One of the biggest reasons people procrastinate making long term financial commitments is largely due to 'what ifs'. More often than not, it is the fear of some obscure possibility that they may need the money in the immediate future that creates commitment issues in people. This explains why such a large number of Singaporeans hoard a lot of money in their savings accounts (just check out the number of priority banking accounts in Singapore) but so little are confident they can retain their quality of life during retirement.
Most of us know that long term financial commitments are part and parcel of adulting. You need to pay your mortgages, save up for your wedding and family planning, do something about your retirement planning and buy your insurances. We all know this but usually tell ourselves we can do it later when our 'what ifs' fears diminishes.
As a result of our behaviours, most of us end up telling ourselves we actually will spend less during retirement and we can downsize our lifestyles.
In this article, I explore the emotional elements of why we save for our short term goals but have so much trouble saving for our long term needs.
The 'What If' Syndrome
In case you are wondering, I invented this syndrome, so it's not official. Essentially, this was inspired by my astonishment from the cash hoarding mentality from many decently paid and well educated young executives. There's a lot of overthinking and plenty of inaction. Increasingly, due to our education system, more and more of them are making the priority banking list (UOB Wealth Banking being the entry level).
Money 'What Ifs'
There are actually logical answers to these 'what ifs'. Frankly, I got a feeling many of these cash hoarding adults know the answers. It is the emotional discomfort that needs overcoming. (If you have problem saving money, that'll be an article for another day)
What if I need the money to pay for emergencies?
Cash hoarders typically have a bigger than required emergency fund (6 months of your income). A more useful question perhaps might be, is there a psychological figure you would feel is sufficient before you can move forward with your other needs in life?
I want to have a child. What if finances becomes a stretch after I do financial planning?
Many people have children in Singapore and they all eventually still need to retire. Some parents make their children their retirement plan. This is called the Sandwich Generation. In order not to burden your children, you need to plan for retirement inspite of family planning needs.
What if I need money for some mid-life career changes?
If catering for these mid-life career changes means you have no surpluses to set aside for your retirement, it means you are mismanaging your money. By the way, it probably also means the money you have saved isn't on track for retirement (regardless of whether you switch jobs) and you probably need financial instruments to help you anyway.
What if I take up some long term planning now and then I decide to buy a second property later but have no money for it?
To be honest, it probably means you aren't financially ready to get the second property. However, it is reasonable for some people to retire using properties. In such cases, they made a conscious decision to use property investing as their wealth accumulation strategy, not suddenly wake up one day and randomly invest.
I don't know anything about investments. What if I pick the wrong solution?
Well, if I'm you, I'll spend time finding a good advisor over a good investment (if you have totally no interest in investing) or at least invest in learning how to invest. Hoarding cash effectively is already picking the wrong solution, in case you didn't realise. The problem is called inflation.
Adulting
Very objectively, to say people make zero plans for their money is false. Regardless of how blasé we are about our finances, many adults have no problem getting married, having kids and owning a HDB. Fair statement?
Actually, judging from the number of cars on the roads as well as the ever increasing ERP charges, many adults also have no problem saving up for their ideal mode of transport.
Above all, we hardly see people in Singapore begging on the streets. There is a homeless community but they form the minority of our population. So we are technically financially okay.
What does this tell us?
It tells us that we have no problem saving up for goals that mean something to us. You want to live with your partner alone, you can save up for a flat and its renovation costs. You want to have children, you can afford their school fees, enrichment classes, milk powder and even baby necessities. You want a car, you know how to adjust your budget to make room for the car loan and the down payment. You see? No problem!
But retirement planning isn't a conscious want. Very few people wake up thinking what happens when they stop work 20-40 years later because there's so much in life to think about right now.
Above all, how many of us grow up with aspirational retirement goals? We might grow up thinking we want to stay in a bungalow or a condo, own a sports car, own nice time pieces, get our best friend as our spouse, perhaps even hiring a maid in future... but who grows up thinking 'I just want to live my life as it is till I grow old and make sure I can maintain that life when I am old.'
You see, since it doesn't come intuitively to us, naturally we would assume it'll simply happen on its own and we will by default have the means to manage when it happens.
By now, we should know that wealth management doesn't happen on its own. We need to do something about it.
A Different Perspective To Retirement Planning
Did you know that retirement planning basically means saving up for our dream home which we cannot take a loan for?
If you run the figures of your lifestyle needs with an inflation rate of 2-3% for a retirement period of 20 years, you would easily arrive at a lump sum figure of $2,000,000. That is essentially what retirement is equivalent to. A $2M property full cash.
Now, the key differences why we are able to get our homes (potentially HDB) sooner than saving up for our retirement is because we are able to buy houses with a housing loan. You cannot get a retirement loan to cover for old age.
However, if we can view retirement planning as another goal that we need to work towards, perhaps we will be more motivated to procrastinate lesser and get started sooner. Frankly, if we no longer are able to buy homes with home loans, I foresee bigger disciplined saving habits from consumers and potentially even greater hunger to earn more.
If you think about it, retirement planning is technically like a home. Many Singaporeans view their primary residences as a necessity. Likewise, retirement planning to retain a certain quality of life is a necessity. It might be a determinant to motivate an individual to live as long as possible because they are enjoying life and the company of their loved ones or to not want to live so long because there's nothing to look forward to.
What Ifs will always exist. We need to continue planning and living even with this psychological concern. What we can influence is our perspective. Once we can learn to make sustained quality living a goal, then our money habits will evolve to cater for it just like all our other wants.
After reading this article, you may have some questions or may want to get started on your wealth accumulation journey. You can reach me by dropping me a message.
Be sure to share the article if you feel this information is helpful. You will enable a lot more people to learn about retirement planning.
About Janice
I specialize in portfolio optimization (ensuring you get maximum value for every dollar you put in) and retirement planning.
Clients look for me primarily to outsource their retirement planning needs so that they can focus on other aspects of life that interests them. Many of whom are very good in earning their incomes in their respective professions and wish to ensure their monies continue to work harder while they focus on what they are good at. Refer to client testimonials here. I've helped many clients who are referred to me reduce the costs they are paying for their insurance or help provide solutions when they deem they are stuck with huge commitments bought when they were younger but unsuitable for their present life stages. You can reach me at 94313076 or my social media accounts on Facebook and Instagram.
Disclaimer: The content created are based on my personal opinions and may not be representative to everyone or any organisation. If you have any doubts or queries pertaining to insurance or investment, please seek professional advice from a trusted adviser in an official setting. You may also reach out to me if you do not have a present adviser using the message box under 'Let's Talk'.
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