Everyone needs a solid personal finance plan. As long as you are working and earning an income, it is vital to know how to save up, invest, and manage your spending. As important a life skill as this is, regretfully, it is not something that schools teach us how to do.
So, here are some essential things to consider when drawing up your personal finance roadmap.
For more detailed advice on how to manage and grow your savings, there are also plenty of financial consultants you can approach for help.
1. Plan an effective personal budget
Step one of any financial plan is to draw up an effective personal budget. Your budget will determine how much you can spend, save, and invest each month.
If you’d like, you can even go into further details, like how much you will allow yourself to spend on food, personal luxuries, and so on.
Having a budget helps you keep track of where your salary is going, rather than leaving it to chance and realising only too late that you have overspent.
Doing your budget well can improve your finances and lead you towards financial independence.
2. Set aside an emergency fund
When it comes to budgeting your earnings, it’s important not to overlook setting aside an emergency fund. A good rule of thumb would be to set aside 6 months of living expenses. This is a buffer amount that is used for urgent and unexpected spending purposes, such as medical bills after an accident, to replace lost or broken property, or even a sudden loss of employment.
Some people also sign up for insurance plans to help with covering unexpected costs like illness, loss of income, damage due to disasters, and so on.
3. Set realistic financial goals
What’s the point of setting a budget if you don’t have a goal? Having a goal to work towards will help you determine how much you should save and invest.
Your goals can be motivated by upcoming life milestones – for example, saving up for a wedding, home, or car.
In the long term, you should also have a goal for your retirement plan, taking into account the age you would like to retire, the amount you wish to have by then, the kind of lifestyle you see yourself having, and the inflation rate. With your goals in sight, you will also feel more motivated to adhere to your plans.
4. Maintain a good credit score
Your credit score is affected by your credit card use and loan payment history, mostly with the bank. Making payments on time is favourable for your credit score (which is measured by Credit Bureau Singapore) while defaulting on payments is detrimental to your score.
Banks and other financial institutions would usually assess your credit score before deciding to approve or reject your loan applications. It can also affect the interest rates and loan terms offered to you.
However, do note that licensed money lenders don’t do credit discrimination. This means that you can still get a loan with money lenders even if you have a bad credit score. However, money lenders will assess your borrowing history with other money lenders on another platform known as the Moneylenders Credit Bureau.
5. Have a regular savings plan or investment plan
A regular savings plan, endowment plan, or monthly investment plan is not actually a savings plan per se. Think of it as an automatic investment system, where a specific amount is deposited into an account and invested each month.
Put simply, it’s like a forced savings plan. When you withdraw your money after a certain period or upon maturity, you will usually get a larger sum as compared to if you were to put your money in a regular savings account.
You can set the amount you wish to put in each month, and usually, these plans can be bought directly with the bank or a financial advisor. Many people use robo-advisors, too.
The key benefits of getting a plan like this include (i) putting your ‘idle’ cash to work, (ii) having a fixed savings plan so you don’t overspend, and (iii) growing your money that can be used for a specific milestone later in life, such as for your children’s education.
6. Manage your debts well
Many of us enter the workforce already laden with debts – study loans are one of them! From housing loans to car loans, having some form of debt to pay off is quite normal. What matters is how you manage your debts.
Allowing debts to hinder your savings plan is not ideal, but defaulting on your payments is not a good idea either. If you have multiple credit card debts or have taken out personal loans as well, you will need to plan properly to clear your debts in time.
In some cases where a large amount of debt is owed to multiple creditors, you can approach a licensed money lender for a debt consolidation loan, which will help you combine all your loans into a single loan, so you can pay it off more comfortably with lower interest and sometimes a longer loan tenure. Plus, it’s easier to manage one loan than multiple loans, don’t you think?
Make personal finance planning a priority
It is important to plan your finances for both the short and long term if you want to achieve your financial and retirement goals.
If you need any financial help or are struggling with multiple debts, getting help is the very first step. At Goldstar Credit, we put your interests first and we will do our best to serve your needs.
