The financial planning consists of 6 steps that help you take a “big picture”

look at where you are bow, what you may need in the future and what you
must do to reach your goals.

Question 1

You are to navigate through “Consumer Zone-The Library-Consumer Guides-

Planning for your Family’s Financial Future” hosted by Life Insurance
Association at www.lia.org.sg and make your own notes on the following:

a) Identify the 4 steps to prepare a Monthly Cash Budget. (8 marks)

b) Using your own example, outline the differences between “Needs” and
“Wants”. (4 marks)

c) You are to construct your own Monthly Cash Budget by referring to the
Template shown on page 8 of “Planning for your Family’s Financial
Future” guide and
I. State Your Total Monthly Saving Goal and the time frame to
achieve it (12
marks)
II. Identify which expense items that you would like to reduce
(4 marks)

d) Outline the 6 major areas of Financial Planning (12 marks)

Answer 1

a) The 4 steps to prepare a Monthly Cash Budget will be:

1. one will need create a list of all his/her monthly income (what
he/she earns)
 2. besides that he/she will need to create a list of what he/she plan to
spend on (targeted expenses) and a list of all monthly expenses
(what he/she spend). If the expenses are not incurred monthly,
prorate them on a monthly basis.
For example, if he/she pays $110 for the televisyen license at the
start of the year, this is equivalent to $9.17 per month.

3. this is followed by setting aside a fixed amount of savings every

month. As a guide, he/she should have savings equivalent to six
months of your salary as emergency fund at any point in time and

4. eventually a budget will need to be developed and followed it in a

disciplined manner.

b) “Needs” are referred to something that a person have to have, while

“Wants” are something that a person would like to have.
For example I will need to have a roof over my head for shelter, enough
food and water to maintain my health and clothing to remain comfortable
and appropriately dressed. However, to have a big house, or a branded
dress and shoes, or a spread of buffet will all be examples of my wants.

c) MY FAMILY PLANNING BUDGET

Monthly Income

Average monthly take home pay (includes dividends,

interest, rental income, and cash profit from selling $ 3440
shares)

Monthly Expenses Using Cash (Priorities: 1 – needs 2 – wants)

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 Actual Targeted
expenses expenses Priorities
($) ($)
Fixed Expenses
Savings 200 500 1
Mortgage repayments (cash)/ Rental payments NA NA 1
Conservancy and property taxes 1
Insurance 1
Income Tax 1
Children’s education 1
Allowances for parents and children 1
Maid 350 350 1
Transport
Car loan repayments 360 360 1
Motor insurance and road tax 1
Car park fees 65 65 1
Petrol and maintenance expenses 1
Public transport 1
Utilities and house maintenance
Utilities bills 1
Home telephone 1
Mobile phone 1
Cable TV & Internet 1
Food and necessities
Groceries 1
Eating out 2
Clothing and personal maintenance 1
Health and medical 1
Miscellaneous
Tour and family outings 2

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Entertainment 2
Hobbies and sports 2
Others 2
TOTAL

I.

II. I would like to reduce my eating out sessions, tour and family outings as
well as entertainment as these are considered to be my wants rather than
my needs.

d) the 6 major areas of Financial Planning are:

1. Cash Flow Management which deals with how you allocate your
income to meet daily expenses, and how you set aside sufficient
money and other assets to meet future financial goals.

2. Risk Management is referring to one of the most important areas of

financial planning. It means making sure that you have enough family
income in the event of unforseen circumstances such as pre-mature
death, disability or illnesses.

3. Investment Planning involves putting your assets in different financial

instruments to meet your investment goals and to grow your wealth.

4. Retirement Planning focuses on building up waelth during your working

years to achieve financial independence when you retire.

5. Tax Planning deals with minimising your taxes through the use of
various tax benefits and incentives.

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 6. Estate Planning is the final phase of planning thata allows you to plan
for the transfer of your assets to your beneficiaries with minimal
hassles and estate taxes.

Question 2

You are to navigate through “Consumer Zone-The Library-Consumer Guides-

Your Guide to the Nomination of Insurance Nominees 2009” hosted by Life
Insurance Association at www.lia.org.sg and answer the following questions:

a) Briefly describe the differences between Trust and Revocable Nomination

(6 marks)

b) Explain how Trust and Revocable Nomination differ under the following
circumstances: (12 marks)
I. Payment of Policy Proceeds
II. When a Nominee Dies before the Policyowner
III. Revoking a Trust and Revocable Nomination

Answer 2

a) When the policyowner make a trust nomination at the time of buying a

policy or at any time after the policy is issued, he/she will lose all rights to
the ownership of the policy. This means all proceeds (living and death
benefits) from the policy will belong to the nominees he/she named. While
the policyowner is still requireded to pay the premiums for the policy, all
the benefits of the policy belong to the nominees. Meanwhile when the
policyowner make a Revocable Nomination, he/she will continue to retain
full rights and ownership over the policy. This means that he/she can
change or revoke a nomination at any time without needing the consent of

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 the nominee or nominees. Only the death benefits from the policy will go
to the nominees. All living benefit will be paid to the policyowner.

bI) Payment of Policy Proceeds

For Trust Nomination, in order to ensure the nominees receive the

benefits from the policy, the policyowner must notify his/her insurance
company and send the completed Trust Nomination Form to the company.
When this done, all benefits from the policy, both living and death
benefits, will be released to his/ her nominees.

