrange for consultation with (as I specialise in both Corporate Employee Benefits & Personal Hospitalisation Protection Planning). I know costing is at the back of all client’s minds when making a decision on which company & which plan to secure. For ease of comparison across the various insurer, you can find out more from .To end off, I highly recommend for everyone to understand the individual company’s claim processes, & what are some of the situations that will trigger the activation of this hospitalisation protection plan. I’ve dedicated the next few articles to share on the pit-falls if the last step was not discussed & thought out, so please STAY TUNE 🙂 The article was written by,“Committed to Protecting 10,000 Families, to Touching Lives with my Heart (Hard) Work”Chris Zheng LiyuanSenior Premier Consultant (AIA)Million Dollar Round Table (MDRT)Associate Financial Planner (AFP)
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