Personal Finance 101
Asked 5d ago
1) Savings is extremely important in building your capital. Cash flow. High-interest yield savings acc.
2) Emergency funds of at least six months of expenses.
3) insurance: basic H&S, life insurance, disability income.
4)) investment: Low-cost ETF DCA into global, SG and bond portfolio (Cpf can be one -one strategy for Long-term)
5) Time in the market better than timing the market.
One: Not just high yield savings account. Make a list of ways to increase your total income (i.e. active income, passive income), and at the same time reduce your total expenditure (i.e. fixed expenditure, variable expenditure).
Here is a Guide:
For instance, find out how you can create a stream of passive income early in your life, and how to build it to cover your fixed expenditure. While doing so, keep your expenses as low as you can. Accordingly, this frees up more net cash flow for wealth accumulation.
Two: Generally, we want to maintain about 3 to 6 months of total expenses as emergency funds (explanation in link above, under Part 4.1). However, we need to know your income ability and spending habit to have a layer of cushion that works for you.
Let's say you work on a contract basis and job is unstable. How long will you need to find another job of similar or lower salary? Likewise for expenses, we need to know whether fixed expenditure is dominating your cashflow (some words for thoughts in Part 4.1 of the shared post).
Three: Have a complete understanding of your existing insurance portfolio. Through this process, it allows us to understand the coverage that we have, any financial gap, as well as to find out whether we are overpaying for our insurance policies.
Key Reasons Why:
How much insurance coverage should You have?
As a general rule,
10% to 20% of your annual income on healthcare insurance and life insurance
Basic Life Cover = 10 times your annual income
Critical Illness Coverage = 5 times your annual income
As usual, this is the general rule which may or may not make sense. Instead, work with an experienced consultant and plan ahead for your future. This ensures that in the next part when we are focus on building our wealth, we do not need to worry on our health.
Four: Have a well-defined investment objective. When your emotions kick in, you have logic to help you overcome your emotions. Consider a step-up annuity to createa a cushion for your fixed expenditure.
Besides, have a complete understanding on the risk that you are undertaking for your portfolio. Personally, I prefer to take calculated risk rather than unnecessary risk to reach my goals.
Therefore, you may wish to ensure that your asset allocation suits your risk appetite and investment objective and your positons are well-hedged.
Five: True if and only if you invest in the right assets. Set a proper reminder in and conduct regular portfolio reviews to ensure that your investment objectives can be fulifled and your life goals are still the same.
I share quality content on estate planning and financial planning here.
May I also add that ensuring your topline salary increases is important as well. For most of us, salary is our main source of income.
Increasing salary means the amount of capital you can save will also increase.
(It also depends on how a person is also spending. If one spends 100% or more of whatever he/she earns -think Mike Tyson-, then no matter how much salary, there'll still be nothing left at the end of day)
And how to increase salary? We have to be constantly upgrading our skills and be mindful of the value that we can offer to employers. Our government really thinks for us until swee swee, so that's where SkillsFuture and their subsidy for firms to send their employees for training come in.
For Insurance part, you might want to look at insuring for Critical Illness. Although Life Insurance may cover that portion, it sometimes maybe insufficient if get too little, and too expensive to get more just to ensure sufficient coverage. Usually, the illness doesn't always kill the patient. What is left behind after leaving the hospital are non-hospital bills e.g. follow-ups, medication, alternative treatments e.g. TCM, domestic helper hire etc. (especially in stroke or diabetes situation) So the CI payout will cover for this.
Currently, there are CI that insure for early stages of cancer or those that pays out multiple times. Usually once a patient get cancer once and recover, it's quite hard to get insurance again to protect against cancer for the second time because there is a possibility of relapse. And it is this risk that the insurers don't like to take on. Hence, if you're healthy now, you may want to look into multi-pay CI plans.
Of course, after covering all bases, I'd say the most ultimate, super, duper important thing is to keep yourself healthy.
When you have health, you can have everything. If there's no health, whatever money earned is channeled into getting it back.
Hope this insight helps to faciliate in your decision-making going forward! All the best and stay healthy!
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