If the policyowner name a trustee other than himself / herself, the

proceeds can be paid to his/her trustee. If the policyowner name himself /
herself as the only trustee, the proceeds will be paid to the nominees who
are 18 yeards old and above and to parents / legal guardians (who are not
the policyowner) of the nominees below the age of 18 years of age.

For Revocable Nomination, in order to ensure the nominees receive the

benefits from the policy, the policyowner must notify his/her insurance
company and send the completed Revocable Nomination Form to the
company.

Living benefits such as the benefit to be paid to the policyowner should

he/she come down with a critical illness will be made to the policyowner
himselff. On his/her death, the remaining death proceeds, if any will be
paid directly to the nominees.

If any of the nominees are below 18 years old, the proceeds will be paid to
the parent or legal guardian.

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bII) When a Nominee Dies before the Policyowner

For Trust Nomination, should the nominee dies before the policyowner, his
share of the policy proceeds will go the nominee’s estate.

Whereas, for the Revocable Nomination, if there is only one nominee, a

revocable nomination will automatically be revoked on the death of the
nominee. If there is more than one nominee, a revocable nomination will
automatically be revoked on the death of all the nominees.

If there is one surviving nominee, all the deceased nominees’ shares will
be added to the surviving nominee’s share of the death benefits.

If there is more than one surviving nominee, each deceased nominee’s

share will be added to each surviving nominee’s share in proportion to
each surviving nominee’s initial share. This amount is calculated
according to the formula prescribed by the Insurance Nomination Law.

bIII) Revoking a Trust and Revocable Nomination

Use a prescribed Revocation of Trust Nomination Form to get the written
consent of a trustee who is not the policyowner, or of every nominee. The
policyowner must notify his/her insurance company and send the
completed Revocation of Trust Nomination Form to the company.

As for the Revocable Nomination, since the policyowner retain the full
rights and ownership over the policy, he/she may revoke his/hers existing
nominations and make another new nomination at any time. The
policyowner will have to notify the insurance company and a completed
Revocation of Revocable Nomination and new nomination form must be
sent to the company.

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Question 3

You heard about “Structured Deposits” over the media and you are interested
to know about it. You navigate through “Publication - Consumer Guide -
Investment Know How - Common Investment Products - Making Sense of
Structured Deposits” hosted by MoneySense at www.moneysense.gov.sg,
answer the following questions:

a) Briefly explain what is a Structured Deposit and its main characteristics

(6 marks)

b) Identify the 4 factors to consider before investing in Structured Deposits

(12 marks)

c) List the 3 types of Structured Deposits (6 marks)

Answer 3

a) A structured deposit is essentially a combination of a deposit and an

investment product, where the return is dependent on the performance of
some underlying financial instrument. Typical financial instruments linked
to such deposits include market indices, equities, interest rates, fixed-
income instruments, foreign exchange or a combination of these.
Structured deposits have some important characteristics that distinguish
them from traditional deposits. Structured deposits have variable returns,
and in some cases, variable maturities as well.

Variable returns - Structured deposits generally provide the possibility of

higher returns compared to fixed deposits. However, you should balance
this possibility of higher returns against the risk of variable returns. In
some scenarios, you may get lower or no returns at all.

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 Variable maturities - Structured deposits have maturity periods that vary
from as short as 2 weeks to as long as 10 years. This means that you may
not be able to use your money for other purposes before maturity. Some
structured deposits include an agreement that enables the bank to redeem
or "call" the deposit before the maturity date for reasons specified in the
terms and conditions of your contract. Where a structured deposit is
callable, you can expect to receive, at a minimum, the full value of your
principal. Depending on the circumstances, this early redemption feature
may benefit you. For example, if you wish to use your money in other
ways, you can get back your principal (and possibly, additional returns) as
soon as redemption occurs. You may, however, be exposed to
reinvestment risk. This is the risk of having to invest your money in a low
interest rate environment when interest rates fall.

Depending on market conditions and your specific investment needs, a

structured deposit may or may not be a good investment to put your
money in. You should ask your financial adviser to explain the risks and
returns of the product under various market conditions.

Furthermore, unlike fixed deposits, structured deposits are not covered

under the Deposit Insurance Scheme.

b) The 4 factors to consider before investing in Structured Deposit will

be:

 Liquidity. Consider your liquidity needs as your money will be tied up for a
period of time and early withdrawal may result in loss of part of your return
and/or principal. Make sure that you have sufficient savings set aside
before investing in structured deposits.

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  Risks. Determine whether you have the risk appetite for these products.
Structured deposits are riskier than normal fixed deposits. You should
understand the risks involved and what will happen in a worst-case
scenario. If you are unsure, seek financial advice from a professional.

