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Stressed about money? Here’s how to cope financially and emotionally
Money anxieties may lead to rash decisions that harm your financial well-being in the long run, says expert
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Only about a quarter of young adult Singapore respondents with no children have a retirement plan in place, says a survey.
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Kareyst Lin, Content STudio
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Mr Oh Liang Yuan and his wife, both 33, looked forward to another milestone after they got married last year: Parenthood.
But, as the newlyweds began considering the cost of raising a child, they grew increasingly concerned. “The huge expenses associated with education, healthcare, and daily necessities made us question whether we could afford it,” says Mr Oh, a music instructor.
His wife is a project manager in the construction industry. The couple earns a combined monthly salary of around $10,000.
This is despite a slew of measures from Budget 2023 to strengthen support for Singaporeans on their parenthood journey, including increased Baby Bonus cash and more financial support for children’s early years.
“I want to provide my future kids with the best resources to help them get ahead,” says Mr Oh. “As someone who works in the education industry myself, I know how competitive – and expensive – it gets.”
There was an emotional cost over such concerns. “As someone who loves kids, it was difficult to accept that money could stand in the way of providing our children with a good life.”
Mr Oh’s experience is shared by Ms Heng Yilin, 33, who feels “quite overwhelmed” by the expenses that are piling up as she prepares for her wedding in October.
There’s also another upcoming big-ticket item: Her new home. Ms Heng is applying for a Sale of Balance Housing Board (HDB) unit with her fiancé in the next few months.
The marketing executive says the stress stems from the perception that “everything comes at a high, and rising, cost”. “With inflation and the spike in housing prices, my fiancé and I are definitely feeling the pinch.”
Singapore’s core inflation – which excludes private transport and accommodation costs – rose to a 14-year high at 5.5 per cent year on year in February, before easing in March, according to the Monetary Authority of Singapore.
It dropped to 4.2 per cent year on year in June, the lowest it has been since mid-2022. Analysts believe core inflation could go down to 3 per cent or lower for the full year if the trend continues.
For many millennials (commonly defined as those born between 1981 and 1996), “money is a top-of-mind worry”, observes Ms Wong Hui Teng, senior director of sales, Trillion Financial Planners, an agency branch representing Manulife Financial Advisers.
“In addition to inflation and the rising cost of living, they are also swarmed with various short-term goals at this point in their lives, such as affording their wedding, a new home, and welcoming a child,” she explains.
Ms Wong, 34, has 10 years of experience in financial services. Most of her clients are retirees and pre-retirees above 50 years old (40 per cent) and in their 30s (19 per cent).
Managing emotions on money
How does financial stress impact our overall financial well-being? Ms Wong explains that anxiety over money can lead to hasty decisions.
In her experience, some clients would prematurely withdraw their investments during periods of loss, worsening their situation.
There were also those who wanted to cancel their insurance policies to save money when their livelihoods were affected by the pandemic, Ms Wong shares.
“(The decision) is understandable given the challenging times, but can have serious implications for their financial well-being should a health scare happen.”
What should you do in such situations? “Before making rash decisions, always seek guidance from your financial consultant,” says Ms Wong.
Another common – but inadvisable – approach to managing financial anxieties is to focus on your immediate needs and take it “one step at a time”. This could lead to neglecting longer-term financial goals.
In the case of Mr Oh and his wife, they have decided to delay their retirement planning. “(Retirement) feels like a distant event for us right now, so we are focusing our resources on affording our renovation expenses, mortgage, and potentially having a kid,” explains Mr Oh.
They will be collecting the keys to their four-room HDB flat by early 2025. “Currently, saving up enough money for the renovation is our financial priority,” he says, adding that they are working towards a renovation budget of $80,000.
But Ms Wong advises against delaying retirement planning because they would lose out on compounding interest, which takes time to accumulate.
Compound interest is when the interest earned from your investments are reinvested, to help you earn even more.
“If there is one near-definite event that will happen in your life, it’s retirement. The later you start retirement planning, the more you have to save each month later on to ‘catch up’.”
The Manulife Asia Care Survey 2023 revealed that only 24 per cent of young adult Singapore respondents with no children (defined as those aged 25 to 35 years old) have a retirement plan in place.
This is despite more than half of them (54 per cent) citing saving for retirement as their No 1 personal finance goal.
Published in March, the survey was conducted between late December 2022 and early January 2023. It polled 1,037 Singapore residents and covered 7,224 respondents in seven markets across Asia.
Weathering the storms
While “money is not everything”, financial well-being can impact our emotional well-being. Creating a holistic and resilient financial plan provides a sense of security amid challenging times, Ms Wong says.
What does financial resilience look like?
She explains: “(Financial resilience) is not about having a lot of money.” Rather, it’s ensuring that you have key measures in place to help you withstand unexpected life events that could impact your income or assets.
These can include job loss, a health scare, or changes in household expenses due to factors such as caregiver duties for elderly parents, or the birth of a new child.
“Three crucial must-haves include setting aside six months worth of emergency funds, having proper insurance coverage and staying invested for your long-term goals,” says Ms Wong.
Protect and grow
While it’s important to be prepared for unforeseen events by having adequate insurance coverage, postponing investments could mean losing out on time needed to let compound interest work its magic.
For those with a limited budget, which one should come first?
“Always prioritise insurance,” says Ms Wong. “You never know when health scares may happen. Should you be diagnosed with any serious illnesses or require medical treatment, insurance is key to protecting your income and assets.”
You can also consider an investment-linked insurance plan (ILP), says Ms Wong. Combining elements of both investment and insurance into a single policy, ILPs allow policyholders to invest their premiums in a selection of investment funds.
She explains that some ILPs offer additional life, terminal illness, hospitalisation, and critical illness insurance coverage at a more affordable rate compared with standalone plans through riders. “One example is Manulife InvestReady (III) which offers ReadyCare Riders that protect individuals against unexpected medical expenses as they work towards their long-term financial goals, such as retirement.”
An attractive feature of ILPs is their liquidity. During periods of financial difficulties, policyholders can partially withdraw their funds without surrendering or cancelling the policy. They also have the option to top up their ILP premiums later on an ad-hoc basis, when they have more available cash.
While ILPs have the potential to generate higher returns compared with savings instruments (such as bank accounts and fixed deposits), there are also risks involved.
“(ILPs) come with fees and charges, which are deducted automatically from the policy's account value. Investment returns are subject to market fluctuations and not guaranteed,” Ms Wong explains.
This is the eighth of a nine-part series titled “Your wealth and well-being”, in partnership with Manulife Singapore.
