WITH the privilege of a minimum financial burden, Generation Y (Gen-Y) should take a serious look at managing their finances with a properly planned blueprint to ensure a better financial future.
Being single with no pressure of responsibilities to support a family, Gen-Y, however, tends to be lacking in self-discipline to commit to a monthly savings plan. Some of them frequently max-out their credit cards due to reckless overspending.
Realize this, the ghost of bad spending habits will haunt Gen-Y in the long run. The seeds planted today will result in fruits, or the lack of them, in the future. The reckless actions committed today will surely cost the quality of life down the road.
“Alan, aged 29, works as a Graphic Designer at a commercial company. He is entitled to a RM4,000 monthly salary and a RM10,000 yearly bonus. He is insured with a basic whole life, medical and personal accident insurances. Alan also earns extra RM25,000 annually through his part-time assignments and has RM10,000 in his savings account. He spends a lot on his hobbies of travelling and outdoor sports. Alan wishes to get married in five years’ time, planning to save RM200,000 for wedding ceremony, house purchase and renovation, and more.”
As Alan aspires to accumulate RM200,000 for his future family, he will have to plan his wealth distribu- tion properly. There are two aspects he needs to focus on when planning for investment and insurance – they are keeping track on expenses with a habit of managing them well, and making smart investment decisions, including getting well-insured.
1. Cutting down on unnecessary expenses Singles tend to have reckless spending habits, which directly affect the plan to save and accumulate wealth. Alan can start by
a) Cutting down unnecessary expenditures, such as ones on socializing and hobbies.
b) Compiling a saving-spending table to keep track of his daily expenses in order to acculturate a healthy saving habit.
c) Reducing credit card usage, which is always the culprit to overspend- ing. It is rather tempting for credit card users to go on a spending spree without realizing the actual amount spent, leading to repay- ment burden on the overdue interests charged.
2. Planning wealth management according to needs Alan juggles a full-time day job and a part-time, plus he loves to travel and do outdoor activities. Hence, he should be well insured with a personal accident policy for a better protection. Under the above mentioned circumstances, Alan can plan
for a stable of wealth planning products, such as multiple protection insurance policy, which covers death, accident and permanent disability.
What are some of the details for Alan to focus on when choosing the right wealth planning product?
1．APPROPRIATE PREMIUM RATE
The concept of protection and insurance is common among Malaysians. Coupled with the ambition to multiply their wealth, investment-linked life insurance has become popular. Those who invest without proper research usually pay unreasonable premium, which can be as high as 40% of their personal annual income or more. They always end up terminating their insurance policies when they are incapable of paying the premium, which brings destructive financial loss.
The core purpose to purchase an insurance policy is for protection, which can be categorized into personal risk and property protections. From an individual’s perspective, personal risk protection should be the priority, such as found in personal accident insurance, whole life insurance and chronic disease insurance.
3．REASONABLE INSURANCE COMBINATION
It is common to customize combinations in the insured items when purchasing personal insurance policy. For example, one can couple a whole life insurance with personal accident insurance and chronic disease insurance for complete protection. Proper planning of insured items can prevent redundancy in insuring. As an example, Alan who travels a lot should purchase a personal accident insurance specifically to avoid repeatedly spending on travel accident insurances. By killing two birds with one stone, Alan can avoid unnecessary spending and also insure himself for any accident happening in other circumstances aside from travelling.
Participating endowment insurance is another good option for Gen-Y with strong spending desires to commit themselves to a compulsory savings plan. Under the notion of expected rise in interest rates, participating insurance policies can manage to, partly, overcome the risk of rising interest rates. However, insurance serves mainly as a protection, in cases of accidents, which should never be more than 10% of an individual’s annual income.
Aside from participating insurance, other insurance policies do not seem to have the increasing value ability, which may attract Gen-Y, who have stronger immunity towards risk with more time and opportunity to invest. Hence, investing in bonds, stocks and mutual funds, is another option
to help multiply Gen-Y’s wealth for a better financial future.
4．FULL UNDERSTANDING OF THE TERMS AND CONDITIONS
Before any decision is made to purchase an insurance policy, the liability and liability exemptions are two main items that should never be overlooked.
Questions such as insurers’ disclaimer of liabilities, premium payments, receivable benefits and special terms imposed should be posed to the life insurance agents, especially when there is ambiguity.
Most insurance products from different companies serve similar basic purpose, with minor differences in payment, protection coverage and claims. For chronic disease protection, for example, some insurance companies offer up to 10 types of diseases with coverage for whole life while others terminate at the age of 70. The premium for this slight difference may just be a few ringgits apart and hence, it is always advisable to compare the products from
Purchasing a policy may seem simple, but it requires intense research to ensure a solid protection. In short, understanding the needs, choosing the priorities, studying the terms and making smart comparisons for the perfect combination, are the basics to purchasing an insurance policy.