Are you constantly worried about money and wondering what to do to improve on your current situation?
Here’s a simple A to Z guide on how you can improve on your financial life:
1) Get Out Of Debt
No I’m not talking about housing loans. Those are good debts and you should take your time to pay them. Leveraging is useful to grow one’s wealth. Learn to take some risk and make use of the low interest rates to grow wealth.
On the other hand, credit card debts and other unsecured loans are pure evil, with exorbitant interest rates. Repay them as soon as possible. If you do not have self control, avoid using credit cards altogether and just stick to using cash and debit cards. Understand that if you need an installment plan to buy something, then you probably can’t afford it. Commit yourself to debt repayment and cut all unnecessary expenses and activities like shopping, eating out at expensive restaurants and going on exotic vacations. You do not deserve such treats if you’re still in debt.
Read here to learn how to get out of debt.
2) Save Money
From personal experience, the best method for saving money is not to “pay yourself first”, or to follow a budget to track income and expenses. The best method, is to set goals for yourself and know what you are saving for. All of us know the importance of saving money, but most of the time, people don’t save because they do not know why they are saving for. No one would sign up for a marathon or race not knowing what they are getting themselves into, or how far they have to run. Start saving money with the end results in mind. Are you saving for a house in 5 years time? A second property in 10 years time? Or an early retirement in 20 years time to enjoy life while you’re still healthy and strong? Do some calculation/ estimation on how much you need for each life goals and work backwards. For example, you need $200k to pay for the downpayment for a house in 5yrs, you and your spouse would have to save $3,333 a month combined to achieve that goal.
3) Protect Yourself and Your Loved Ones
All of us need health and life insurance as a form of protection, especially if you are the sole breadwinner at home. Singapore is a very expensive country with not much social welfare. You want to make sure that your loved ones are being taken care of if anything happens to you, or if you are not able to bring home the dough due to any unforeseen circumstances. Before going to a financial advisor, make sure you read and find out the different types of insurance out there, and have in mind the ones which are suitable for your needs. No offense to any insurance advisor out there, but there are some (a minority) who recommend products which earns them the highest commission, which are not necessary in their clients’ best interest. There are of course the few precious ones out there, that are doing their best to help their clients. It helps to source around and to identify sincere and helpful advisors.
4) Earn More Money
Develop yourself to increase your earning power. You do not have to subject yourself to that pathetic 5% increment every year. Upgrade yourself and learn new skills to stay relevant and always be proactive in your job. Also, do not be afraid to ask for an increment or promotion if you are doing a good job. Most employees, especially women, aim to be nice and often not ask for what they deserved. Stuck in a sucky job? We all have the choice not to stay in one. Do something about it.
5) Start Investing
Read, read and read. Talk to people who invest and ask about their strategies. Learn how to read the financial statements and calculate ratios to identify under valued companies. Read the news on the daily basis as share prices also react based on news and what’s happening around the world.
6) Plan for Retirement
Personally, I’m not planning for retirement but for financial freedom. I plan to work for as long as I can but not for money, it’ll be for the things I love doing. Plan for the end in mind. If you like to retire at the official age of 62, make sure you have enough money to last you till the age of 85, which is the average lifespan in Singapore. You will need at least 80% of your current annual income to sustain your lifestyle every year, factoring the rate of inflation over the years. Start planning early and invest early to beat inflation. It is never too late to start planning for such important life event.
This is a simple guide for total idiots who are clueless on what to do to improve on their personal finance. I will be doing installments to elaborate on each steps in the next few weeks.