How Freelancers Can Use Basic Financial Planning Skills to Thrive In Today’s Pandemic & Beyond
Keynote by: Dennis Toh
Part-Time Lecturer ∙ Freelance Model & Actor ∙ Investor
COVID19 Pandemic: As freelancers, we experience higher income uncertainty than before today, with lesser engagements, cancelled projects & lost business.
We often think about our financial ability to pay off our obligations, as the next round of bills & expenses looms. We wonder when the pandemic is going to get better.
The need for Basic Personal Financial Planning skills has never been more important than now, & it isn’t difficult to learn them.
Using this proven set of skills, we will be able to better manage our finances, live under constraints & yet - still grow our wealth in the process.
This way, we gain substantial peace of mind, knowing these skills can make us money even in a crisis, & secure our financial future.
In this section, we look at how a professional freelancer, Dennis Toh, sustains his income & grows his wealth by using basic personal financial planning principles, accumulated over the years.
“Basic Financial Planning: At Each Life Stage, You Must Have Certain ‘Financial Planning Instruments’ In Place.”
“Those days of late payments, monitoring income & expenses in an Excel Spreadsheet”
“No CPF, benefits e.g. Work-Injury compensation, Personal Accident coverage etc.”
Under today’s income uncertainty, he is of the view that basic financial planning for Freelancers should cover 3 critical areas: Insurance, Investing & Budgeting:
1. Insurance
Our needs differ at each phase of life. As we grow, each life stage necessitates the need for different insurance plans.
Freelancers: It’s time to re-look at our current insurance policies, & here’s what Dennis recommends for sufficient coverage:
• Savings Plan
• Life Policy Plan
• Critical Illness Plan
• Hospitalization Plan
• Endowment Plan
*For Hospitalization Plans: Get an integrated shield plan with a rider for good coverage.
All these ensures we are sufficiently insured at a basic level, so that we can pay off hefty medical bills, car or housing loans etc when the time comes.
2. Investing
Consider investing in Stocks, ETFs, Stocks, Bonds or Futures e.g. Oil, Gold, Silver etc. Make your money harder work for you.
Investing has its risks, but when you do it right, you make good returns, & over time, you realize you have an additional income skill - for life.
For starters, make sure you learn the ropes first before jumping in e.g. Stock Market Basics, analyzing company performance, how to invest & what to look out for before investing in a stock etc.
All so that you reduce your learning curve & minimize losses – by learning proven investment strategies from other successful investors.
Start protecting yourself against future possible financial problems & growing your wealth - by learning how to invest today.
Additional Tips for Starters:
• Never invest in something you don’t know.
• Never invest money you cannot afford to lose.
• For sound investment advice, always seek out a qualified professional.
3. Budgeting
In daily living, money is largely about how much we earn VS how much we spend.
Dennis reveals his “4-3-2-1” Budgeting Strategy which has worked consistently for him all these years, based on a $1,000 benchmark in earnings:
• 40% to Big Ticket Items E.g. Travelling, Equipment such as laptops, gadgets etc.
• 30% to Daily Expenses e.g. food, sports, groceries etc.
• 20% to Insurance
• 10% to Savings & Investments
“How The Time Value Of Money Affects Our Spending, Budgeting, Borrowing & Investing”
With inflation & price fluctuations in an uncertain future, the value of the money we have now is way more than what we are going to have for the future.
• SPENDING: What costs $10 today will cost $25 in 9 years, & what costs $3 now will cost $6 in future.
• SAVING: Saving money today has its merits & value in terms of fulfilling future necessities.
• BORROWING: To enjoy the benefits of e.g. buying a car, you borrow - & repay it slowly with interest.
• INVESTING: By Investing correctly, we maximize the value of our surplus money.
This is why understanding the time value of money is so important as part of basic financial planning.
Think of it as buying a screen protector for your new iPhone: To protect against loss of income in unforeseen circumstances.
Now let’s look at something that impacts every single one of us – planning for retirement.
“Retirement Planning for Basic Living In Old Age”
You know as well as I do that freelancers are not entitled to CPF, so we need to find other ways to make more income & save up for basic living in old age.
At the same time, if you’ve got CPF from having worked full-time before turning freelance, you can start growing your golden financial nest egg for your retirement by investing your CPF:
*As you can see, to earn higher expected returns, OA balances above $20,000 & SA Savings above $40,000 could be invested in higher-risk instruments via the CPF Investment Scheme, or the new Lifetime Retirement Investment Scheme when it is available.
Now upon age 55, our CPF Ordinary Account (‘OA’) & Special Account (‘SA’) will combine & a minimum amount $181,000 (Year 2020) will have to be transferred to our Retirement Account (‘RA’).
Based on $181,000, we estimate our current monthly payout for life from age 65, to be $1,390 to $1,490.
15 years later, with inflation etc, we estimate this amount to be $3,067 per month. As we speak, bear in mind that the Retirement Amount is always increasing.
In short, Retirement Planning is like an Endowment Plan: Start saving for 10 years, let your money roll & at age 65, you get a monthly payout.
Say you put in $60,000, the net accumulative amount you can get back at 80 years old, is about $200,000 (*ballpark figure)
“CONCLUSION: Key Takeaways & Golden Nuggets”
Basic Financial Planning for Freelancers should cover:
• Insurance (Medical, Hospitalization, Critical Illness, Accident Coverage)
• Investing
• Budgeting
• Retirement Planning.
Understand the Time Value of Money & plan your finances for the future accordingly. This should include saving up for rainy days & ensuring you have at least 6 months’ in savings.
Accumulate funds to buy your 1st house, & contribute as much as you can to CPF & Medisave, to cover for hefty medical bills in old age. A house is an asset (A car is a liability).
Always monitor your own cashflow & explore additional income streams e.g. investing. Remember to file your taxes properly & do not chalk up credit card debts.
Now that you understand how you can use basic financial planning skills to manage your finances better & grow your monies, it’s time to take action.
And it starts today.
*In Our Next Article (Part 2): Freelancer & Avid Investor, Sean Cheong, joins us as we cover common misconceptions on investing in stocks, that prevent people from getting started.
*For more details on other workshops for freelancers, simply reach out to CreativesAtWork at contact@creativesatwork.asia or follow us on our Facebook/Creativesatwork.asia or subscribe to our YouTube channel at youtube.com/creativesatwork
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