Why Credit Card Debt Just Got A Whole Lot More Dangerous!

     If you are still receiving paper notifications for your credit card bills, you would have noticed some changes in the wordings. Have you wondered what is it all about? Is it simply some random change to borrowing terms or will they really affect you? It will affect you if you have credit card debt, are paying off any loans, or have any installment payments. In this issue, we examine the changes introduced by MAS regarding unsecured loans.

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     With effect from 1 June 2015, MAS will limit the total amount of unsecured credit facilities (credit cards and personal loans) to 24 times the borrower's monthly income. This limit would then be gradually lowered over 4 years to grant borrowers more time to repay their debt. 

In summary, the borrowing limit will be introduced as such:

• 24 times monthly income from 1 June 2015

• 18 times monthly income from 1 June 2017

• 12 times monthly income from 1 June 2019 

     For example, an individual with a monthly income of S$10,000 and a total unsecured borrowing of S$240,000 (24 times monthly income) would have 4 years to reduce his borrowings to S$120,000 (12 times monthly income). 

     For individuals who are unable to pay down their borrowings, there will be a new debt repayment solution known as the Repayment Assistance Scheme (RAS). This is a scheme where borrowers will be able to repay their debts over a period of time at a much lower interest rate of about 5%.

     Secondly, if you have credit card debt, it is mandated that your bank informs you of the following 2 scenarios in your monthly statement:

1. How long it take to repay your debt if you only pay the minimum every month

     For example, if you have a credit card debt of S$5,000 and you only pay the minimum of S$150 per month, your credit statement will reflect that it takes 56 months to pay off the debt with 24% interest accrued.

2. Banks must inform the borrower how much their current debt will snowball to if they make no repayment in 6 months. 

     Using the same example of a credit card debt of S$5,000, your current credit card bill will include another column to show that your debt will snowball to S$5,630.81 if you skip the payments for 6 months

     Lastly under the changes by MAS, banks are not allowed to grant new credit lines/ facilities to borrowers if they have not paid their credit card bills for 60 days or more!

For more information, you may refer to the following FAQ: http://www.mas.gov.sg/FAQs.aspx

     The best way to manage debt is not to get into one in the first place. Excessive financial stress can be a traumatizing experience for an individual or a family. In closing, we would like to offer you 2 great tips on saving money and managing debt.

Tip Number 1: Think in terms of Percentage, not Dollars saved!

     If you make the effort to purchase a Groupon deal to dine in a restaurant, the savings can be significant. There are quite a few deals which only require you to pay $35 for a dining experience worth $50. This is a whopping 30% savings compared to dining at the same restaurant without the voucher. 

Tip Number 2: Think many times before you make that purchase!

     Many of us are guilty of buying impulsively, as a result, we have many items at home that we do not even use at all. This is an especially common for holiday goers who purchase many items on their trips and never used them.

     Finally, if you require financial coaching to reduce your debt, feel free to approach your personal Financial Services Consultant.

Do You Really Know What "Financial Planning" Is?

    Most of us would have the experience of being approached to do "Financial Planning" or to have a "Financial Review". Many Consultants simply assume that the person we are talking to understands what "Financial Planning" is. From my experience, this is a mistaken assumption. In this issue, we go back to basics to have a bird's eye view of what "Financial Planning" really entails.

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    Financial Planning is an ongoing process to help us make sensible decisions about money so that we can achieve our goals in life. It is not just about buying products like insurance. It is also much more than just investments or saving plans.

The following diagram suggests the 6 steps of the process.

Cash Management

The rudimentary step in financial planning is Cash Management.

The goal of Cash Management is to achieve the following:

1. Maintain positive cash-flow, whereby our annual income > annual expenditure

2. Use surplus cash to accumulate assets and minimize debt

3. Create passive cash income from assets

Some obstacles to good cash management include, over-spending, over-gearing in debt repayment, and accumulating debt which outgrows our assets.

Here are a few tips to overcome those obstacles - save more money than we spend or save away the money before we spend it. If our debt servicing reaches 25% of our total income, start using cash and avoid leveraging when making purchases or investments.

Risk Management

There are two major personal hazards that anyone can face - unexpected large medical bills and sudden loss of income.

Insurance policies are designed to better manage these two risks.

Examples of “low likelihood and high impact risks” include early demise, or disability. The impact will not only be felt by our dependents, our standard of living will be adversely affected.

Examples of “higher likelihood and lower impact risks” include falling sick and losing time and income during recovery. The impact varies on the severity of illness and time needed to recover.

