3 Important Purchases You Can’t Afford Not To Make in Your Life

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Whether you are getting married, buying your first home or starting a new job, you will be worried about how this will affect your financial picture. You can perhaps go without that Chanel winter edition bag, or those Nike shoes, or the sleek iPhone 6. Nothing is really going to happen if you do not own them. But, there are some important purchases in life, which you shouldn’t go without. Without them, you could be heading down a visible path of a financial nightmare not only for you, but for your family too.

 

Medical conditions and deaths are never expected. Being covered by insurance helps keep your family financially safe and sound if something happens to you and you become incapable of supporting them financially anymore. If you have a family who depends on your income, then you should consider getting either one of these insurance, if not all.

There are various types of insurance policy that cater to different people. The most common insurance that everyone should get is a medical insurance. With the rising medical inflation — a dialysis session cost at least RM250 today, one serious sickness can cause one to go into bankruptcy, if he or she is not financially secure.

Life insurance is best for those who have dependents, like a stay-at-home spouse and/or school-going children. If you do not have other assets that will protect your dependents in the event of your death or complete loss of income, then life insurance is your best bet. The sum insured is not meant to support your loved ones forever, but to at least give them enough time to pick themselves up and establish a channel of income in your absence. A common rule of thumb is that a life insurance policy should cover up to 7-10 times, the insured individual’s annual income.

Other types of insurance also include personal accident insurance, home insurance, car insurance, and travel insurance.

Once you have purchased an insurance policy, make sure to periodically review your coverage, especially when you have a significant life event (e.g. birth of a child, death of a family member) and make sure that it adequately meets your financial needs.

A common mistake that people make is to be underinsured. For example, if a portion of your insurance proceeds are to be used for your child’s tertiary education, the more children you have, the more insurance coverage you will require. Another common mistake is to be overinsured. The extra money you spend on premiums could be used for other things. That is why it is important for you to get a full financial picture so you can gauge the right amount and the type of coverage that is suitable for your specific needs.

Often, just a few Ringgit a day is all you need to provide your loved ones with plenty of financial protection. There are four basic reasons:

1.    Mortgage protection

Whether you live by yourself, with a spouse or significant other, you may want to buy life insurance as mortgage protection. Think about it − you don't want the person you live with to be homeless if you die unexpectedly, do you?

Term life insurance can be used to pay off an outstanding mortgage balance. Just select a term that matches the length of your mortgage payment period. Some companies even offer decreasing term insurance, which means the death benefit decreases along with your mortgage balance.

2. Income replacement

You and your significant other may have planned for a future based on two incomes − but what if one of you passes away unexpectedly? Life insurance can be used to replace the lost income so the survivor can maintain the same standard of living.

3. Final expenses

You've seen the commercials − funeral expenses, burial costs and medical bills can add up to a hefty amount. The last thing you want is for your loved ones to shoulder this extra burden. Life insurance can be used to plan for these final expenses. Permanent life insurance is available in various amounts, so you can pick a death benefit that meets your needs.

4. College funding

Life insurance can help fund a college education. If you die, the death benefit may be invested and potentially grow to the needed amount by the time your children reach college age. Feel better knowing that you helped prepare for their future – even if you are not there to see it. Just keep in mind that investing involves market risk, including risk of loss of principal. Take care to ensure that permanent life insurance is suitable for your long-term life insurance needs. You should weigh any associated costs before making a purchase.

Investing can be daunting and sounds complicated to most, so it’s no wonder some avoid it altogether. Plus, people think if you don’t have a big lump sum to invest, it’s not worth it. But that’s not true. You can still kick-start your investment with just an initial start-up amount ofRM1,000 and be on your way to making gains. What kind of investments should you invest in largely depends on your goal, its time frame and your risk tolerance level.

Having a lot of cash doesn’t make you richer, in fact it makes you poorer. Cash is best kept as emergency savings for unexpected or short-term needs. This is because if you leave cash as it is, it is subject to inflation. RM10,000 today may not be able to buy the same amount of things 10 years later. However, a RM10,000 invested today can grow to RM 34,674.45 if you invest in an investment providing 6% interest compounded interest and RM1,200 additional investment annually.

Whether you choose to invest a small amount regularly or put a lump sum into it, it is always better than not protecting your financial future at all.

It is also important to understand the basic investing tools and accounts. These accounts can be used to help you save for retirement as well. You should understand the difference between mutual funds and money market accounts. You should also spread your wealth among several different accounts, even if you want to focus primarily on mutual funds.

You may be considering using real estate as an investment or a wealth building tool. Real estate is a great investment. However, there is a difference between flipping properties and investing in real estate for the long term. You should carefully consider the differences before you decide which one is best for you. Real estate that generates passive income is a great investment, but you need to make sure that it can cover the costs of upkeep and other potential problems as well.

A will is a legal document in which you declare your wishes for your loved ones and how to distribute your hard-earned assets after you pass on. Since death is a taboo subject, many have the impression that a will is only written by people who are dying soon, very old or have a lot of assets. This is totally not true as everyone needs to write a will.

It is hard to imagine your life ending unexpectedly when you barely have wrinkles, but writing a will should still be on the top of your to-do list in your 30s. You don’t need to be Bill Gates-rich to plan for what happens when you are no more. If you die without a will, the law decides who gets what regardless of your wishes or your family’s needs. By having a will, you can provide for your beneficiaries in the manner you prefer instead.  This is especially important for people with minor dependents (children below 18 years old).

It will help to avoid any frustrations, delay, legal conflicts, family disputes, extra cost and stress when the assets of the deceased are distributed. It is not true that your assets will automatically go to your immediate family members when you pass away. Your family may even face a long delay in obtaining their rightful inheritance. This will definitely spare your family from unnecessary heartache, emotional stress and extra expenses in the future.

Furthermore, a will is not just a document assigning your assets to your beneficiaries, but also to assign who becomes the guardian of your assets if your child(ren) is below the legal age. This is important to keep your wealth safe until your child(ren) reaches 18 years of age.

For those who have assets like properties in other countries, it is also advisable to have separate will for each country to avoid any obstacles or delays.

In addition to a basic will, be sure you have an attorney to make legal decisions on your behalf and the will document to even specify how you want your digital assets (social media profiles, digital photos, etc) to be handled.