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Financial Planning Is For Everyone #MoneySense101
#MoneySense101

How you manage your finances can have a big impact on your life – and it doesn’t take much to get things in order. With just a few small and easy steps, you can build a solid foundation for your financial well-being.

Here’s how:

  • Have a budget and keep track of your spending
  • Set aside three to six months’ worth of expenses as emergency savings
  • Start investing early, with simple and small investments
  • Work out early how much you need for your retirement

The pandemic has shown that things can change drastically, without warning. Act now to build up your financial resilience and preparedness. It will be one big step towards having less worry and stress in our lives, no matter what happens.

have-a-budget

Budget your expenses

The journey to financial well-being starts with living within your means and having a plan to achieve your financial goals down the road. That is what budgeting is all about: Planning your spending and saving.

If you have a budget and keep track of your spending, you are in control of your money, and not the other way around.

It’s a good idea to prioritise saving over spending, so that you will not spend money you do not have. That means putting aside money for savings first before allocating the rest of your money to expenses.

Tip

You might find yourself having to cut your spending. Try this method for a start.

What are your expenses in a week? Is there something small you can cut the following week?

Perhaps a drink?

If you keep at it, your spending should go down, and your savings up! Not only that, you will learn to differentiate between needs and wants – a key skill in managing your money well!

A word about the dangers of overspending: interest on late or partial repayments snowball very quickly, and there are serious consequences for missing insurance premium or mortgage loan payments

Make sure

  • you can pay your credit card bills in full and on time;
  • you can afford your insurance premiums (national insurance schemes such as MediShield Life, CareShield Life and ElderShield help meet your insurance needs, and can be fully paid with MediSave); and
  • you can afford your housing loan repayment, and keep your mortgage instalment to no more than one-quarter of your monthly income.

Tip

Want to know all about budgeting? Check out these MoneySense resources:

  1. Making sense of your money starter pack
  2. Budget calculator
  3. Try MyMoneySense expense manager

Learn more about national insurance schemes and MediSave

Study HDB’s guide to buying a home

Create your Home Financing Plan on MyMoneySense financial planning tool

save-for-rainy-day

Save for emergencies

Being prepared financially for the unexpected should be your first saving goal.

Once you have set aside three to six months’ worth of expenses as emergency savings, you and your family will have some breathing room should you encounter financial shocks such as loss of a job.

You would not want to end up having to take more drastic steps, such as selling your home or liquidating your investments in a hurry, to cope with an emergency.

Tip

Open a separate savings account for your emergency fund so that you will not inadvertently spend it.

Set up instructions for a recurring transfer where a fixed amount will be transferred into this account every month.

If you practise saving before spending, you should be able to build up your cash reserves in no time. Remember, starting as soon as you can is a good idea because time is your biggest asset. With the power of compounding, small savings can grow quickly and effortlessly over time.

Tip

Start your savings journey with our financial planning tool MyMoneySense

Adopt these money habits to manage your finances well

start-investing-early

Invest early

Investing is a way to grow your money to reach your financial goals more quickly, than leaving your savings in a bank.

But all investments come with risks, and you could lose most or all of your investment amount. So you should invest only money you can afford to lose. This means you should first set aside cash reserves for emergencies, and have enough to pay for immediate needs, such as insurance premiums and mortgage loan repayments.

To understand and manage investment risks, there are some key fundamentals to bear in mind:

  • Before you invest, have a clear idea of your risk tolerance and investment horizon. Only choose products suitable for your needs, circumstances, and investment profile.
  • Invest only in what you understand.
  • Maintain a diversified investment portfolio.
  • Don’t get tempted and taken in by investment opportunities that appear too good to be true. The higher the returns, the higher the risks. There is no free lunch.

If you can, start investing early with small and simple investments to benefit from the power of compounding. However, watch out for fees and charges, which can affect your returns.

Tip

Fact: You don’t need a lot of money to grow your money through investing. For a start, you can buy Singapore Savings Bonds with as little as $500. More information can be found here.

You can also make just a $50 top-up to your CPF Special Account to earn risk-free interest rates of up to 5% per annum. Find out how.

Learn the 1, 2, 3s of investing.

plan-early-retirement

Plan early for your retirement

Retiring well is the goal of financial planning. The earlier you start planning and committing to sound financial habits, the better your chances of attaining your desired retirement lifestyle.

To design a financial plan that will fund your lifestyle after you stop working, you first need to work out how much you need for your retirement.

Tip

Don’t underestimate the effects of inflation and compounding interest. It is never too early to start financial planning for your retirement.

Financially, retiring well means:

  • You have cleared all outstanding debt and have a roof over your head.
    • Consider making partial capital repayments to reduce the interest payable on your mortgage if there are no penalties in doing so.
  • You have enough savings or passive income to support your desired lifestyle.
    • CPF LIFE provides monthly pay-outs for life.
    • There are housing monetisation options such as renting out a room and the Lease Buyback Scheme to support your needs.
  • Your medical expenses are covered by insurance – national insurance schemes can support some of your needs. Review your insurance coverage regularly as your needs and premiums may change.

Tip

Let MoneySense guide you through retirement planning step by step:

Find out more about CPF LIFE

Housing monetisation options for retirees

Financial planning is for everyone

The bottom-line is that financial planning is for everyone and the best time to start is now! Take these small positive steps towards building a more resilient financial future for yourself today.

While you’re at it, check out our Financial Health Check, a 5-minute questionnaire that will recommend ways for you to improve your financial health!

You can also register for an online seminar, where trainers from the Institute of Financial Literacy can answer your questions and guide you on your financial wellness journey.

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