Thursday, March 9, 2017

Basic Rules for Financial Decisions - Family Edition

It is way easier to make financial decisions when you are single. It gets harder when you get married and have a partner whose view points on finances does not always match yours. Don't get me wrong - it isn't a bad thing usually because hearing another's view point about money actually adds to your own understanding of what money is about. As I've said before, money isn't just money. Money represents something to all of us - whether it is security (which usually means you like to hoard save money), or whether it is financial power (which usually means you like using money to spend on your lifestyle choices), or whether it is financial freedom (which means you want to invest and make money work for you).

Throw into the mix starting a family and making financial decisions just got a lot harder. Why? Trade-offs.

Do you want to save the money in your CPF now? Or use that money to buy a house nearer your kid's targeted primary school?

Do you want to use the money to invest in a short term trade, or put into buying ETFs that would only reap results 10 years down the road?

At the end of the day, I feel there are a few rules to follow:

1. Know that your kids will be young only once. 

I subscribe to the rule that yes, your kids may not remember everything that happened when they were young, but what they are left with is an unshakable feeling in their subconscious. So, you may think that you don't remember anything from your first 5 years on earth so it doesn't matter that you don't spend time with your kids when they are 0 - 5 years old. However, the subconscious brain is a powerful mysterious thing. Your subconscious probably still remembers the warmth from your childhood. Its an imprint left in your brain. And its the same with your kids.

What's the suggestion then?

Put in your hours with your kids while they are young. Stop the long hours at work. Be with your kids. And when you are with your kids, play with them and really be with them. Not your phone. Alas, this isn't a time to go all out with your career unless your other half is able to be with them for you. Your financial plan shouldn't be something that takes up too much time.  If you are obsessing over ticks in the markets or reviewing too many financial statements after work, stop that right now.

What do I do as a FTWM - that is a full time working mum for the uninitiated - with 2 kids below 5 years old? I use a mix of 1) Philips Share Builders Plan 2) Fixed Deposit in USD 3) Dividend Stocks Why? You just won't have time to monitor the markets. After my first kid, I realised the number of trades I made dipped to an all time low of just 2 in 2014. And those were bad buys made upon hearsay. With a regular investment plan, you avoid the issues of timing the market, spending too much time reading up on news, making decisions in a hurry. The Fixed Deposit acts as my war chest to be used in times of bear market.

2. Minimize your purchases 

It's so easy to buy buy buy. But the cost is more than just the dollar value of your purchase. There is a time element - you need time to shop, to store, to arrange and to take care of your purchases. I purchased a few branded bags over the years. With each expensive and lavish item, I had to spend more time to care for it - taking the bags to bag spa, making sure i remember to use the bags to air them, cleaning them. Its the same for my husband's expensive purchases too. With a new lens, he had to buy a new camera cupboard to ensure that the lens don't get moldy. We need to shop for furniture to keep his camera collection.

So my rule of thumb - one in, one out. Less item to care for, manage and clean.

And the best thing is - you save money!

3. Planning your Money 

With kids, your timelines for certain investments are shorter. This isn't about just a retirement nest where you have a good 30 years ahead. There are other milestones to plan for.


1) moving house. If you have 2 or more kids, depending on the size of the house you start off with, you may have to move to a bigger property in 3-4 years. Or you want to move nearer to your kid's primary school. Your investments should then have a time horizon of 3-4 years.

2) taking a breather from work when your kids hit primary school. Maybe you want to be around the house more often when your kids enter primary school. It is also around that time when your parents can't really care of the kids anymore. If you are thinking about that, you probably should look at your investments reaping a return at about the 7- 10 years time.

3) overseas education. Start thinking about this. In my search for a property, I met a few parents who were selling their houses to fund their kids education overseas. The thing was, it wasn't the best time to sell their houses. You don't want to be stuck at that situation.

Honestly, the years with kids fly by so quickly. Its really at your early 30s when you want to maximise your time with the kids. Yet, being employed in most jobs mean that your early 30s is when you move on to positions that take up more of your time. It is so hard to make decisions about your money but what i do know is this. You don't need money to spend quality time with your kids. You don't need a fancy staycation. Your kid is perfectly happy to spend time with you at the neighbourhood park. If your job is making you unhappy and giving you so much stress that you are upset when you are home, reconsider it - your kid is only young once. If you are still in the habit of making too many purchases, reconsider your spending habits. Remember, with kids, its more often than not that they will spoilt your fancy furniture, beautiful bags, expensive cameras, dirty your continental car. Purchases are supposed to enhanced our lives, not limit it.

Hope this helps.

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