6 Death Traps to avoid in Financial Planning

Posted 27 October, 2016 by Clearly
in Pitfalls to Avoid

No one has any intention to fail, especially when it comes to their own financial future. Your friends, family, spouse, all have the best of intentions for you when it comes to financial planning.

Yet we know what the road to hell is paved with.

Good intentions are just not enough. What is also needed is proper knowledge to combat common mistakes and misconceptions that could lead to disaster when you least expect it.

We present 6 Death Traps that occur time and time again, in the hopes that you will be able to avoid them (like the plague).


Death Trap 1


Keeping  financial goals in your head (or not thinking about it at all)


Does this even work?


 Memory is fallible, and many of us can’t even remember what we ate for breakfast. Not having firm financial goals set in stone increases the risk of succumbing to temptation for short cuts. 


The Fix – Write them DOWN!


Having aspirations is one thing, realizing them is quite another given the fact that the relentless fantasizing actually reduces the odds and increase your chance of achieving it. The science behind this is motivation, as researchers suggest. Hence, simply writing your goals bridges the gap between where you are now and where you want to be.

Just by writing your goals, you are already ahead of 2/3 of the general population.


A written plan may often address some of the most important issues faced by an individual.


What should be in our goals?

Things like increasing your net worth and increasing your cash flow. Your net worth goal could be, “Increase my net worth by 10% or more, which means that my net worth will be $220,000 or more by the end of the year.”

Your cash flow goal could be, “Increase my monthly cash flow by $100 by taking less taxi rides and eating more often at home.”

Think about the other things you’d like to achieve this year that requires you to budget for it. Maybe you want to save for a vacation or buy an investment property. Maybe you want a higher return on your investments or to increase your income by a certain amount this year. Maybe you want to increase the amount you’re saving for your kids’ tertiary education by $200 a month. Whatever your goals are, write them down!


Death Trap 2


Setting financial Goals that are beyond your control


..and above all, I pray for the Index to top 4000 by next Tuesday at 3.45 pm..


A familiar example would be to say, grow my investment portfolio to $200,000 by year end. If the market booms – congratulations. If it tanks – then what? Either way, both outcomes influence your financial behavior adversely later.


The Fix – Set a Goal that you can influence positively


Commonly, people who are already investing would aim to have their portfolio achieve a certain dollar amount or milestone in a year.

Sadly, this goal is hard to ensure that we achieve. In fact, it’s nearly impossible for investors to control, at least in the short term.

In short term, investors do not have control over the markets. Markets will always be unpredictable, even expert investors and their “robust” algorithms systems have a hard time ascertaining how the market would turn out tomorrow.


A better goal is to focus on what you can control, for example maximizing the use of some of your surpluses through leveraging CPF’s risk-free interest rates. It can be that you decide to set aside your surplus and voluntary contribute to your CPF accounts and calculate how much you want to see in your OA, SA and your MA account by the end of the year. Of which, when you turn 55, the monies in your OA and SA would be transferred to our Retirement Account (RA) to form your retirement nest egg.

This goal is much more measurable and within your control. It is a goal which can help remove market volatility from the equation and can increase long-term financial success.


Death Trap 3


Picking a retirement age randomly


I rolled 28! What about you?


This one is pretty obvious, yet oh so common. 65 sounds like a reasonable figure – I’ll take it!


The Fix – Decide when to retire and prepare retirement plan based on facts and figures


To save towards a comfortable retirement requires some clear goals on how much you are going spend, based on what would be your desired lifestyle when you retire.

If you are just picking a number out of thin air without proper assessment, you might end up in shock that your retirement years are very far off. Some retirees approach retirement with little preparation, landing themselves in a situation where there is an income shortfall when retirement age becomes near.

Do not use the government statutory retirement age as your benchmark, it does not provide certainty that you can retire by that age.


You should instead find confidence in your retirement plan with the guidance of a competent adviser.

When you are in your late 20s or early 30s, it can be hard to get yourself down to the concept of saving for future use if it is decades away. The problem with such a mind-set is that it misleads you to believe there is an indefinite amount of time to prepare for retirement.