Wealth Accumulation

Planning that fall into this category include Retirement Planning, and planning for other goals such as Children’s Education or starting a business. Besides the absolute amount we must plan for, we also have to take the impact of inflation into consideration. Inflation can have a very great impact on the amount of money we need.

For example, if we are 30 years old now and would like to retire at age 65 (35 years later); assuming we need $3,000 per month now, we would need at least $8,442 per month on retirement (based on only 3% inflation). The same principle applies for other savings goals.

Wealth Management

When we start to earn an income, we cannot avoid paying taxes. There are strategies that we can use to reduce our taxes, legally of course. Wealth Management also includes the expansion (growing our Net Worth) and distribution of assets on our demise – a.k.a. Legacy planning. For business owners, Business Succession Planning is also important.

Conclusion

The keys to successful financial planning are having good money discipline, making smart decisions and planning early. Your Financial Consultant is trained in all aspects of Financial Planning. Contact your personal Financial Services Consultant for a review to find out more.

AIA FAMILY FIRST PROTECT - Ultimate Flexibility for Protection & Wealth Accumulation

Whether we’re planning for a comfortable retirement, or looking to provide for our loved ones if we pass away unexpectedly, it’s now more affordable than ever to get the right amount of cover. There are many products and tools out there but the first question we should ask ourselves is: How much is enough coverage? The answer will vary as our life stage changes. Thus the tools we use have to be flexible enough to keep up with our changing needs.

This month we introduce the AIA Family First Protect. It is an innovative tool that is flexible enough to follow us through the different stages of our lives.

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We go through many stages in our lives from taking on our first job to getting married, welcoming a baby, planning for our children’s university education, preparing for retirement...

As we progress in life, our needs will change. As a result, our protection and coverage needs will change too.

This is where AIA Family First Protect comes in handy. It is an Investment-linked Plan (ILP) that provides us with a level of protection suited to our family’s unique needs, at affordable premiums. The level of flexibility allowed by the AIA Family First Protect is almost unmatched in the market.

Here are three ways the AIA Family First Protect plan can benefit our family:

1) Affordable Cover

The plan offers one of the highest amount of cover per dollar for the premiums we pay. For instance, a 33-year-old father supporting his wife, young child and mother is able to meet all his life protection needs for only $9.50 a day (based on a 33-year-old male non-smoker with an Insured Amount of S$495,000 for death and TPD benefits). More amazingly, premium levels can be adjusted as well. This allows the plan to grow with us as we progress in life.

2) The amount of cover we need, when we need it

Our needs are unique to our current circumstances. That’s why AIA Family First Protect enables us to choose the amount of cover that’s right for us and our family. This level of coverage can be increased or decreased as our needs change over time. For example, we can maximise our protection during our income earning years when our family depends on us; then reduce it later in life to focus more on growing our savings for retirement.

We can also choose from an extended range of protection options, using riders that cover unexpected events such as disability, critical illness, accidents and hospitalisation.

In the event of our passing, our family will receive a death benefit that comprises both our chosen cover amount plus the cash value of our policy.

3) Flexible plan to meet our financial goals

Besides protection, we can also select from a wide range of ILP sub-funds managed by professional Fund Managers. These tap on opportunities in various asset classes and market sectors. We can also switch funds at any time when our risk profile or investment strategy changes. Furthermore we are able to access our cash whenever we need it by making use of partial withdrawals.

Example,

At 29 years old

Mr Edwin Chua is a 29-year-old IT manager. He lives with his parents and is also engaged to be married. Mr Chua has a Financial Health Check and determines that he requires S$200,000 of coverage. At this stage of his life, he’s also interested in gaining potentially higher returns on his investment. He buys the AIA Family First Protect plan, and as a non-smoker, he pays a premium of S$250 per month. For added protection, he chooses to take up the optional Total Permanent Disability Benefit.

Our investment risk profile, like our protection needs, may change over time. 

Contact your personal Financial Services Consultant for a review to find out more.

Budget 2015 - how does it impact my financial planning?‏

This year’s national Budget takes major steps in four areas: investing in skills of the future, restructuring our economy by promoting innovation and internationalisation, investing in economic and social infrastructure, and strengthening assurance in retirement and enhance support for middle-income families. All these sound like nice slogans. The question remains; do any of these help us in our personal financial planning? This month we examine some parts of Budget 2015 and how it may be relevant to our individual planning.

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We've chosen some parts of Budget 2015 that are more relevant to discuss. Here they are:

Savings & Contributions:

1. Foreign Domestic Workers concessionary levy has been halved to $60 per month. More households will benefit as the qualifying criteria has been revised to Singaporeans having children or grandchildren age 16 and below.

