How Much Should I set aside for my kids?

As a parent, my key responsibility to my kids is to provide them till they are big enough to fend for themselves. This would include a roof over their head, necessities and a typical education (i.e. primary/ secondary school and local tertiary education), medical when needed. Whether I will leave them a legacy when they are big enough is not my responsibility. If I've taught them well enough and done my part, they should have the skills to survive and adapt to however the circumstance is when they are adults.

Hence, when we plan for our kids, we look at looking after them till an age of 25. Why 25? Most of my kids are boys. And there's national service, which adds 2 years before they could complete their tertiary education. Hence, assuming the JC route, plus 4 years of University, that would be up till age 25. With my youngest being 2 this year, I'll need to ensure they are cared for till 2044.

What if I'm not there? 

Then at least, I must make sure there's enough finances to help them through their childhood till age 25.

These are the things I look at: 

- home

- expenses (to live and to be educated)

-  medical needs

Home is taken care of with Home Protection scheme (HPS). 

We buy medical insurance to take care of the big ticket medical stuff. 

Then there are expenses to live and be educated. To do such an exercise, we made a very rough estimate that in 2021, each child needs $2000, or $6000 in total per month.  We'll support them all till 2044, and assuming inflation/ increase in expense per year is 3%. With that, we sum up all the total amount of money needed to reach this amount.

Year	monthly expense	annual expense	Amount needed
2021	$6,000.00	$72,000.00	$2,478,705.86
2022	$6,180.00	$74,160.00	$2,406,705.86
2023	$6,365.40	$76,384.80	$2,332,545.86
2024	$6,556.36	$78,676.34	$2,256,161.06
2025	$6,753.05	$81,036.63	$2,177,484.71
2026	$6,955.64	$83,467.73	$2,096,448.08
2027	$7,164.31	$85,971.77	$2,012,980.34
2028	$7,379.24	$88,550.92	$1,927,008.58
2029	$7,600.62	$91,207.45	$1,838,457.66
2030	$7,828.64	$93,943.67	$1,747,250.21
2031	$8,063.50	$96,761.98	$1,653,306.55
2032	$8,305.40	$99,664.84	$1,556,544.57
2033	$8,554.57	$102,654.78	$1,456,879.73
2034	$8,811.20	$105,734.43	$1,354,224.94
2035	$9,075.54	$108,906.46	$1,248,490.52
2036	$9,347.80	$112,173.65	$1,139,584.06
2037	$9,628.24	$115,538.86	$1,027,410.40
2038	$9,917.09	$119,005.03	$911,871.54
2039	$10,214.60	$122,575.18	$792,866.51
2040	$10,521.04	$126,252.44	$670,291.33
2041	$10,836.67	$130,040.01	$544,038.89
2042	$11,161.77	$133,941.21	$413,998.88
2043	$11,496.62	$137,959.45	$280,057.67
2044	$11,841.52	$142,098.23	$142,098.23

As of 2021, I'll need to set aside close to $2.5 million for the kids. Well, me and my partner don't have this amount with us. To achieve this amount, my partner and I buy life insurance to help cover the shortfall. To get the most coverage for the least cost, we chose term life insurance.

Scoring Quick Wins in Reducing Expenses

I shared  my monthly expense here, and one of the reason for looking at expenses is to see if there are any quick ways to minimize them. 

The best way is minimize recurring cost.

One of the items that my partner and I were looking at is mortgage. And seems like now is a good time to look at mortgages since interest rates are rock bottom, and I've just received an email from the bank about repricing. As a side note, 2 years back when I was doing a refinance, I thought interest rate was rock bottom at about 1.8%. Today, interest rate has fallen even more, and we are getting a new interest rate at a low 1+% interest rate. It's a no- brainer to do a repricing or refinancing. 

We only checked with 1 other bank, and the rates are about the same, so I would really prefer a repricing rather than a refinance. The bank also waived the repricing fees (subjected to some terms of course). You can read more about the differences between refinancing vs repricing of housing loan here.  We needed a clause to waive penalties if we sell within the lock-in period, as we might move one day (not bound by minimum occupation period any more LOL), which the bank include in the agreement. 

Repricing was really hassle-free. No visit to the conveyancing lawyer, unlike the previous time when we did a refinancing. No need someone to come to my place and do a valuation. After agreeing on the terms, and reading the agreement, we only need to login and click to accept the repricing and we are DONE. 

When the new rates kick in, we would start saving a low few hundreds off our mortgage, without cutting back on life. 

Nice.

We Spend Way above the basic standard of living. How Luxurious' our life?

In October 2021, a study was done by National University of Singapore Lee Kuan Yew School of Public Policy (LKYSPP) and Nanyang Technological University (NTU) which found that in a family of family of four, with parents, a pre-teen and a teenager, needs at least $6,426 a month to afford a basic standard of living. You can read more about the article here.

I did a short study on my own household to see whether my family is spending above or below this $6426. My family is quite different from this case study. We have one more person, and the kids' demographics (currently all preschoolers) are different. Also, there are a few differing categories that we have. But I still feel it is a way to see how we fare against this "basic standard of living".

We are definitely not living any luxurious life, but the expenditure is way, way, way above  this basic standard of living. 

Our Monthly Expenses in detail

Here's a breakdown of our expenses:

Annual Fixed Expenses ($5090 per year or $1922.50 per month)

Insurance (per annum) - $ 5000 (or $417 per month for 5)

Property tax (per annum) - $90 (or $7.50 per month)

Income tax (per annum) - about $18000 for the 2 adults  

Monthly Fixed ($7555.90)

Mortgage - $2400

Broadband - $39.90

Mobile plan - $16 (me and my partner. Use RedOne Amazing 8. It's amazingly just $8 per month per line.)

Parents allowances (4 pax) -$2800

School fees - $1500 (childcare for 3)

Enrichment - $800 (for 2 kids. Note: one is still too small)

Monthly Variable ($2690)

Groceries and food - $500

Milk/ Coffee/ Beverages - $100

Diaper and wet wipes - $80, typical Drypers from Qoo10 (affiliate link) and cheap wet wipes at just $12.90 for 10 packets

Utilities - $160

Transport -  $80 ( public), $1300 (car)

Snacks/ discretionary food expenditure - $100

Toiletries/ detergents/ etc. - $40

Entertainment - $30

Allowance for repair/ others - $300 

Total - $12,168.40

This is way, way, way, way above the basic standard of living, 

How Luxurious is my life then?

I have a car, which my partner bought. I guess its a great luxury, considering the cost of public transport a month is about $80 if I go fully public, and kids below 7 (prior to primary 1) ride free. The cost of a car including mortgages, petrol, insurance and maintenance is so many times more expensive!

But, apart from that, my feel my life is plain standard.

I live in a HDB flat. A typical 4 room flat of 93 square metres- not luxurious.

I eat mostly at home, with occasional hawker food. And restaurants are once in a blue moon - during celebration. I've eaten enough restaurant food while travelling for work and don't have great desire for them. 

Every other stuff that I spend on are quite ordinary. 

My partner and I don't fancy any type of entertainment, except for reading books  on Libby and watching Youtube videos, Disney+,  and occasional snacks such as eating potato chips while reading or watching. We do go cycling on and off on our cheap bicycle (about $80 each bought from taobao). 

Comparing against benchmark is a good exercise. At least I know I'm spending way too much. Note to myself to optimize my spending. 

Oh my gosh, why am I spending way above standard amount when I'm living a standard life.