The fact is waiting to start saving makes it harder to catch up later on. Instead of setting aside 10% or 15% of your income now, you might have to save 20% or 25% if you wait until you’re 40 to end up with the same amount at retirement.


Death Trap 4


Thinking that now is not the right time for Financial Planning (“Maybe later”)


The checkmark of Death


When is it ever a right time? There is always that holiday, car, gadget, hobby just lurking around the corner.


The Fix – Overcome your excuses


The common excuse we tend to give ourselves is that it’s not the right time to begin a financial plan and the reasons can be many; for example:


  • I just started work, my income is not high enough
  • I am just starting to pay down my study debt, and buying a house
  • My family has a lot of expenses
  • I am paying for my child’s university fees
  • It’s too late to start now. (Really?)

Well, you may have all these reasons that seem really valid, but you do want to retire someday right? Why put needless hurdles in the way of financial success?


To get started with a financial plan can be easy.  There is a quote that we used to hear our parents or teachers say, “crawl before your walk”. If you know the wisdom in this, the first step would be to budget your pay-check monthly, setting aside a portion to get yourself properly insured and some to invest into your future. As your income grows, increase your allocation for insurance and investment. In addition, you can also save 50% of your yearly bonuses or pump it into your investments.

In other words – take baby steps. The rest will follow suit. No more excuses, thank you.


Death Trap 5


Looking for short term returns


Haha! The Index climbed by more than 245% last night! So has my blood pressure!


Diligently setting aside a few hundred dollars a month seems like tedious work for small returns. Wouldn’t it be better to plow it all into exciting stocks with huge upside potential for faster gains? Early retirement is easy! 


The Fix – Don’t kid yourself, get out of your own way


 Striking the lottery or doubling up your money on the stock/property market are events that fall in the category of improbable possibilities.

Although not entirely impossible, they are highly unlikely. If you’ve won the lottery before, then perhaps you can count yourself lucky. However, this kind of occurrence does not happen every other day. Least of all to you.

For the majority, it’s going to take (much) more than a stroke of luck to make our financial plan a success.

There are no get rich quick schemes. Nearly everything in financial planning requires time and is based on the long term. Be it compound interest, investment savings or building our retirement nest egg.


There is a Chinese saying that goes like this, endure the bitter first and enjoy the sweetness later. With every decision in financial planning and investing, we exchange one risk for another or one benefit for another.

For example, when we save, we’re giving up instant gratification.  We know that we can use this money now to buy something nice, go out to dinner, or buy a new toy. However, when we chose intentionally to save in an effort to afford retirement, we are essentially delaying gratification.

Many investors fall into the trap of making short-term decisions due to irrational exuberance, putting themselves in an undesirable situation.


Death Trap 6 


Thinking you can do it alone


Cue the macho music!


Chuck Norris never needed any help, neither do I!


The Fix – You need to hear the opinion of a professional (or two)


 There are people who inherently dislike insurance agents or financial planners. These people would rather do their own planning.

The fact is these professionals have a pivotal role in your financial planning.

Whether you agree or disagree, it is also not easy to look at our own work with the same clarity as an outsider.

Most people do not understand how numbers like savings rates, expected rate of return and volatility would translate into changes in their lifestyles when they are old. Financial planning and forming investment strategies over a period of years can be a treacherous task if it is done on your own. The end result is similar to what you might expect if most of us try to cut our own hair: a mess.


To avoid being in that situation, consult your financial planner to help you evaluate the “what if” risks of retirement. For example, what if I die early, what if I need long-term care, what if the market tanks, or what if inflation increases?

Engaging an adviser can prevent you from making financial mistakes that are irreversible. A second (or third) opinion never hurt.

And FYI, Chuck Norris has 2 accountants, a tax lawyer, and a team of investment professionals working for him. True story.


This article was contributed by Zest Chia, and he represents an independent Financial Advisory firm. He wrote this article in the hope of educating more people and assisting them in their finances. He has helped more than 230 people avoid financial death traps since he started. You can reach out to him at 9675 9587.

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www.ClearlySurely.com aims to eradicate the knowledge gap between consumers and Life Insurance. Our Vision is that one day, every Man, Woman, and Child will be properly insured.

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