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http://www.asiaone.com/Business/My+Money/Opinion/Story/A1Story20101130-249991.html
Thu, Dec 02, 2010
Young Parents
Can I afford to...
What should you consider before making these major money decisions? Young Parents finds out from the experts.
...send my kid to university?
About $110,000 - that's what a four-year, non-clinical course at a local university will cost 10 years from now, according to Consumer Minds International research, an independent survey commissioned by AIA in September this year. It's $235,000 for Australia, $270,000 for the UK and $290,000 for the US.
In 20 years' time, OCBC Bank projects that you'll need $96,413 for a three-year local university education.
Anne Tay, vice-president, Wealth Management Singapore at OCBC Bank, stresses: "You need to start planning as soon as your child is born." The principle being, the earlier you begin, the smaller the sum you have to set aside every month.
Endowment plans are very popular among parents planning for their children's overseas education, she notes. They yield better returns than sticking the money in a fixed deposit, and keep you disciplined about regularly setting aside money.
For instance, a mother with a one-year-old could set aside $2,400 every year for 12 years under AIA's Smart Growth 18 plan. She'd get $47,604 when it matures, assuming a projected return of four per cent at maturity.
If you're willing to take risks, investing in stocks could reap a higher rate of return. But this is subject to the rise and fall of stock markets, warns Willy Lim, head of Risk at Ipac, a financial planning firm.
He adds: "Like everyone else, parents should not put all their eggs in one basket."
...move to a bigger home?
Space is tight with two kids and another on the way. But before you commit to that new condo, Anne says you should do an affordability check. Under the new property rules, your new home is considered your second property because you haven't sold your current place yet.
You can borrow up to only 70 per cent of the valuation price, which means you'll need to cough up 30 per cent as down payment. Plus, you have to pay 10 per cent of the price in cash as part of this payment.
Anne recommends this rule of thumb: Make sure you use no more than 35 per cent of your take-home pay to service all your debts. (Take-home pay is your salary after you've subtracted income tax and the employee CPF deduction.) So, for example, if your salary is $5,000, you should spend only $1,750 to pay off your condo, car and credit card bills.
Don't forget the other out-of-pocket expenses you'll need for the home: money for stamp duties, moving expenses, home insurance, and furniture and fittings.
Keep at least six months' worth of household expenses in savings or fixed deposits that you can quickly cash out if there's an emergency, like if one of you is retrenched.
...have another child?
You'd love to have Baby No. 2 or 3, but how will it affect the family?
Shikha Gaur, senior vice-president of Licensed Financial Adviser Representatives with Ipac, says it's important to consider the financial implications. A recent study by the US Department of Agriculture shows it costs about $300,000 to raise a child - and that excludes the costs of childbirth and university fees.
That said, Anne points out that there are now loads of government schemes that help. These include the Baby Bonus as well as infantcare and childcare subsidies. On the tax front, you can claim the Parenthood Tax Rebate (from $5,000 for the first child to $20,000 for your third) and Working Mother's Child Relief (15 per cent of your earned income for the first kid, 20 for the second, and 25 for subsequent children).
Weigh the costs against your original financial goals - A new house in five years? Retirement at 45? - and accept trade-offs, like having to reduce your lifestyle expenses or working longer. After all, can you put a dollar value on a lifetime supply of hugs and kisses?
Get a copy of the November 2010 issue of Young Parents to read about Singapore's No. 1 Parenting Magazine. Young Parents published by SPH Magazines is available at all newsstands now.
Check out more stories at Young Parents online, www.youngparents.com.sg.
Thu, Dec 02, 2010
Young Parents
Can I afford to...
What should you consider before making these major money decisions? Young Parents finds out from the experts.
...send my kid to university?
About $110,000 - that's what a four-year, non-clinical course at a local university will cost 10 years from now, according to Consumer Minds International research, an independent survey commissioned by AIA in September this year. It's $235,000 for Australia, $270,000 for the UK and $290,000 for the US.
In 20 years' time, OCBC Bank projects that you'll need $96,413 for a three-year local university education.
Anne Tay, vice-president, Wealth Management Singapore at OCBC Bank, stresses: "You need to start planning as soon as your child is born." The principle being, the earlier you begin, the smaller the sum you have to set aside every month.
Endowment plans are very popular among parents planning for their children's overseas education, she notes. They yield better returns than sticking the money in a fixed deposit, and keep you disciplined about regularly setting aside money.
For instance, a mother with a one-year-old could set aside $2,400 every year for 12 years under AIA's Smart Growth 18 plan. She'd get $47,604 when it matures, assuming a projected return of four per cent at maturity.
If you're willing to take risks, investing in stocks could reap a higher rate of return. But this is subject to the rise and fall of stock markets, warns Willy Lim, head of Risk at Ipac, a financial planning firm.
He adds: "Like everyone else, parents should not put all their eggs in one basket."
...move to a bigger home?
Space is tight with two kids and another on the way. But before you commit to that new condo, Anne says you should do an affordability check. Under the new property rules, your new home is considered your second property because you haven't sold your current place yet.
You can borrow up to only 70 per cent of the valuation price, which means you'll need to cough up 30 per cent as down payment. Plus, you have to pay 10 per cent of the price in cash as part of this payment.
Anne recommends this rule of thumb: Make sure you use no more than 35 per cent of your take-home pay to service all your debts. (Take-home pay is your salary after you've subtracted income tax and the employee CPF deduction.) So, for example, if your salary is $5,000, you should spend only $1,750 to pay off your condo, car and credit card bills.
Don't forget the other out-of-pocket expenses you'll need for the home: money for stamp duties, moving expenses, home insurance, and furniture and fittings.
Keep at least six months' worth of household expenses in savings or fixed deposits that you can quickly cash out if there's an emergency, like if one of you is retrenched.
...have another child?
You'd love to have Baby No. 2 or 3, but how will it affect the family?
Shikha Gaur, senior vice-president of Licensed Financial Adviser Representatives with Ipac, says it's important to consider the financial implications. A recent study by the US Department of Agriculture shows it costs about $300,000 to raise a child - and that excludes the costs of childbirth and university fees.
That said, Anne points out that there are now loads of government schemes that help. These include the Baby Bonus as well as infantcare and childcare subsidies. On the tax front, you can claim the Parenthood Tax Rebate (from $5,000 for the first child to $20,000 for your third) and Working Mother's Child Relief (15 per cent of your earned income for the first kid, 20 for the second, and 25 for subsequent children).
Weigh the costs against your original financial goals - A new house in five years? Retirement at 45? - and accept trade-offs, like having to reduce your lifestyle expenses or working longer. After all, can you put a dollar value on a lifetime supply of hugs and kisses?
Get a copy of the November 2010 issue of Young Parents to read about Singapore's No. 1 Parenting Magazine. Young Parents published by SPH Magazines is available at all newsstands now.
Check out more stories at Young Parents online, www.youngparents.com.sg.
