1. FINANCIAL VISION
Start with an end in mind. Do you need to plan for your children's education? What do financial independence and retirement mean to you?
2. FINANCIAL PLAN
This is a money road map of your current and future cash flows. It details how you want to protect, accumulate, preserve and distribute them to help you achieve what you want in life.
3. PRIORITISE GOALS
Wants are unlimited but resources are limited. Which financial goals are most important to you now?
4. FINANCIAL CALENDAR
Create a spreadsheet with milestones of hitting your short-term and long-term financial goals, and track them.
5. ACHIEVABLE MONEY GOALS
Set realistic shorter-term goals that are achievable so that you are encouraged to pursue your vision in incremental steps.
6. CALCULATE FUTURE COST
Ask yourself if you would rather spend the money now or save it for the future by compounding and growing it.
7. SET UP A BUDGET
This is a tool to help you visualise where your money is being spent and identify where expenses can be reduced.
8. BUDGET WITH THE FAMILY
Share the responsibility with family members. When everyone cuts back a little, it can make a big difference.
9. CASH ENVELOPE
Set aside cash in your e-wallet to last you one week or month for discretionary expenses and stick to it.
10. KEEP RECEIPTS
You will be less likely to overspend.
11. THE 50/20/30 BUDGET
This is a proportional guideline that can help you keep your spending in alignment with your savings goals. Some financial experts suggest that living expenses and essentials should be capped at 50 per cent; 20 per cent for funding financial goals like savings and investments; and 30 per cent for flexible spending on wants like movies and travel.
We should proactively allocate our money for different uses in our lives, rather than see our income as one lump sum.
12. PAY YOURSELF FIRST
Have a savings target and set up a Giro arrangement so that part of your monthly pay goes to a separate savings account. Do not link an ATM card to this account to prevent quick access.
13. SAVE YOUR BONUSES
Set aside a portion to reward yourself for working hard, but try to save most of your bonuses.
14. MINIMISE LIABILITIES
Keep your total debt payment below 35 per cent of your annual income. If possible, reduce this amount further by living a simpler life and avoid extending yourself financially. This is a useful tip for those in the gig economy as their income can be uncertain.
15. PAY OFF HIGH-INTEREST DEBT FIRST
This is to prevent these high-interest debts from ballooning out of control.
16. TRACK WHAT YOU SPEND
Use an app to track your expenditure on a daily and monthly basis.
17. USE A DEBIT CARD
People who chalk up huge debts usually blame it on their easy attitude towards credit cards, which charge customers up to 25 per cent a year in interest for late payments.
18. AVOID MAKING IMPULSE PURCHASES
Compare prices and feedback in chat forums before you make that purchase.
Consider how many times you will use the item. Have a mental picture of what you already own. Will it add value to your life?
19. AVOID BUYING ON INTEREST-FREE INSTALMENTS
This is a marketing tactic. Do you really need to buy the item?
20. EAT AT HOME MORE OFTEN
It is cheaper to eat at home (and it may be healthier too) than to eat out.
21. DO YOU HAVE TOO MUCH IN SAVINGS?
Consider investing to grow your savings, once you have set aside about six to 12 months of emergency cash.
22. HOSPITALISATION AND SURGICAL INSURANCE
Unless your company offers portable health insurance, you owe it to yourself to be insured while you are still healthy and insurable.
If you wish for higher cover, which includes private hospital wards and being able to choose your doctor, opt for the private Integrated Shield plans, offered by seven insurers here. Do note that premiums increase with age.
Also note that sales of insurance riders that fully pay your portion of the hospital bill - this typically means the bill is covered from the first dollar - will cease from April 1 next year. That is when a new rider that will include a patient's co-payment for a hospital bill becomes available.
Those who buy full riders from March 8 this year to March 31 next year will transition to the new riders with the co-payment feature upon renewal of the policies from April 1, 2021.
23. LONG-TERM CARE
Consider the higher coverage from supplementary plans to complement your severe disability ElderShield or CareShield Life plans. One in two healthy Singaporeans aged 65 could be severely disabled in his or her lifetime.
Come 2020, CareShield Life will be compulsory for those between the ages of 30 and 40.
Future cohorts will join automatically at the age of 30. People above 40 in 2020 have the option of sticking with ElderShield or switching to the new scheme in 2021 by topping up their premiums.
24. CPF LIFE
The Central Provident Fund (CPF) Life is a national annuity scheme offering income payouts for life upon retirement. Save for and beyond it to secure your retirement.
There are three CPF Life plans. Understand what each plan offers and select a suitable one when you reach the payout eligibility age. You can defer your payouts till age 70. Doing so means you would enjoy 6 per cent to 7 per cent more in monthly payouts for each year deferred.
25. CPF RETIREMENT TOP-UP SCHEME
Top up your parents' and spouse's CPF accounts to help them secure their retirement goals. For cash top-ups, you can enjoy tax relief subject to certain conditions.
