By Lorna Tan
As we celebrate our nation's 50th birthday today, The Sunday Times highlights 50 top money tips covering a wide range of finance issues from saving and budgeting to insurance and investments in bite-size nuggets.
Understanding the basics
1. FINANCIAL VISION
Start with an end in mind. 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 build, preserve and distribute them to help you achieve what you want in life.
3. ACHIEVABLE MONEY GOALS
Set realistic shorter-term goals that are achievable so that you are encouraged to pursue your vision in incremental steps.
4. FINANCIAL CALENDAR
Create a spreadsheet with milestones of hitting your short-term and long-term financial goals, and track them.
5. PRIORITISE YOUR GOALS
Wants are unlimited but resources are limited. Which financial goals are most important to you now?
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
Take out cash to last you one week of discretionary expenses and stick to it.
10. KEEP YOUR RECEIPTS
You will be less likely to over-spend.
1. SET MONTHLY AND ANNUAL SAVINGS GOALS
If saving is difficult for you, start with 20 per cent and aim for a higher percentage when your income grows.
2. SAVE YOUR BONUSES
Try to save most of your bonuses.
3. PAY YOURSELF FIRST
Set up a Giro arrangement so that part of your monthly pay goes to a separate savings account. Better still, do not link an ATM card to this account to prevent quick access.
4. PAY OFF HIGH-INTEREST DEBT FIRST
This is to avoid these high interest debts from ballooning out of control.
5. TRACKING YOUR SPEND
Use an app to track your expenditure on a daily and monthly basis.
6. USE A DEBIT CARD
People who chalk up huge debts usually blame it on their easy attitude with credit cards which charge customers up to 24 per cent a year in interest for late payments.
7. 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?
8. BUYING ON INTEREST-FREE INSTALMENTS
This is a marketing tactic. Do you really need to buy the item?
9. EAT AT HOME MORE
It is cheaper to eat at home (and healthier too) than to eat out.
10. DO YOU HAVE TOO MUCH IN SAVINGS?
Consider investing to grow your savings, once you have set aside about six months of emergency cash.
1. HOSPITALISATION & SURGICAL INSURANCE
Unless your company offers portable health insurance, you owe it to yourself to be insured while you are still healthy and insurable.
2. CPF LIFE
The CPF Life is a national annuity scheme offering income payouts for life upon retirement. Save for and beyond it to secure your retirement.
3. 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.
4. MORTGAGE INSURANCE
If you have an outstanding home loan, it is prudent to buy mortgage insurance to cover you and your family should you meet any unfortunate situation.
5. 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?
6. AT POINT OF SALE
Expect to be given certain documents including a "Your guide to life insurance" booklet, a product summary and a benefit illustration, even if you buy on a "no advice" basis.
7. COMPARE INSURANCE PRODUCTS
Use comparison portals, such as compareFirst and DIYinsurance to check out differences in features and premiums.
8. CHOOSE THE RIGHT INSURANCE
Have a clear idea of what you need. The cheapest product is not always the best for you. Understand the benefits, terms and conditions.
9. 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 insurance is a long-term commitment. Early terminations may result in you losing part of the premiums paid.
1. WORST-CASE SCENARIO
Don't let greed get in the way. It's 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.
2. 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.
3. 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?
4. 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 8 per cent interest, divide 72 by eight and you get nine years.
5. 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.
6. 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.
7. SUPPLEMENTARY RETIREMENT SCHEME
A national voluntary scheme which enables you to save on taxes while you build your nest egg.
8. DON'T TRY TO TIME THE MARKET
It's difficult to time the market which moves in cycles. Those who time the market typically miss the run up.
9. 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.
10. REBALANCE YOUR PORTFOLIO
Fine-tune your portfolio periodically by buying and selling portions of it so as to bring it back in line with your risk profile and asset allocation.
Money is a means to an end
Health is wealth. Reduce your healthcare cost by eating healthily and exercising regularly.
Spend on experiences, not things.
Cultivate friends with similar money attitudes and healthy lifestyles.
4. GIVE AND BE INVOLVED
It is better to give than to receive. Besides cash donations, experience the joy of giving your time and effort.
5. MONEY IS NOT AN END IN ITSELF
Accumulating money without a purpose loses its meaning in the long run.
6. LASTING POWER OF ATTORNEY
Decide who are your donee(s) in case you become mentally incapacitated.
7. LEAVE A WILL
Ensure a speedier and hassle-free distribution of your estate upon your demise.
8. ADVANCE MEDICAL DIRECTIVE
To reduce the trauma of family members having to make a difficult decision, 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 and unconscious and where death is imminent.
9. COUNT YOUR BLESSINGS
Do this daily before you sleep and you are more likely to wake up happy and positive.
10. PURPOSE-FILLED LIFE
To me, the meaning of life is to discover my gifts and use them to make a difference. Money simply provides more options.
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Start with an end in mind. What do financial independence and retirement mean to you? Create a money road map of your current and future cash flows. It details how you want to build, preserve and distribute them to help you achieve what you want in life.