You will be able to explain why funding all goals at once usually fails and what to protect first.
Mei and Daniel's goals sheet now has every goal from this course on it, and the total at the bottom is higher than their budget can save. Their first instinct was the fair-sounding one: give every goal a little less, in proportion, so nothing is left out. Daniel even built the formula. When they looked at what it did to the wedding, they deleted it.
This lesson explains why funding every goal at once usually fails, and what has to be protected before any of the big goals get a dollar.
Here is their sheet with the updated figures from earlier modules, all made up for the example. The wedding needs S$850 a month, from lesson 3.4, Build your wedding budget and savings plan. The home cash part needs S$500, from lesson 4.4. The car needs about S$333.33 and Daniel's diploma S$250, from lesson 1.4. Together that is about S$1,933.33 a month. Their budget can save S$1,500.
Daniel's formula gave each goal the same share of what they need, about 78% each. The wedding would get about S$659.48 a month instead of S$850. By month 30, it would have about S$25,784 instead of the S$31,200 they must pay before the day, a shortfall of about S$5,416 in the month of the wedding.
The home and the diploma would fall short by similar proportions, and so would the car. Every goal would reach its date with about three-quarters of what it needs. That is the usual result of even splitting. Each goal is a little underfunded, and the gap appears at the worst time: on the date itself, when the hotel, the HDB payment or the course fee can't wait. The fix at that point is usually borrowing, which is the outcome lesson 1.1, A goal needs three numbers before you can plan it, warned about.
Even splitting feels fair because it avoids choosing. But a goal that is 78% funded on its date isn't 78% achieved. For most dated goals, it is a goal you can't pay for.
Before any big goal gets money, two things have to be in place, because they protect all the others.
The first is an emergency fund. The Singapore personal finance system, lesson 3.1, How big your emergency fund should be, covers how to size it. Without one, a job loss or a hospital bill is paid for by raiding a goal, usually the one with the most money in it, and often just before its date.
The second is basic insurance cover for the risks that would wreck the plan: a hospitalisation, a serious illness, or the death or disability of someone whose income the plan depends on. The Singapore personal finance system, module 4, goes through these. A couple saving for a flat on two incomes has a plan that only works if both incomes continue, and insurance is what keeps it working if one stops.
Mei and Daniel already have both, which is why the S$1,500 is truly free for goals. If you don't, the first call on your saving is to build them, even though it means the big goals start later.
Among the big goals, the ones that come first are those with a fixed date and a high cost if you miss it.
A wedding with a booked venue is fixed, and missing a payment can mean losing deposits. The cash due when you collect a flat's keys is fixed, and failing to pay it can mean losing the flat and what you have paid so far. These goals get funded in full.
Goals whose date can move without much harm come after them. Daniel's diploma runs several intakes a year, so starting a few months later costs little. The car is optional, so delaying it costs almost nothing in money, only convenience. These are the goals that bend to make the plan fit, and lesson 8.2, A ranking method for competing goals, turns this into a scoring method.
Retirement can feel like the least urgent goal because it is the furthest away. For most employees in Singapore, CPF contributions keep going whatever you choose, so retirement saving doesn't stop. But it can be thinned out without anyone noticing, mainly by using a lot of CPF for housing, as lesson 4.3, The trade-off of using CPF for your home, showed.
So when you rank goals, keep an eye on retirement even though it isn't on your goals sheet as a monthly figure. Note how much CPF your housing plan uses, and whether any voluntary saving for retirement is being dropped to fund nearer goals. If it is, write that down as a trade-off, so it is a decision rather than a side effect.
Open your goals sheet for the activity. You'll go through each goal and think through what would happen if it arrived late.
Mark each goal in your sheet as fixed, flexible or optional, and note what happens if each one is late.
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