09 Mar 2020
My take home pay is about 2.2K and I have roughly 22k of CPF Education Loan debt. I have literally 0 knowledge on investment, just trying to learn here and there bit by bit. How should I partition my pay to maximise whatever I have/ clear my debt?
Personally I will clear off the debt first if the interest is more than 3%, just my personal guidelines. If the interest is less than 3%, there is high chance you can make more than 3% return from investing. Otherwise, clearing off the debt could be a better options.
Don't forget to protect yourself and your family, but do so with minimal cashflow stress - for example, it is possible to get $1 million of coverage for only $312 a year (= $26 a month). See https://thelobang.com/index.php/2019/08/27/insu...
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First, do your budget for at least the next 5 years. Make sure you do not overspend and can generate a surplus each year.
Second, use the surplus and decide the proportion to pay down debt, invest and build an emergency fund.
I recommend building an emergency fund of 3X to 6X your monthly salary. Once you achieve that, consider your investment risk profile. If your potential return based on your risk profile is significantly greater than the loan rate, you can invest, especially if you are young. If not, pay down the debt.
All the best!
Save 20% of your income and set aside 10% for your investment and 10% for clearing off your debt. In...
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