 Returns. As structured deposits are tied to underlying financial instruments

such as market indices, equities, interest rates, fixed-income instruments,
foreign exchange, or a combination of these, you should understand how
the performance of these instruments affect the return on your deposit.
Remember that past performance is not necessarily indicative of future
performance.

 Terms and Conditions. Read the terms and conditions and other
documentation of the structured deposit carefully before making any
commitment. If you do not understand how the product works, seek
clarification. Do not buy anything you do not understand.

c) 3 types of Structured Deposits are:

i) Equity or Bond-linked which are linked to stocks, or a basket of

stocks, as determined by the issuer. These deposits may
also be linked to an equity index (for example, the S&P 500)
or a group of indices.
Bond-linked deposits are linked to bonds (for example, Singapore
Government Securities).

ii) Interest rates-linked. Returns for such deposits are usually linked
to a formula that makes reference to a specific floating
interest rate (for example, the Singapore Interbank Offer Rate).

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 The formulas used for such deposits may display a number of
characteristics. Instead of being directly related to the
specified interest rate, your returns may be inversely related i.e.
when the specified interest rate falls, you may get better
returns. Such products may be called "inverse
floaters" or "reverse floaters".

The payouts on such deposits may also rise or "step up" at pre-
determined points in time if the deposit is not redeemed by
the issuer.

iii) Credit-linked. Unlike other structured deposits, returns on this type

of deposit is not linked to the performance of a financial instrument,
but rather the occurrence of what is known as a "credit
event" (for example, if a specified company becomes insolvent or
defaults on its loans).

Question 4

Your friend shared with you about the “Lease BuyBack Scheme”. You are
interested to find the answers for the following questions by navigating through
“Home Owners – Monetisation Options – Lease BuyBack Scheme” hosted by
HDB at www.hdb.gov.sg:

a) Describe the workings of the Lease BuyBack Scheme (10 marks)

b) Buying a property is the single biggest asset in our lifetime. With the help
of “Calculators & Games – Loan Repayment Calculator Period and Total
Interest Calculator” hosted by CPF at www.cpf.gov.sg, answer the
following questions based on the given assumptions:-
* Approved Housing Loan of $800,000

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 * Monthly Instalment Amount of $3800
* Interest Rate of 4%

(i) loan repayment period (attach a print screen of the

calculation) (4
marks)

(ii) total interest payable (please attach your detailed working

printout) (4
marks)

Answer 4

a) Under LBS, HDB will:

 Buy back the tail end lease of the flat ; and
 Provide $10,000* subsidy in addition to the unlocked housing
equity; and
 Give $5,000^ out of the total amount unlocked, to the household as
an upfront lump sum cash payment. The remainder will be used to
purchase an Immediate Annuity from CPFB to provide a monthly
stream of income for life for the elderly lessees.

* Those who had previously owned a 4-room or bigger flat would

receive a subsidy of $5,000.

^ The upfront lump sum of $5,000 will be used to offset the

outstanding loan in the first instance. The cash payment received will
depend on the amount used to pay the outstanding loan.

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The LBS household members will continue to stay in their flat, for a period of 30
years, which is the remaining number of years after HDB buys the tail end portion
of the lease.

The amount of monthly income that an elderly household will receive from the
LBS will depend on the:
 Market value of the flat;
 Length of remaining lease;
 Amount of outstanding loan on the flat; and
 Age and gender of the elderly owner(s).

Consider an example of a 3-room flat, which has a remaining lease of 70 years

and a market value of $236,000. Under LBS: HDB will buy 40 years of the lease
at $104,000 and provide a top-up of $10,000 in Government subsidy. From the
$114,000, $5,000 lump sum will be paid upfront. This leaves $109,000
remaining to purchase an Immediate Annuity from CPFB that yields a monthly
payout for life as follows:

Monthly payout from $109,000 (figures are indicative):

Monthly Payout from

62 yrs old 65 yrs old 70 yrs old 80 yrs old
Immediate Annuity*

$600 -
Sole Male Flat Owner $520 - $550 $550 - $580 $780 - $820
$640

$540 -
Sole Female Flat Owner $480 - $510 $500 - $530 $680 - $720
$580

Male and Female Joint $570 -

$500 - $530 $530 - $560 $730 - $770
Flat Owners** $610

* Monthly payouts are shown in ranges as the monthly payouts that a LBS
household receives under CPF LIFE may be adjusted yearly to take into account

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factors such as CPF interest rate and mortality experience. This payout range is
based on CPF interest rates of between 3.75% and 4.25% and does not
represent the lower and upper limits of the payouts.

** The Immediate Annuity amount of $109,000 is divided equally between the

joint owners falling in the same age group. The payout shown is the sum of the
amount that each household will receive for as long they live.

Here’s an illustration of the above example:

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bi) Loan Repayment Period

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bi) Loan Repayment Period

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bii) Total Interest Payable

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bii) Detailed Workings

http://www.moneysense.gov.sg/publications/guides_publications/
Consumer_Portal_Structured_Deposits.html

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