Preparing for rainy days?
In Singapore, most of friends will tell me they want to save for rainy days. While this is a good mindset to have, most of my friends do not have an answer when I asked what kind of rainy day they are preparing for. It is like saving to buy a computer having no idea how much the computer were to cost.
After doing some research, I found out that this is an Asian thing to do. It probably have something to do with our need to plan for the future. We probably inherited the need to save for rainy days but we forget what it is for and why.
Rainy day fund
Let’s talk about what is a rainy day fund. A rainy day fund is reserved amount of money that you use in an event regular income is disrupted or decreased. I can only think about two scenarios here. A first possible scenario is if a person were to lose his job (get fired, quit because of a dispute with their managers, etc). The second possible scenario is this person where to lose his job because he suffers from a critical illness. Some of you would probably say this is when your saving will help tie over this period of time. My question is what happen if the period is prolonged. No one wants to think about what would happen if they contracted a critical illness like cancer or had a major heart attack. Let’s ponder for a while. There is this hardworking individual like yourself who have a job and like all jobs it is stressful. This individual works long hours so as to provide for his or her family.
Questions to ask yourself
In an event of a critical illness like heart attack, do you feel that this person is able to work at the same stress level as before?
In an event of a critical illness like heart attack, do you feel that his company will continue paying his salary if he is not working for a prolonged period of time?
In an event of a critical illness like heart attack, do you feel that this person can still provide food on the table?
While the notion of retiring early, saving money (AIA Vitality, How to save up to 50% when dining with eatigo, financial excel cheat sheet) and spending money is exciting, have you ever build up a secure financial plan? Especially, if you have a family that is supporting you or you are supporting the family, if you didn’t plan for rainy days or critical illness, do you want your family to pay for price for you? Consider asking yourself the following questions.
Do you want your aging parents to continue working or work even harder to provide for you?
Do you want your young children to work part-time jobs so that they can contribute to the family cashflow?
If you are the sole breadwinner of the family, what does the lost of job mean to you and your family?
Recently, there was an article that speaks of a mother who have no choice but to sell away everything to battle a stage 4 cancer. In an event of a critical illness like heart attack, how long can their saving last? The family might be able to go by for a few months. But what’s will happen when the money runs out?
Cost of critical illness
“Immunotherapy would cost approximately S$139,000 a year, while medicine costs between S$6,500 and S$8,000 per dose and is administered thrice a week.” Quote from the above article. (If you would like to donate to them, scroll to the bottom of their website)
Think about your savings right now, how long can your saving last if treatment cost were to be at this level? For those that are doing your own stock investment, do you want to liquidate your retirement stock plan to pay for this bills?
A myth that I hear is this.
“Critical illness won’t strike me”
According to a survey done by AIA Health Matters Survey 2016,
1 in 4 Singaporeans without medical conditions have absolutely no concerns about being diagnosed with a health condition.
However, for those who have been diagnosed with a critical illness, more than 9 in 10 (97%) worry they may be diagnosed with yet another condition.
The “unfortunate” story
In financial planning (singapore), i talked about my experience with a taxi driver. He was diagnosed with colon cancer. He had already went for several operations and wanted to consult me on the medical bills. I later learnt that he had quit his job as he could no longer concentrate on driving. His wife earns $1000 a month as a cashier. They still have a flat to pay for (they have no CPF contributions) and also 2 young children, who were 10 and 14 at that time. The two children didn’t know what the fate of their father. At this time, you probably would expect to hear the miracle of life insurance. Unfortunately, this wasn’t the case. This is a case of reality. What would you do if you were in this situation?
According to Dr. Wong Nan Soon, Consultant Medical Oncologist at OncoCare Cancer Centre Singapore. “Majority of patients are financially unprepared for cancer treatment and are shocked that modern chemotherapy and target therapy can cost so much. There is a need to help these individuals so they are not only able to fight the illness but, just as importantly, look forward to living life without the worry of being in debt indefinitely,”
Would you like to burn through your savings? Or would you like to work out a program which replaces your income in an event of a critical illness? Such a program will ensure that you have a sum of money to reduce your financial burden when you can use it to pay for your daily expenses and lifestyle.
Take Pierre for example. He almost didn’t get insurance when he was 27. He said he felt invincible. He don’t smoke. He rarely drink. He eat healthy. He is not overweight. He does not have a family history. Fortunately, the logical side of his brain made him bought a plan. At age 39, he suffered from a heart attack.
I quote “I went through denial, anger, depression, and finally, acceptance. The reality is, stuff happens, and genetics have a way of prevailing, no matter what we tell ourselves.”
During this period, they had to hire a full-time nanny to help with childcare for their youngest and walking the others to school. They wanted to make it feel like their routine hadn’t drastically changed. It was expensive to hire a nanny, but worth every penny, and the Critical illness payout helped cover the cost.
What you can do
In Journey with money, we want to empower individuals to retire early and avoid financial pitfalls such as this. Such a financial pitfall will delay retirement by at least a decade if not forever. If you already have a financial plan or a financial planner, that’s fantastic. You should be proud that you have taken the first step. However, there are many still unaware of this. We will like to offer our readers (even if you have a plan already or not) a free review by our in-house Financial Planner. He will cater a uniquely designed portfolio for your specific needs and your journey with money.
Feel free to leave comments below or contact him at firstname.lastname@example.org