Financial Planning & Calculations

Examining a client's personal financial statements is the necessary first step to any financial planning — the balance sheet shows the current state of financial health at a point in time, while the income statement shows how the client got there over a period (usually one year). On 7 October 2023 MAS, together with ABS, AFAS and the LIA, launched a Basic Financial Planning Guide setting out simple rules of thumb across life stages (from January 2024 in six customised formats — e.g. fresh entrants, working adults with young children, those supporting aged parents, and those approaching retirement). The headline rules of thumb are:

• •Emergency funds — set aside at least 3 to 6 months of expenses (12 months if income is irregular)
• •Protection — 9× annual income for death and total & permanent disability (TPD), and 4× annual income for critical illness
• •Cost of protection — spend at most 15% of income (after CPF) on insurance protection
• •Investing — invest at least 10% of income (after CPF) for retirement and other goals
• •Legacy — make a will and CPF nomination, and consider a Lasting Power of Attorney and Advance Care Plan.

The Guide is publicly available (MoneySense) and gives broadly-applicable basics — it is not exhaustive, so customised planning still needs a Financial Adviser Representative.

A balance sheet (statement of net worth) lists assets and liabilities at a specific date; Net Worth = Total Assets − Total Liabilities (the study text's worked example: S$310,000 − S$131,000 = ). Assets fall into three groups: (cash and near-cash convertible within a year — for current/emergency use), (shares, bonds, unit trusts, property, business, CPF savings — held for long-term goals) and (home, car, watch — for consumption). The same item can sit in different categories depending on the intention behind holding it (e.g. a money-market fund is liquid, but an investment asset if earmarked for retirement).