Implement these money hacks in your journey to financial independence to have a smooth financial plan in your path ahead
Congratulations on your graduation! You have completed almost 2 decades of formal schooling. I savoured the time when I graduated, I was on my own to forge my path ahead.
Receiving my first full-time pay was exciting but the excitement faded as quickly as it came. Financial responsibilities of planning for my wedding, a home, and kids soon came my way.
As a young graduate, you are required to make your most important financial decisions at still a young age.
I wish I knew these money tips before I started working.
The only way to not get into debt is to spend less than what we earn. Budgeting is so important yet often neglected by most of us.
- Budget your monthly salary into four areas:
Monthly expenses, savings (eg. wedding, renovation), emergency fund, spare cash (ad-hoc expenses)
- Account sufficiently for ad-hoc expenses.
It could be the ad-hoc birthday treat that came up, an unexpected taxi ride, or a course that you want to sign up for.
- Do not stretch yourself too thin and do not spend more than what you have budgeted for.
2. Automate Banking Accounts
This ensures that we stick to our budget.
With new bank accounts (Eg. OCBC 360 and UOB One) that give us higher interest by depositing our salary and making minimum spending, we are given incentives to save and spend all from the same account.
This could lead to overspending and we could be better off not earning from this extra interest.
- Setup four bank accounts for the four areas you have budgeted for
- Direct your salary into one account and set an automated transfer on when your salary is credited each month to the other 3 other accounts.
- Ensure that you do not have any ATM, debit, or credit card access to your savings emergency fund bank accounts. It was so easy for me to touch these accounts when I had access to them!
This account allows me to save up for big-ticket items that are coming up. Even if you are single now, it is important to save. You should be financially prepared when the love of your life appears!
- A wedding in Singapore is more costly than most people think.
One couple in Singapore had a dream $110k wedding and ended up in severe debt. An entire wedding celebration with a banquet at a hotel can easily come up to at least $40,000. Remember that A Wedding is a Day; Marriage is a Lifetime.
- The average amount spent on renovations is $56,000.
Together with your wedding celebration, this is a large sum of cash to save up for.
- Purchasing a car.
If you are looking to purchase a car, you would need to set aside at least 40% of the purchase price in cash. A new Chery J3 requires a deposit of at least $30,000.
4. Emergency Funds
Many people underestimate the value of having emergency funds set aside. We need extra funds to tap on for unexpected medical expenses of a loved one and to tide over in the event of retrenchment.
- A good guide is to save up to 6 months of your monthly salary so that there is enough to tap on in an unexpected event.
- Consider setting a portion of your emergency funds in Singapore Savings Bonds by the Singapore Government. Aim to grow your emergency fund as your salary increases.
This allows me to provide for my loved ones who are dependent on me financially. In the event of an illness or a disability, I will not be a financial burden to anyone.
- Use term insurance to adequately insure yourself. Most of us do not need insurance for our entire lives, our dependents would no longer be dependent on us financially at a later point in our lives.
- Always compare products from the different insurers, the price differences between the different companies are much greater than what you expect.
- Ask your insurance advisor how he/she is being remunerated. Does your advisor earn more by selling you one product over another?
While the world of investing and the possibility of high returns seem exciting, it is critical that you do not dive into them until you have the above five financial areas planned for. Investing is for the long term and we should only invest if we have spare funds that we do not need for 10 years to ride the market volatility.
By implementing the above money hacks and if you are debt-free, you would have started off on a sound financial footing.
The journey to financial independence is a marathon and not a 100m dash. Plan well and you have won half the battle!
The edited version appeared in The Straits Times on 15th May 2016.