Financial Needs Analysis

Financial Needs Anaysis (FNA) is defined as a process to identify individual financial needs in order to strategise an investment plan that meet such needs and financial goals. Before I go into details about FNA process, let me explain the three broad categories of financial needs;

(i) Accumulation Needs It is defined as a future financial need that one desire to set aside. The motivation to accumulate a sum of money in future include children education, starting a business, property investment, buying a car, retire early or giving to charity.

(ii) Retirement Needs It is defined as financial need that provide fund to support our life after our retirement. When we retire, our pension or social security benefits begin but our earned income ceases. Our working expenses reduce but our leisure and medical expenses increase.

(iii) Protection Needs It is defined as financial obligations that we need to fulfil upon death, disablement, contracting critical illness, loss of or damage to property and/or when a personal liability arises.

Having a general idea about the three main categories of financial needs, let me go through the process of Financial Needs Analysis:

(1) Fact finding --> (2) Identify and quantify financial needs --> (3) Identify investment products that meet financial goals --> (4) Periodical review of financial needs

1. Fact Finding

Gather personal details, employment details, number of dependents, financial information, existing insurance policies, retirement needs, saving goals, objective and investment preference. Personal details such as age, gender, martial status and smoking habits will offer us a preliminary assessment of the types of financial products that will likely suitable for us. Employment status enables us to determine if income protection is needed for high risk job, and the ability to commit long to medium term investment product. The number of dependents will determine the amount of additional financial support. The more dependent we have, the greater the number of years we have to support them, which means we need more life insurance and income protection. Financial information such as monthly income will help to determine the continuing income needed in the event of death, disability or retirement.

Expenditures information will help to determine the level of income needed for the family to survive in the event of premature death of the breadwinners, and to estimate the funds available for investment. Assets and liabilities information helps to determine net worth, which enable us to decide on the amount of funds for investment or to adjust our lifestyles to reduce liabilities. Existing insurance policy will serve as a starting point for any further insurance products. The objectives and investment preferences will help to determine our attitude towards investment risk, which classified into Risk Averter, Cautious, Balanced and Risk Seeker. Retirement needs information enables us to determine the monthly amount in today's dollar that we and our dependents need to live on retirement. Generally, most singles need about 50% to 60% of their pre-retirement income to maintain same living standard after retirement. The percentage increase to 60% to 70% for married couples with one retiree. Saving goals information helps to determine if the funds earmarked for various financial goals are adequate.

2. Identifying and Quantifying Financial Needs

After we have gathered all the data through facts finding, the next steps of FNA process is to analyse the data to identify and quantify the financial needs. We should pick up weaknesses that can negatively affect the financial objectives. For examples; amount of debts, investment portfolio, existing insurance products, living within means, investment time horizon, liquidity need, children education and risk profiles. Determine which objectives should be given higher priority. Three factors should be considered when analysing objectives:

• Establish if the objective is short-term or long-term. Short-term objective is more appropriate for retired person who may wish to increase income produced from investment capital. Long-term objective is more suitable for someone who want sufficient fund to send his new-born child to university in future. However, objectives can be both long and short term.
• Establish if the objective is for the benefit of us or for others, such as dependants. For example, the objective may be passing our estate to our grandchildren in the event of death. Alternatively, the objective may be to retire early.
• Prioritise the objectives. For example, we may want to invest a second property but to achieve this objective; it may detriment a reasonable income in retirement. It is important to tackle each financial need and uncover those needs that need immediate attention.

Once all the financial needs are identified and prioritised, each need must be quantified. The ways to quantify retirement, protection and accumulation needs are different. There are two methods to quantifying retirement needs, namely the replacement ratio method and expense method. As for protection needs, the method include determine the sum of total liabilities and immediate expenses required at the time of death and the amount needed for dependants as long as needed. Multiple approach and needs approach are two common approach used to quantify the amount needed for dependants. For accumulation needs, the approach is to find the future value of the target amount taking into consideration of inflation. After we have quantified the data, proceed to next step to identify investment products that meet financial objectives.

3. Identify Investment Products that meet Financial Objectives

Points to consider includes investment objectives, product suitability, affordability, taxation, tax relief, rick tolerance, pension schemes, prioritisation and effect of inflation and time value of money. Investment Instrument that meets accumulation and retirement needs includes Money Market Securities, Fixed Income Securities, Equity Investment, Derivative Instruments, Property, Unit Trusts, Whole Life Insurance, Endowment, Investment-Linked Products and Annuities. Investment products that meet protection needs include Term Insurance, Whole Life Insurance, Endowment Insurance, Investment-linked Life Insurance, Riders, Critical illness Insurance, Long Term Care Insurance, Medical Expense Insurance and Managed Healthcare Insurance and Disability Income Insurance. General Insurance products that meet protection needs include Fire Insurance, Household/House owner Insurance, Personal Accident Insurance and Personal Liability Insurance.

