From credit cards to saving accounts to budgeting tips, we speak to experts on getting the basics of your personal finances sorted.
Personal finance. These two words can seem pretty intimidating for millennials, Gen-Zers and anyone who has never paid much attention to it. Luckily, you don’t really have to be a math whiz (though it might help) to understand the fundamentals of budgeting and saving. If you’re new to adulting or you finally decided to get your sh*t sorted when it comes to work management, productivity, busyness and practical stuff, we’ve got you covered. Presenting: Our introductory guide on personal finance basics put together with the help of industry experts.
The basics of personal finance
Start with savings
Saving is something we were all taught when we were young. Remember your reliable piggy bank? Well, the same concept applies in adulthood. But how much of your pay cheque should you put aside?
Looks like the magic number is at least 10% of your salary. That’s what should go into your savings account each month, according to Vasu Menon, executive director for investment strategy at OCBC Bank.
“The key is to make saving habitual. For example, you can set up an automated funds transfer each month from your salary-crediting bank account to a designated savings account,” he says. “This will ensure that you are saving first before you even think of spending your hard-earned money. No one’s budget is infinite. You need to make sacrifices to save.”
Depending on your financial goals, Angelique Huan, financial services and corporate benefits manager at Prudential, mentions adding another 5% to 15% to your savings.
“If you can save 50%, that’s fantastic! However, if your finances are tight, ensure that the balance savings amount to minimally 10% to 20% of your salary. Diligently log down your finances somewhere to see where your money is going, if there’s anything to be cut down and whether your savings are on track,” she adds.
Be a boss at budgeting
Budgeting is key to reaching your financial goals. While personal finance is… personal, there are a few universal things you can do to stay on track (and within budget).
“No one’s budget is infinite. You need to make sacrifices to save. Spending prudently and spending less on non-essentials is a good thing and it is something we should all practise as much as possible in good and bad times,” Menon explains.
Making a list of priority needs can help you figure out what’s important and what’s not. To gain a clearer understanding of your non-essential spending, it can be useful to jot down your monthly expenses into various categories so you know where all your cash is going. Plus point: You won’t do a double take at the end of the month when you realise your bank account is looking empty again.
“Keep a detailed ledger of all your expenses. Use expense trackers and banking apps that can help you track your expenses closely so that you are able to reduce non-essential expenses instead of reducing savings,” Menon elaborates. “It is important to save and invest as much as you can because you will need the funds in future to meet your longer-term needs and financial life goals.”
Pick the right account for your savings
The first thing you should look into is the various interest rates banks offer for their accounts.
“Financial institutions like banks and insurers are highly regulated. So, there are no “better” banks – higher interest will help you to mitigate some losses from inflation on emergency funds,” says Isabelle Tan, high networth consultant of Manulife Financial Advisers.
Huan also mentions the importance of interest rates. “There are various bank accounts available in Singapore, which allow you to earn higher interest if you have met the requirements tied to them (such as salary crediting, GIRO arrangements, etc). Pick the one in which the criteria you can meet will give you the highest interest. This will help you maximise this part of your short term fluid savings.”
In short, there’s no one-size-fits-all. It’s really up to you to do the research and choose the best account suited for your personal finances.
Ready for retirement?
In a survey done by OCBC in 2019, only 51% of the respondents said they had sufficient savings to last for six months. We know retirement may seem like a long way from now for some of us, but it is crucial to start early and have a solid base plan. Essentially, you want to sow the seeds now and reap the benefits later in your golden years.
For starters, you can use online calculators from banks and financial services, including OCBC, NTUC Income and Great Eastern, to gauge your retirement plans. These nifty tools basically help you to calculate how much you need to save to comfortably retire based on your current earnings and spending habits.
On top of savings from your Central Provident Fund (or CPF, the government pension plan for Singaporeans), you can also look into the Supplemental Retirement Scheme (SRS). This allows you to put money aside for your retirement in addition to your CPF.
“Your contributions are eligible for tax reliefs based on your marginal income tax rate. SRS contributions make more sense if you are on a higher income tax bracket,” Menon explains. “You can also put your SRS funds to harder work by investing them. SRS funds can be invested in a wide variety of instruments, including unit trusts, some insurance products, bonds, shares, real estate investment trusts (REITs) and exchange traded funds (ETFs) listed on the Singapore Exchange (SGX).”
Get insured for a rainy day
Another vital part of personal finance when delving into the basics is insurance. You wouldn’t want your savings to run dry from any kind of substantial medical expenses, right? And of course, there are many types of insurance policies out there. But the best part is, you can pick the ones that fit your lifestyle (read: earnings) – not the other way around.
Huan explains, “it is important to identify if a particular feature is a ‘good to have’ or ‘an essential’ feature. A good insurance plan is one that suits your needs. As there are too many aspects in an insurance plan, always know your top priorities when you’re buying insurance.”
The details may differ, but one thing we can all agree on: Insurance is important.
“Everyone should have at least medical insurance, life insurance (to manage liabilities) and a personal accident plan. With this as a base, we can work on retirement and investing towards retirement,” Tan says.
Looks like it’s time to book an appointment with your insurance agent and start talking about your options.
Before you swipe your credit card…
There are multiple banks offering a wide range of credit cards tailored to specific needs and spending habits. Some credit cards are good for stockpiling air miles while others give generous cashback rewards. Sounds like magic, innit? Well, not all that glitters is gold.
“Credit cards come packed with great perks and privileges, but the high interest charges on the balance wipe out all of the positives if you miss your payment. Thus, it’s all about balancing between the rebates earned and the number of cards you can manage,” Huan says.
It is worth the effort to figure out what you will generally be using the credit card for and checking up on comparisons between various credit cards issued by banks in Singapore. Also, take note that these benefits only come with spending, so as attractive as the perks may seem, you’ll have to first spend money to benefit from them.
Now that we’ve covered the basics of personal finance, you’ve got all the right tools at your disposal to move one step closer to achieving your financial goals. Go get ‘em!