Before you buy something, always ask yourself if the item is a need or a want. Try to avoid buying on credit and buying on impulse.
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Just because something is on sale doesn’t mean it’s a bargain if we don’t need it. Weigh the costs and benefits before making a decision to purchase.
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Do not spend more than you earn. For a quick estimate of how much you can afford to spend each day, first deduct your regular savings and fixed expenses from your monthly take-home pay, and then divide the balance by 30 days.
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Having a simple budget can help you keep track of expenses. Remember, cutting out small unnecessary expenses or regularly finding ways to reduce even the necessary ones can add up to huge savings.
It may sound very simple but it is important for all of us to cultivate the habit of saving regularly. For a start, aim to save at least 10% of your monthly take-home pay.
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Savings can help tide you over financially difficult moments. Aim to have at least 3 – 6 months of savings in case of emergencies.
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Savings can also help you reach your financial goals like buying a home, funding your children’s education and having enough for retirement income.
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The earlier you start saving, the more time there is for compounding to work for you. This example illustrates the power of compounding: Person A deposits $150 each month from the time he starts working. Person B starts working at the same time as A but only starts saving 15 years later. He saves $225 a month while A continues to save $150. 45 years later, they have saved $81,000. Using an interest rate of 2% pa, A has accumulated $131,000 while B only accumulated $111,000. By starting to save 15 years earlier, A earned more interest from the bank. Try out this compound interest calculator to see how you can benefit from the effects of compounding.
Be careful not to take on too much debt as it can lead to financial trouble. As a guide, your monthly debt commitments should not exceed 35% of your monthly income.
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Before borrowing, consider carefully the costs of borrowing vs. the expected benefits or returns from the purchase and make an informed decision. Borrowing money for activities such as an overseas holiday or a shopping spree would not be prudent.
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For more information on key factors to consider before borrowing, please refer to the following:
Have Appropriate And Adequate Insurance Protection
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Having insurance coverage is very important, especially if you have young or elderly dependents that rely on you for financial support.
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When purchasing life insurance, do note that there are different types of policies including:
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Whole-life policy
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Endowment (a.k.a. savings) policy
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Investment-linked policy
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Term policy
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Do note that different policies are designed for different purposes. Before you purchase a policy, consider why you are purchasing it. For example, to provide an income for your dependents if something happens to you, or to save for your children’ education or your retirement.
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To find out how much life insurance coverage you need, click here to try out the insurance coverage calculator. Be aware that term policies generally provide the lowest premiums, as compared to other life insurance polices. However, term policies may expire earlier.
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Each policy comes with different advantages and limitations. Make sure you understand the product’s features such as what the policy covers and does not cover, which benefits are guaranteed and which are not, before you make a purchase decision.
Remember, you have a free-look period of 14 days. So review the policy documents carefully and notify the insurer within the free-look period if you want to cancel a policy.
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For more information on life insurance, please refer to the following:
If you do not have any health insurance at all, at least consider having coverage for hospitalization needs.
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Health insurance can help to defray the huge medical costs and reduces the potential financial burden.
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Do note that there are different types of health insurance policies out there in the market. Below is a summary of the common types of health insurance plans and their purposes.
Type of Health Insurance
If you want ….
Hospital cash insurance
To receive a fixed amount of cash when you are in hospital
Critical illness insurance
To reduce your financial burden when you are diagnosed with a major illness
Disability income insurance
To protect your income when you are unable to work
Long-Term care insurance
To pay the cost of any care you need when you are too weak to take care of yourself
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For more information on health insurance, please refer to the following:
Know your financial objectives (e.g. how much you need and when you need this) before you start investing. With clear objectives in mind, you can determine the time-horizon you have to save or invest and the desired rate of return to meet your objectives. Some typical objectives for a young family might include savings for children’s tertiary education, a larger family home and retirement.
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Know your risk profile. Note that higher returns usually bring higher risks, e.g. higher loss of capital invested or loss of returns. Investment products with higher risks and returns are often more complicated to understand and monitor too. If you need to be sure of realizing your financial objective, investment products that carry a higher risk of losing your capital may not be suitable for you.
The first $60,000 of your CPF savings, with up to $20,000 from the Ordinary Account, earns an extra 1% interest. Try keeping this amount with CPF to earn the extra interest if you can.
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Monies in the Special Account may earn higher interest than monies in the Ordinary Account. If you are below 55 and you don’t need your OA savings for other purposes like housing, consider transferring some to the Special Account to earn higher interest.
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Consider making voluntary cash contributions to your CPF if you can afford it.
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For more information on this topic, please refer to the following:
Aim to have enough CPF savings at 55 so that you can meet the CPF Minimum Sum in full. By doing so, you will be able to get the maximum monthly retirement income under CPF. The sum is currently $131,000, and may be adjusted annually.
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If you are unable to have a higher amount when you reach 55, try to have at least $40,000 in your CPF Minimum Sum. With this amount, you may be entitled to the maximum LIFE bonus when you sign up for CPF LIFE which will give you a monthly income for as long as you live.
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Consider making cash top-ups to your Retirement Account if you are above 55. From November 2008, cash top-ups can be made to the Special Account if you are below 55. Tax relief of up to $7,000 a year may be claimed for cash top-ups.
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For more information on this topic, please refer to the following:
