On this year Mother’s Day, our Senior Correspondent on Sunday Times, Ms Lorna Tan wrote an amazing article titled “This Mother’s Day… Give a gift that keeps on giving”. There are 6 simple steps that we can do for our mothers so that they can have a long lasting gift on mother’s day…
- Emergency Funds
General rule of thumb for all our mothers is to keep at least 6 months of cash reserves and they can be parked in cash or near cash instruments such as savings, fixed deposits or money market funds.
[Author's Comment] As much as we like to keep as much money for emergency, most of the time, our Mothers might not have that much of money, hence they become our dependent. What most people do in this situation is to buy a relative cheap term insurance on ourselves to cover the survival needs of our loved ones. - Review of your Mother’s portfolio
There are different options for our Mothers, depending the adviser is from the Bank, insurance agents or Independent Financial Advisers – Annuity products, Structure Deposits or Unit Trust. Most of the Money Gurus advised against Shares due to the volatility.
[Author's Comment] Thanks to CPF Life, generally we have a so much better annuity product for our Mothers. However, to sustain a current lifestyle, what it offers is NEVER enough. Hence, most of the time, a more conservative portfolio of Unit Trust is recommended due to the liquidity. One of the very popular funds for this age group is First State Dividend Advantage which focuses on giving out cashflow (dividend) as a form of passive income. - Love Program
Money Gurus cannot emphasise enough about covering medical bills for our Mothers. They are encouraging us to use either our or parents’ Medisave to enhance their Medishield and Eldershield plans.
[Author's Comment] Foundation is always the key to how stable is all our Building. Similarly, Medical bills is the largest financial leakages to our Financial Plan, therefore we need to give our Mothers’ the strongest foundation that we can afford. Based on current CPF Act, we are allowed to use our own Medisave Account $800 per year for enhancement of our Parents’ Medishield and $600 per year for enhancement of our Parents’ Eldershield. Please be sure to take advantage fully of it as we cannot touch Medisave Account money except for bills. - Withdrawal Strategy
Generally most Money Gurus recommend our Mothers’ to have 2 pots of money – One for her living expenses and another is a low-risk portfolio which we touched on earlier. The 2nd pot is to make sure we don’t lose money safely, hence the need to hedge against inflation of 3 to 4%.
[Author's Comment] I generally prefers the Money Jars concept when comes to Cashflow Management. If proper Financial Planning is done for our Mother when they are at about age 40, I don’t think there will be an need to sell off the flat. The key is to start as early as possible.
- Estate Planning
Though a very sensitive topic but nevertheless, an utmost important issue to tackle. This includes our Mothers to make a will, update her CPF Nomination and apply for a lasting power of attorney (LPA) with regards to the newly implementation of the Mental Capacity Act.
[Author's Comment] The difference between the Will and the LPA is this – The Will handles the person’s wishes after death but the LPA handles the person’s wishes while alive but without mental capacity. And like what Ms Lorna said, please keep all legal documents properly known to the “donees” for LPA and executors of our Mothers’ will. You might want to consider talk to a Will Specialist to get started. - Investments to avoid
Generally, shares and foreign currencies are highly not recommended due to the high volatility of its nature. Unless our Mothers have the time to tide through any major market corrections, otherwise, generally it is safer to tag along the portfolio the Money Gurus mentioned earlier.
[Author's Comment] For most Mothers, a conservative portfolio is definitely recommended due to volatility and time constraint. The only other option I would recommend is seriously to use the Cashflow Concept to give our Mothers a better and far more secured way of a long lasting gift to them. Register yourself @ CashFlow 101 Singapore to play the Cashflow game with us to learn about the concept!
