Life is a continuous journey, and so must our financial planning be - a couple of stories
Story time!
Based on my personal observations, it has seemed to me that a staggering majority of the population does not have sufficient financial planning, if any, set in place. Let us proceed onto a few scenarios, the first of which I am sure it is easily relatable.
Mr. Tan started work 30 years ago, with an average income of $3000. Having just started working, Mr. Tan decided to live his life and travelled frequently, went to clubs and parties, had an extensive Luohan fish collection and golfs with his friends in his spare time. He also settled down and had kids at some point. After an extravagant marriage, honeymoon, renovation, and buying a car - all of which burned off $200,000 of his savings, he now has $50,000 in the bank - pretty okay, he thinks. Coupled with generous household spending on his family, his savings did not really accumulate more than the 50k.
Mr. Tan is now 50 years old, drawing a monthly salary of $6k, and Mrs. Tan $4k. Together, after CPF and taxes, they are bringing home approximately $8,000 per month. They have paid off their mortgage. They have 2 children, Tim and Ben, which are about 20 years old and are still in university, which is paid for by their parents.
The Tans lead a fairly comfortable life; they have a family car, they have no issues funding their children's university fees, and they got no living expenses issues. Their 2 children, while not exactly brought up with a silver spoon, faces no financial difficulties nor have any idea what are financial difficulties. They stay in a mundane but spacious enough 5-room HDB, they have their computers, phones and consoles etc. and receives an hefty allowance from their parents where they can afford some luxury. Since young, Tim and Ben had not experienced the effects or hardship of poverty.
Fast forward 10 years later, Tim and Ben are about 30 years old now and have just began to set up their own family. They both earn an average salary which they spend liberally - buying incessant equipment like the latest juicer, drones, spending on holidays, even more clothing etc. because that's the spending they are used to. None of them give their parents allowance because they felt that they are earning too little to match their costs of living.
Mr. and Mrs. Tan decided to save up a bit and continued working for the next 10 years. Now, 60 and retired, they have savings of about $400,000.
Few years later, unfortunately, Mr. Tan got diagnosed with cancer and have to undergo regular checkups and treatments. This medical expenses over the year depletes their entire savings and plunges the elderly couple into perpetual debt, with government medical assistance the only thing keeping Mr. Tan alive. Both Tim and Ben are called upon to provide financial aid of about $2000 a month. The entire Tan family is now living paycheck to paycheck, laden with bills and stressed out about how would they have enough money to raise kids of their own in the future.
Sharing a bowl of $4 fishball soup from the nearby coffeeshop and white rice, Mr. and Mrs. Tan wondered to themselves, "What went wrong? Why does Singapore has such high costs of living? Why don't the government help those retirees who are in financial distress?"
It is probably at this point where some of us can painfully relate to that story, while others could at least feel the likelihood of this scenario occurring is not exactly low.
However, can we exactly pinpoint who or what did wrong? I cannot, and neither do I think any of them did something flat-out wrong.
There is nothing wrong to care for your children and provide them with the best.
There is nothing wrong to live in the present.
There is nothing wrong with the children's decision to not give the parents allowance because they themselves are 'tight on cash'.
One might realize that life is a journey made up of countless, continuous decisions instead of one major life-changing one. Can this be an entirely different scenario? Definitely.
Let's see how this can pan out if a different path was taken.
Lee, Tan's classmate from university, came from an extremely poor family whose parents could barely feed him. Lee had to take on multiple jobs while studying to make ends meet. Similar to Tan, Lee found employment and was drawing an average salary of $3000. Knowing hardship, Lee lived an extremely frugal lifestyle and never spent more than what he was living with during his university times. Lee also learnt how to passively invest to make his savings work for him, earning him a decent 5% ROI per year.
10 years into employment, Lee now have a sizable investment portfolio of approximately $300k* giving him about $15k annually in dividends. Similarly, he got married and had kids. Mr. and Mrs. Lee decided to skip the car and honeymoon and had a small scale wedding costing only $20k.
The children of the Lee family was brought up with constant financial pressure. While provided for, Mr. Lee frequently emphasized to the kids not buy more food than they need to eat, not more toys than their number of hands, and barely anything more than what was needed to get by. After secondary school, the children of the Lee family had already been asked to set out to work part-time in hawker centers to contribute to the household finances. They had never asked their parents for money since 'O' levels.
One of them, Beng, went to polytechnic and worked part time to fund his studies and expenses, while the other, Seng, went into JC, also working a bit for some pocket money. Completing their NS, Beng took on a full time job to finance his part-time university studies while Seng, with his NS savings, took on a $20,000 tuition loan for full time studies. Seng worked odd jobs during his school term and worked full-time during his holidays. By graduation, Seng had enough money to pay off his loan in one shot.
Mr. Lee, now also drawing a similar income of $6,000, continues to place more than half of it into his investments and savings as his kids are financially independent. Mrs. Lee on the other hand, spends more of her income on household necessities, family holidays, celebrations and such while saving just enough for emergencies. Both of them also brought insurances to cover themselves should they fall ill or get hospitalized.
Coming to 50 years old, his kids, Beng and Seng, similar to Tim and Ben, set off to start their own family. However, Beng and Seng brought their own kids up with the same principles as them - never spend more than what is needed to get by. Lee, after 30 years of working, saving and investing, now holds a substantial amount of investment assets of $2.5 million*, with yearly dividends of about $130,000.
Mr. and Mrs. Lee decides to retire and to spend the rest of their time holidaying, food hunting, and to pick up some hobbies and keeping fit, telling Beng and Seng there's no need to give them allowances but to just visit them when they have time.
Falling ill, they are fully covered and have no need to liquidate any of his portfolio nor to eat into his savings. In a way, everyone lived happily ever after.
Neither of the families started off, or gained windfalls or connections of any kind throughout their life. The different ending scenarios are largely attributed to their way of life, mentality, and financial decisions in the whole 30 years. Can we discretely point out at which juncture did someone do something wrong? I doubt so. In fact I would say nobody did anything wrong in both the scenarios, but in the case of the Tans, there might be several right things he didn't consider doing.
The best time to do the right thing is 30 years ago, but the second best time is now. While it might be too late to start doing something of a long horizon, it is definitely better than not doing it.
"Someone is sitting in the shade today because someone planted a tree a long time ago" - Warren Buffett.
*Calculations of the amount will be provided in another article that details out one's income, spending and investment plans.