The Clueless Millennial’s Guide To Financial Planning: Investing And Buying Life Insurance
Just celebrated your 21st birthday and officially entered the adulting stage? Well, before we congratulate you on crossing into the world of adulting, let’s see whether you have truly turned into an adult. Have you bought your first insurance product or started a plan for investing? Well, if you haven’t already done either of them, you have sadly not passed the criteria for being an adult. Let’s do some financial planning.
Don’t Worry, Millennial. You Aren’t Alone
But even if you haven’t bought your first insurance plan or started investing, don’t be too worried about it. We have two piece of good news for you. The first good news is that you aren’t the only millennial who hasn’t taken the right step towards adulting. According to a study that was done by OCBC, 70% of millennials want to start buying insurance and investing. However, only 35% of millennials consider themselves to be knowledgeable enough about insurance and investments. In other words, there are many millennials who are like you who are not sure of the HOW.
Millennial Financial Planning Guide
Here’s the second piece of good news. The Moneyline.SG team decided to come together to address the lack of know-how among millennials with a quick millennials’ guide for buying life insurance and investing. While we can’t promise that you will turn into a financial planning expert overnight, it will definitely give you a good starting point to work out your finances. Now, it’s time to take out your pen and paper to copy down the important tips for buying life insurance and investing.
Insurance 101: There Are 3 Types Of Insurance: Life, Health And General
The first thing you need to know about insurance is that there are 3 types of insurance, namely life, health and general insurance.
- Life insurance refers to insurance plans that are related to a person’s life (aka yours or your loved one’s life). This includes protection plans (e.g. term, endowment or whole life insurance) or investment-linked policies.
- Health insurance refers to insurance plans that takes care of your healthcare expenses, i.e. the integrated shield plan that supplements your MediShield Life.
- For insurance plans that do not fall under life or health insurance, they are classified as general insurance. The most common examples of general insurance are personal accidents, motor and travel insurance, which you should be familiar with.
What Should I Plan First?
Now that you know the basics of insurance, the natural question to ask is, “Which one(s) should I buy first?”. The first type of insurance you should always think about is protection. You can choose between a term and whole life insurance. It is important that you start with protection to cover yourself against any financial downside in case of an unfortunate event (e.g. an accident). Protection plans will form the most basic layer of your financial planning and lays a solid foundation for you to build upon.
Another type of insurance that you MUST buy (if you haven’t already bought it) is health insurance. As you might already know, the cost of healthcare has been increasing over the years. While all Singaporeans have our MediShield Life to provide basic health insurance, it isn’t enough. In unfortunate circumstances, your medical bills can skyrocket to figures that will shock you.
Health insurance helps you to eliminate the risk of having to worry about your medical expenses even as you attempt to recuperate your health. Health insurance gives you ease of mind and lets you focus solely on recovering. For ~$50 a month, the premium of health insurance is a small price to pay.
What If I Already Have A Protection And/Or Health Insurance Plan? Should I Think About Investing?
For some of us, your parents might have given you a head start in adulting by buying protection and health insurance plans for you. So, what should you do if you already have protection and/or health insurance plans?
Before you think about investing, make sure you review your insurance coverage and make sure that it is adequate. This is especially for protection plans where there is a sum assured amount for each plan. If you don’t know yet, sum assured is the lump sum amount that your beneficiary will receive upon your death/total and permanent disability (TPD). The simplest way to determine whether your insurance coverage is adequate is to gauge using your annual income. As a general rule of thumb, the sum assured amount should be 10x of your annual income.
I’m Well Covered. How Should I Start My Investing Journey?
If you are convinced that you have adequate insurance coverage, it is time for you to start your investing journey. But with so many types of investments available, it is no surprise that millennials often fall into the abyss of decision paralysis. What should you actually be investing in?
For starters, you can choose to invest in exchange-traded funds (ETFs). ETFs are THE easiest type of investment to invest in. ETFs help you to invest your money in a basket of stocks that represent an index (e.g. Straits Times Index, S&P 500, Hang Seng Index). It requires little monitoring from you and performs well over the long run.
Another type of investment you can consider is robo advisory. Robo advisors uses smart algorithms to help you decide where to invest your money. It also helps you make periodic adjustments to your investments to ensure that you get the maximum performance from your investment. All you have to do is to indicate your risk appetite and the robo advisor will do the rest for you.
Alternatively, you can choose to go for more customized investing with sound advice from a financial advisor. For example, Moneyline helps you to analyse your life stage and appetite for risk to determine the most suitable investment portfolio for you. This allows you to invest while taking the expenses at your current life stage into account so that you can make the right investment decisions. Reach out to Moneyline here if you are interested in building a customized financial portfolio.
Regardless of what kind of insurance or investing you start with, the most important lesson in investing and buying insurance is: Never procrastinate. The longer you procrastinate, the more you lose out.
Stop procrastinating and start building your own investing and insurance portfolio today. Want to start but not sure how? Why not start with Moneyline’s insurance combo that makes building an insurance portfolio easy?