Asked on 29 Sep 2019
I'm wondering whether I'm on the right track financially, or should I adjust my allocations (in terms of investments/emergency fund/loans)?
27 y.o, Single, male
Take home of 3.2k
21k study loan with 0% interest (paying my family), projected to be cleared within 30 months
Roughly 3 months worth of emergency funds
Insurance covered (HS, Term, CI, Accident)
Investing $100 into RSP monthly
Thanks in advance, for any form of advice!
You are definitely on the right track. Since your loan is 0 interest rate, you can take the time to clear your loans. The 3 month of emergency fund is also the right choice. Do not need to put any emergency fund. 3 months is sufficient. What you can do is invest more. You can put more in saving plan, Varga investment and S&P index.
For S&P Index, you can go search on Money course leveraging S&P index Group by Warren Buffett 2013. Hope that this will help you :)
Love this type of question as it is what I faced when I graduated years ago.
Life is not absolute in black and white. You don't have to do all or none. ;)
start investing more. This will force you to have less "idle cash" that you may be tempted to splurge on luxuries. By all means, spend to have a good life, AFTER you invested something. I will increase the RSP to something more...
Paying back the study loan. For a 0% loan, in absolute economic logic, you should be paying as little as possible. But the loan is from family, so.... you want to pay and clear faster than projected to make family happy. Why? Family happy is the most important thing in the world.
Put a bit of cash over to your emergency cash. This emergency cash can be earning returns too (though not as good as stock or fund returns). You can have a DBS multiplier account or UOB One account or OCBC 360 account etc. Actually 3 month is good enough for a small emergency, I am not that worried not if I have 3 mths worth...
Going through again, if it is me I will definitely be increasing my investment monthly =)
Have is a (4) too.... increasing cash holdings, not for "bad emergencies" cash but for good emergencies... in case there is a steep stock correction, I will be happy to have excess cash in the bank to buy big.
1) loan: Agree with Cedric. A 0% study loan means your lender lost his / her interest income. In this kind of situation, I would encourage you to align an interest rate with your borrower - I would recommend that this rate be better than what the bank would pay him/her, but yet lower than what a bank would charge you. Somewhere between 0.5% pa and around the current SSB rate of 1.75% pa to 3-month SIBOR of 2% pa would be fair in my opinion. At this stage of your life, take this opportunity to understand how interest compounds, and what is your preference towards debt. This will help you navigate future situations in the face of consumer debt (credit cards/lines), mortgages, etc.
2) from a budgeting perspective, I wonder if your savings is 100 per month (the RSP). If so, it seems quite low (about 3+%). I think you are saving more than this. I would encourage you to always plan out / budget to save between 15% to 35% of your take-home pay. The savings here would go to either a long term goal to save for emergency/downpayment for house/retirement. This habit is best cultivated early in life. You could have this set aside in the bank, or parked in SSBs / fixed deposit, or other instruments (not encouraging endowments and the like for goals that are less than 10 years away). The choice of instrument should match your goal in both risk and withdrawal timeframe.
3) Learn to budget. One habit I developed over the years is setting savings goals to set aside money for a different purpose. An example is setting aside 5% of take-home pay in a category I call Rewards - I take money out from here to pay for my travels, a new hp or tablet etc. This is "save now, consume later". You might want to give this a try.
4) in terms of investing, how well do you rate yourself? Don't rush into it. 100 per month is a good start while you are trying to pick up the ropes. On the other hand, learn to see transaction cost/fees as a % of your investment. I personally feel this % should be kept to below 1.5% whenever possible, best if below 1%. A rough guideline is every 0.1% of fees eats away 2% of returns over 10 years. For example, an investment that charges you 2% annual fees would eat away 40% returns over 10 years. Apart from learning about fees, take your time to figure out your risk preference, attitude, and preferred style.