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26 May 2022
SOURCE: Credit Bureau Singapore

asian couple calculate expenses finance

Your anticipated payday is here, but do you sometimes feel demoralised when it seems like you are not getting anywhere near your financial goals? Well, you don’t always need a high-income job or to win a lottery to reach your financial goals; even simple daily habits can help you grow your wealth! Read further to understand more.

1. Create a budget plan

Budgeting is crucial as it helps you to limit your spending, manage and track your expenses and save more money. Additionally, setting a budget helps you make better financial decisions and be prepared for emergencies. It also enables you to stay focused on your long-term financial goals.

 

The simplest method of budgeting is to portion out your income into different sections, so you can limit your expenditure for each segment and prioritise the necessities. Budgeting can sometimes require a lot of discipline, but is ultimately a quintessential skill to master for good money management, as it helps you curb overspending while having tighter control over your finances. The 4-3-2-1 approach is one of the many ways one can budget, but you can still adjust the portions according to your financial situation. Here is an example you can adopt:

  • Consider allocating up to 40% of your income for paying off any outstanding loans. Loans such as car loans, housing loans, credit card loans or even education loans have longer tenures and accumulative interests over time. Therefore, whenever possible, we suggest you apportion a bigger load of your income to pay off these outstanding loans. For CPF members, you can also use your CPF Ordinary Account (OA) savings to pay your existing housing loans. That said, it’s always ideal to strike a balance between the use of your OA savings and cash for your housing loan repayment, as your OA savings are for your future retirement needs too.

 

  • Consider keeping your expenses within 30% of your income. Expenses refer to your everyday spending on necessities such as utility bills, household goods, and transportation fees. You can further cut down on these expenses if you follow saving tips such as switching off your electric appliances when not in use, cultivating a habit of using public transport or even packing your own lunch to work.

 

  • If you have the financial means to start investing, you can look to allocate around 20% of your income for investments to meet your long-term goals. Some of these goals would include saving for your child’s education, setting up a business, or for retirement. Setting aside this sum of money early would allow it to grow and meet these long-term goals in a shorter span of time.

 

  • The remaining 10% of your income should be sufficient to cover insurance payments for yourself and your loved ones, which will be exceptionally useful in times of emergency. Currently, all Singaporeans and Permanent Residents are covered under MediShield Life, a long-term care insurance. You can also opt for private healthcare insurance plans if you wish to have a wider spectrum of coverage to suit your needs. For beginners, you can always start off by assessing your insurance needs, or seeking advice from a licensed financial advisor. Reviewing your insurance plan not only helps you ensure that you’re sufficiently insured, but also prevents overconsumption on insurance coverage. 

2.  Distinguish needs from wants 

The inability to segregate needs from wants often leads us to overspending or worse, accumulating unexpected debts. ‘Needs’ can be broadly defined as the basic necessities that must be fulfilled in order for one to survive. Examples could be safety needs like paying off your rent to ensure you have a safe home to go back to, or physiological needs like your daily grocery expenses for food. ‘Wants’ are “wish to have” desires that give you added comfort or accomplishment in your life.

 

You can make a conscientious effort to spend on your needs first, followed by your wants. A simple example would be to choose to meal prep your lunch instead of eating out, so that you can cut down on your expenditure on food. The most important lesson here is to always stick to a lifestyle habit that you can afford in the long term.


3. Avoid getting into further debt

Paying your bills and loan repayments on time is another way to manage your money wisely, as it helps to avoid unwanted late fees and accumulating loan interests. Furthermore, a strong prompt payment history can help to improve your credit score (which indicates your capacity to repay a loan to potential lenders) and build your credit reputation. Here are some suggestions you can employ to ensure timely payment:

 

a. Mark down all your different payment dates on your calendar so you do not miss out any payments. Alternatively, you can also request to change all your bill payment cycles to the same due date;

 

b. Set up a bank GIRO transfer for automatic bill payment; and

 

c. Make full payment all the time; this will prevent you from incurring unwanted interest rates and adding onto your existing loans.


4. Your credit reputation matters

Your credit report is a summary of all your credit facilities holdings across retail banks and major financial institutions in Singapore. Lenders also rely on your credit report to assess your overall credit reputation through your personal credit score and credit-related information. The report is inclusive of all credit facilities contributed by banks and major finance institutions. Some examples are: Secured/Unsecured Credit Cards, Personal Loan, Mortgage Loan, Car Loan, and Renovation Loan. Through this report, credit providers such as banks or financial institutions will also be able to make better lending decisions quickly and objectively.

 

You will be able to see the long-term benefits when you consistently practice good money management habits like the examples given above. A preventive measure to falling into debt is to put in consistent efforts to exercise good money management and make your repayments on time.


Information presented is accurate as of the date of publication.