4. Periodical Review of Financial Needs

The process of identifying financial needs does not stop with implementation. Our financial needs may change over time. It affects our initial investment plan, as they may no longer be adequate. For example, a steep fall in price of equities would signal that a review of our investment portfolio and saving is required if we invested substantially in equities. Regular review of financial needs ensure we stay on course to our financial goals.

For more information about Financial Needs Analysis, go to http://growmoneytree.com

Christopher Goh is a Financial Adviser who based in Singapore. He achieved financial independent and debt-free by age 36 through saving and prudent investment. Christopher passion is to share his knowledge on the importance of financial protection and wealth creation. For more information about Christopher, go to http://www.growmoneytree.com

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Scary Lack of Options in American Maternity Coverage

The cost of health care is quite a bit higher in the United States than in other developed countries. As well as being unfairly expensive, the American medical infrastructure has come under fire as of late due to a number of factors. Perhaps the greatest influence is the imminent presidential election in late 2008, and candidates from both the left and right have been scrambling to find plausible solutions to the glaring deficiencies left as a legacy of the Bush era. Another cause for the pressure to change comes from Michael Moore, a controversial political moviemaker whose recent work, a documentary film titled SiCKO, highlights the many flaws in the United States health care system.

Faced with limited options, mothers-to-be are often stuck between a rock and a hard place in terms of covering their prenatal and childbirth costs. Traditional insurance providers, with high premiums and deductibles, sometimes have additional out-of-pocket costs that families are unable to shoulder. Other options, such as traditional health methods, arent very reliable so women are forced to face the rising costs without attractive solutions. What other alternatives do they have?

One solution that has arisen comes in the form of non-traditional health coverage. Consumer-driven health plans (CDHPs) are becoming popular for Americans seeking a cheaper route to medical insurance. CDHPs, which incorporate cost-sharing and fairly low deductibles in combination with Health Reimbursement Arrangements (HRAs) or Health Savings Accounts (HSAs), have the potential to yield high tax benefits that could offset costs and make CDHPs considerably less expensive than traditional insurance providers. The likelihood of these benefits coming to fruition, however, remains in question. Desperate individual policyholders are nevertheless turning to CDHPs to lessen the financial burden that comes with childbirth.

The Kaiser Family Foundation, a California-based, health-related think tank, recently tested the viability of CDHPs as an affordable option for high maternity costs. In the least expensive scenario, it was found that a new mother could pay barely US$6,000 for out-of-pocket costs to cover prenatal treatment and a straightforward childbirth. While US$6,000 is starkly less than the costs paid by other CDHP policyholders, it is still similar to or more expensive than would have been paid out-of-pocket under a traditional medical insurance plan.

In a second scenario, a family spent US$21,000 on out-of-pocket maternity fees when using a CDHP. This is quite a high value, despite the family having had coverage for more than two years and the pregnancy and birth being relatively free of complications. In a third (and quite extreme) example, a family was forced to pay more than US$287,000 in medical fees during the birth of the familys second child. In this case, a woman experienced a rocky pregnancy, coupled with gestational diabetes, pre-term labor that resulted in a c-section birth, and comprehensive neonatal intensive care.

The vast divide between the out-of-pocket charges for maternity care is the result of inconsistent cost-sharing across CDHPs. The conclusion, therefore, is that pregnant women with coverage from CDHPs could face costs that are extremely higher those incurred under traditional insurance providers. The risk of accumulating ridiculous hospital bills is too high in the face of the steep costs of raising an infant. The rising popularity of CDHPs could therefore potentially damage the health of less wealthy Americans who turn to CDHPs and then suffer from inferior health care and heavy financial losses as a result. On the other hand, CDHPs can, in some cases, provide comprehensive health care options to those who have been exposed to health insurance plans that are incomplete parcels of larger plans designed to suit a broader base.

Despite a much longer list of pros and cons, it has clearly emerged that CDHPs are a much riskier alternative to complete health care plans. Though American health care is pricey and often insufficient for the cost, the safest choice is to acquire coverage from a trusted insurance provider. The lack of reliable cost sharing and the rookie mistakes made by the new CDHP organizers can result in disastrous effects to the health of those insured. And the health of a pregnant woman or newborn should not be gambled with.

Benefits available with maternity health insurance plans are dental treatment, out-patient coverage, specialist consultations, and emergency evacuation coverage. The Maternity options that we can provide for you will offer the highest levels of coverage and make sure that your child is fully protected at birth.

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