Starting Out: Financial Planning Triangle

The Financial Planning Triangle

As I was learning about Financial Planning, I saw this triangle which I found it to be very useful for anyone who is trying to plan for their finances on their own.




The base represents the most important of all, and you move on to the next part only after you have completed the one below it.

Hospitalisation and Surgery

The first of all is Hospitalisation and Surgery. In Singapore, this is a very crucial part of protection because we "can die but cannot sick". Although there is MediShield, medical costs are still high in Singapore, and one will do well by buying an Integrated Shield plan from a private insurer for stays in private hospitals. If I have the budget, I would add on riders so that I do not have to pay the deductible and co-insurance portion of my bill. Effectively, I can walk out of the hospital with no money paid.

Protection

After covering for Hospitalisation and Surgery, one should cover for Death and Critical Illness. This means that in the event where one passes away, or falls critically ill, his or her dependents are still able to carry on the same standard of life, and not worry about finances. People usually buy either a term life or whole life policy for this coverage.

Savings

Only after one has protected and insured against the "downside", then can one go on to aim for things. In this sense, I am talking about saving up money for purchases, or for future plans. People usually save for a car, their marriage, downpayment for a flat, or their children's education. As savings are usually short to mid term, people usually go for endowment plans as they offer a higher return than fixed deposits.

Investments

It seems funny that when I speak of the word "invest", most people will have their eyes light up. However, we must be sure to only invest after we have covered for our downside. In other words, we should only invest money that we can afford to lose.

This is because investments are not capital guaranteed, and therefore presents a higher risk than savings plan or fixed deposits. However, investments provide a good return for their risk over the long run. Investments can be a source of retirement planning.

Lastly: Legacy

This doesn't appear often but it is about creating wealth so that your children and grandchildren can enjoy a better and more stress-free life after one is gone. There are products available but one can essentially channel into a investment vehicle and draft a will on how to manage the wealth after one is gone.

My thoughts

Personally, I think that this Financial Planning Triangle is very useful, and I would always come back to this triangle whenever I want to make a financial decision. It is also useful to relook at this triangle from time to time, to make sure that one is planning his or her finances well.
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TI
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6 February 2016 at 11:33 delete

HI LS!

Nice post which serves as a good reminder for me. Just like to add that "Integrated Shield plan from a private insurer for stays in private hospitals" gets rather expensive at older age and cash outlay is required at an earlier age, due to additional cash withdrawal limits.

For my Aviva plan, cash outlay for private hospital standard ward starts at age 51. For any standard ward in government hospital, cash outlay starts at age 61.

Cheers,
TurtleInvestor

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6 February 2016 at 14:30 delete

Hi TI!

Yes agree with you as the total premiums including cash outlay will increase. It's still good to have a plan earlier due to the exclusion of pre-existing conditions if bought later.

Does your aviva plan get upgraded when the medishield life kicked in?


LS

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