26. BUNDLED INSURANCE PRODUCTS
Over the years, insurance has become bundled with investments, which introduces another layer of cost. In some cases, it may be better to buy term (pure protection) and invest the rest. Always understand your needs and shop around.
27. MORTGAGE INSURANCE
If you have an outstanding home loan, it is prudent to buy mortgage insurance to cover you and your family should you face any unfortunate situation.
28. UNDERSTAND INSURANCE JARGON
Do you know what these terms mean: death benefit, guaranteed and non-guaranteed benefits, surrender value, rate of returns, premium holiday and exclusions?
29. AT POINT OF SALE
Expect to be given certain documents including a "Your guide to life insurance" booklet, a product summary, a policy illustration and a bundled product disclosure document (depends on product), even if you buy on a "no advice" basis.
30. COMPARE INSURANCE PRODUCTS
Have a clear idea of what you need. The cheapest product is not always the best for you. Understand the benefits, terms and conditions.
Use comparison portals, such as compareFirst and DIYinsurance, to check out differences in features and premiums.
31. HOW MUCH LIFE INSURANCE DO I NEED?
The conventional rule of thumb is to multiply your annual income by 20 years. But there are no fixed rules. Consider how much your beneficiaries would need if you are not around.
Buying life insurance is a long-term commitment. Premature terminations will likely result in you losing part of the premiums paid.
33. WORST-CASE SCENARIO
Don't let greed get in the way. It is natural to picture the best-case scenario. Discipline yourself to ask what is the worst-case scenario and if you can take the risk of it happening.
34. MINIMISE INVESTMENT COSTS
Investment-related costs like sales charges, expense ratios, fund management fees, trailer fees, hurdle rates and performance fees will eat into your returns. This is why some investors prefer low-cost index funds, which are passively managed as they track indices.
35. RISK VERSUS RETURNS
Consider how much risk you feel comfortable with. Also, do you have the capacity and do you need to take the risk?
36. RULE OF 72
To find the number of years required to double your money at a given interest rate, you divide 72 by the expected return. For example, if you want to know how long it will take to double your money at 6 per cent interest, divide 72 by six and you get 12 years.
37. POWER OF COMPOUNDING
When you understand the power of compound interest, long-term investing makes a lot of sense because the amounts will add up rapidly over the years.
38. DOLLAR-COST AVERAGING
Invest equal amounts regularly over a long period so as to buy more units or shares when prices are low and fewer when prices are high. The advantage is that you lower your cost of investment and reduce the risk of investing at a peak.
39. AVOID THE SEQUENCE OF RETURNS RISK
The sequence of returns (SOR) refers to a phenomenon where a high proportion of negative returns occurs in the first few years of our retirement, assuming we have started withdrawing from our investment portfolio. This can have a lasting adverse effect, as there will be less investments available to generate returns in later years. One solution is to cease or reduce the withdrawals during the trough phase.
To avoid SOR risk, it is prudent to employ cash flow management tools to ensure sustainable flows of retirement income, in addition to the core portfolio of equities and fixed income. The tools include fixed deposits, bonds like Singapore Savings Bonds and endowment plans with different maturity periods to ensure staggered cash payouts.
40. SUPPLEMENTARY RETIREMENT SCHEME
A national voluntary scheme that enables you to save on taxes while you build your nest egg.
41. DON'T TRY TO TIME THE MARKET
It is difficult to time the market, which moves in cycles. Those who time the market typically miss the run-up.
42. TIME HORIZON
As a general rule of thumb, subtract your age from 100. That is the percentage you can invest in stocks and the rest in more conservative investments like bonds.
43. DIVERSIFY AND REBALANCE YOUR PORTFOLIO
Fine-tune your diversified portfolio periodically by buying and selling portions of it so as to bring it back in line with your risk profile and asset allocation.
MEANS TO AN END
Health is wealth. Reduce your healthcare cost by eating healthily and exercising regularly.
Spend on experiences, not things.
46. FAMILY AND FRIENDS
Inculcate family members and friends with similar money attitudes and healthy lifestyles.
47. GIVE AND BE INVOLVED
It is better to give than to receive. Besides cash donations, experience the joy of giving your time and effort.
48. MONEY IS NOT AN END IN ITSELF
Accumulating money without a purpose loses its meaning in the long run.
49. LASTING POWER OF ATTORNEY
Decide your donee(s) in advance in case you become mentally incapacitated.
50. LEAVE A WILL
Ensure a speedier and hassle-free distribution of your estate upon your demise.
51. ADVANCE MEDICAL DIRECTIVE
To reduce the trauma of family members having to make difficult decisions, inform your doctor in advance that you do not want the use of any life-sustaining treatment to prolong your life in the event that you become terminally ill, unconscious and where death is imminent.
52. COUNT YOUR BLESSINGS
Do this daily before you sleep and you are more likely to wake up happy and positive.
53. PURPOSE-FILLED LIFE
Lead a meaningful life. Leave the world a better place than you found it. Money provides more options.
Source: The Straits Times © Singapore Press Holdings Limited. Reproduced with permission.