The yearly savings of $720 should not be lightly dismissed. We must be careful not to increase expenditure; but instead put aside this amount as savings or better still, invest it in a higher yielding account.

2. The CPF salary ceiling will be raised to $6,000. Employees above age 50 will also have to contribute more into their CPF.

This means that those earning more than $5,000 per month, and those above 50, will see a decrease in their discretionary income. If you fall into either category, it is time to take another look at your monthly expenditure and prepare a new budget if necessary.

Tax Increases:

1. Increase in the marginal tax rate by 1% for those with chargeable income from $160,000 to $360,000. For those above, the increase is 2%.

Should you fall into the above categories, it’s time to sit down with your Financial Consultant to explore ways to reduce your tax liability. Strategies may include, donating to charity, and starting an SRS account etc.

2. Increase in petrol duty rates by 15 or 20 cents per litre.

For those who drive, perhaps it’s time to pay more attention to cutting down on motor expenses. One way is to get less expensive motor insurance. Speak to your Financial Consultant about this.

Onetime Benefits:

1. 20% to 100% onetime road tax rebate

2. 50% income tax rebate capped at $1,000

3. Cash injection of $300 to $600 into the Child Development Account of every child up to the age of 6. Post-secondary accounts of Singaporeans aged 17 to 20 will also be topped-up.

4. Increase in GST vouchers and S&CC rebates for lower and middle income households.

In my opinion, these measures are not very significant to our personal financial planning. These are probably meant to be “sweeteners” to soothe over the other more important changes.

These measures are simply the tip of the iceberg. For a more comprehensive overview of Budget 2015 visit: http://www.straitstimes.com/budget-2015. Also feel free to contact your Financial Consultant to discuss more. Or you can write to me as well.

No More 30 CIs! It's Now 37+++!

On 1 Aug 2014, Life Insurance Association (LIA) Singapore introduced revisions to the Critical Illness (CI) benefit framework to meet the changing needs of consumers. Two key changes were introduced:

1. Revisions to industry-wide standard definitions for severe/ late stage of 37 common CIs, to ensure clarity of the scope of the coverage of CI benefits, in line with the advances in medical practices & technology.
2. Flexibility to provide CI coverage for any number of CI conditions.

In this issue, we examine these changes and discuss how you and I are affected by them. 

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Aligned with the above changes, AIA has also made various changes to our Critical Illness plans and coverage with effect from 2 Jan 2015. As an AIA Policyholder you get to enjoy the enhanced benefits.

All changes apply to new policies and riders taken up after 3 Jan 2015.

Revision to Critical Illness Benefit

3 key changes have been made:

1. To ensure clarity regarding payouts and scope of coverage, 16 out of 37 common severe critical illness definitions have been updated.
2. 90 day waiting period applies to Major Cancers, Coronary Artery By‐Pass Surgery, Heart Attack of Specified Severity, Angioplasty and Other Invasive Treatments for Coronary Artery and Other Serious Coronary Artery Disease.
3. The 30 days waiting period for other CIs have been removed. Waiting period will only apply to specific conditions such as those mentioned above and in the policy contract. Increased Number of Late Stage Conditions

With the flexibility to provide CI coverage for any number of conditions, AIA Singapore has taken the lead to extend coverage for ALL 37 CRITICAL ILLNESSES conditions listed by LIA. The 7 new conditions added by AIA are as follows.

1. Major Head Trauma
2. Progressive Scleroderma
3. Apallic Syndrome
4. Systemic Lupus Erythematosus with Lupus Nephritis
5. Other Serious Coronary Artery Disease
6. Poliomyelitis
7. Loss of Independent Existence

As a key protection provider in Singapore, AIA has gone beyond the common 37 standard definitions prescribed by LIA. Additional 6 to 7 medical conditions have been added for most of AIA’s Critical Illness plans and riders: 

1. Creutzfeld-Jacob Disease
2. Elephantitis
3. Medullary Cystic Disease
4. Necrotising Fasciitis
5. Progressive Supranuclear Palsy
6. Severe Myasthenia Gravis
7. Acute Necrohemorrhagic Pancreatitis*

*Only available in selected critical illness plans and rider

Will my premiums increase with so much more coverage for Critical Illness?

Even with up to an additional 14 conditions covered, the good news is that premium for AIA's critical illness plans and riders will remain unchanged. This means you will get to enjoy more comprehensive coverage with no increase in price!

What happens to my existing critical illness coverage plan? 

For existing customers, your coverage will not be affected and you will continue to enjoy the same coverage with no changes in your premium.

With the changes taking place, this is also a good opportunity to review your current insurance needs.