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Important things to do before we start investing.

Monday, July 27, 2015

It might come as a surprise to some but it is very common for me to see people who are very excited about starting their journeys as investors and neglecting matters of personal finance. Of course, regular readers would know that I always tell people that they must get their personal finances in order before thinking about investing in the stock market.

So, the question is whether we have overlooked essentials in financial planning in our haste to invest? What could possibly be the most overlooked area of financial planning? Not surprisingly, it is the area of insurance. Insurance is an expense that many would like to dispense with but we really shouldn't.

Many people are attracted by the high returns investments could potentially provide but fail to understand enough what it takes to become an investor. Many jump into the sea of investments and end up drowning. Fear strikes me when my peers get overly excited about “investment opportunities” or when they are too eager to begin investing before taking care of the essentials.

As with everything in life, we should prioritise and take care of what are most important first:

Debts - In our financial plans, we know that we first have to take care of our debts. (Do you know that many Credit Cards effective interest rate is at 24.9% per annum now?) It would not be logical for us to invest before clearing these debts, loans and cash lines with high interest rates that we might have. How could we achieve 24.9% investment returns per annum?

Emergency Savings - Emergency savings of at least 6 months of our monthly expenses is recommended. This is important in case of a stoppage of our income which could happen, for example, in a retrenchment. Emergency savings is also critical to cover unexpected expenses such as medical expenses for our loved ones, household, vehicle repairs and other unfortunate events.

Essential Expenses - If we expect some essential expenses to come our way such as hosting a wedding banquet, having our home renovated or planning to have a child, then, we should save up for these expenses. These are all expenses which could end up being five figure sums. This is money we should not invest with because it is money we cannot afford to lose. We do not want to have to liquidate our investments at a time and price not of our own choosing.

Insurance - We must get sufficient insurance coverage where it matters. Bad things do sometimes happen in life and we should not think that bad things happen only to other people. Without proper insurance coverage, we could see plans for retirement adequacy or financial independence derailed.

Examples of Financial Risks

Medical bills:  How would we deal with hefty medical bills if we did not have sufficient savings?

Loss of income due to medical crisis or death: If we should die or be disabled due to some illness, who is going to provide for our dependents?

These are all real issues which have to be dealt with. The good news is that it is possible for us to be adequately insured at a low cost if we purchase the right insurance products.

If you are wondering what kind of coverage and what type of insurance you should be buying, have a look at the following table:

Seems like there are many types of insurance we have to buy. Does it have to cost an arm and a leg? No, it is possible for a person aged 35 years old to be adequately insured for as little as S$200+ a month.

Where & How to Plan for Insurance?

You could easily calculate your insurance needs:
Click here to find out your life insurance needs
Click here to find out your critical illness needs.

To compare and purchase insurance, DIYInsurance –Singapore’s First Life Insurance Comparison Web Portal by Providend Ltd aggregates products from various insurance companies and provides 30% commission rebates in addition to ongoing promotions.

Staff from DIYInsurance are all paid a fixed salary and do not participate in sales-based compensation or incentives of any kind. Not being remunerated on a commission-basis means they are independent and there is no hard-selling and over-selling.

If you require any advice on your insurance needs, do contact them and seek their expertise. Visit and request a quote for what you require.

Have you planned for the above must-dos?

If you have not, please do so as soon as you can. We do not want to risk having our savings and investment gains wiped out due to our carelessness when it comes to personal finance matters. We have to protect our assets and also plan ahead for any unexpected events.

It probably pays to be patient before diving into the stock markets. We will not only be doing ourselves a favour but a very important favour for our loved ones as well.

The is a sponsored blog post by the good people at DIYInsurance.

Related post:
6 questions to ask about your insurance.


Some Ideas said...


Maybe sometimes people are encouraged to start investing when they do not even have adequate insurance coverage or emergency funds to tide them over as they think that they are able to go into the market just for short amounts of time and turn over a huge profit (speculation almost never goes well over the long term). Or maybe they think they are the next George Soros, but in any case, this usually does not occur and they get their fingers burnt.

The idea of making quick gains in the stock market through speculation really needs to be replaced with the idea of long-term investments in good-value companies which give steady, though not always spectacular, returns :)

Just Some Thoughts

baiyun said...

Just wondering what's your thoughts on the hospital cash plan.
Just realized had some "duplicate" plans. e.g. aia pink of health and the ace everfree plan (
). I am on the Plan D for the everfree plan.

Although they are not 100% the same, but they do have some overlaps, so thought of consolidating them so that can save on premiums.

My h&S plan is AID health shield gold max with the gold max essential (which pays the deductible and co-insurance).

I do not have any disability income plan.

AK71 said...

Hi baiyun,

Like what Christopher Tan said last night in the 5th "Evening with AK and friends", we really only need Medishield or the new Medishield Life if we are quite happy with Class C or B2 wards. If we want more than this, we top up and get extra coverage from the private insurers. So, it depends on what are our wants.

I always think a better H&S should be considered because we might want to have the option of staying in B1 or even A wards. What about a hospital cash plan that pays you an allowance daily if you should be hospitalised? If we are prudent in our personal finances and have a meaningful emergency fund at hand, I don't think it is necessary. :)

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