You don’t need a degree in finance to build some solid knowhow of what to do with your money in life.
The internet is a double-edged sword. At a click, you can read all about property, insurance, personal loans, and investments. But how do you know which tips to take and which to ignore?
It’s time to get back to basics.
5 Good Money Tips To Carry With You
1. There are no shortcuts when it comes to building wealth
In today’s fast-paced culture, instant gratification and quick fixes are the norms. Unfortunately, nothing in life comes easy, and the same applies to your wealth. Although everyone wants to be rich quick and with as little effort as possible, that’s an impractical fantasy.
There is no such thing as a secret formula for getting rich. Sure, there are some good habits (i.e. being frugal) that you can pick up along the way, but people build their wealth in many different ways so there’s no one-size-fits-all solution.
If your goal is to retire by the age of 40, then you’ll need to work hard and hustle to achieve that goal. This may involve sleepless nights or juggling multiple side gigs.
Read more: 9 Easy Side Hustle Ideas for Students Looking To Earn Extra Income)
But before you start hustling, first understand why you want the money. To be able to set priorities and have goals, you will need to identify what is important to you. Visualize your dreams and then work on an action plan to achieve it.
2. Spend less than you earn – don’t fall for lifestyle inflation
Many of us work hard day and night to earn a steady income to fund our inflated lifestyles. Though earning enough consistently to be able to afford “nice things” is completely fine, it can be stressful for the person who needs to clock in the hours to achieve that.
Lifestyle inflation is defined as a situation where one increases their spending when their income goes up. But just because you earn more, it doesn’t mean you need to spend more.
Though it feels nice to get your hands on the latest Apple or Samsung flagship phone, embracing this lifestyle can make it difficult for you to get out of debt, plan for retirement, or achieve other financial goals.
Just because you earn more, it doesn’t mean you need to spend more.
Of course, it’s completely normal to have more wants after a salary raise, but this lifestyle forces you to live in a vicious circle of living paycheck to paycheck just to fund your wants while paying off your debts and expenses every month. Those who have poor money management skills might get themselves in trouble and end up with more debts, which leads to stress.
The alternative to lifestyle inflation is to maintain your expenses at the same level even after receiving a raise. Instead of spending the extra money on your impulses, use the extra cash to further build your financial security by putting it away in your savings and retirement fund, emergency fund or even investment funds.
3. Take control of your debt before it controls you
Picture this common scenario: You’ve just got your first credit card. It feels nice to purchase items without seeing a deduction in your bank account. So you continue to swipe. Before you know it, your bill rolls in, and you get notified that you had racked up a large amount of debt without even realizing it.
But debt isn’t necessarily bad. Good debt will allow you to earn a good credit score as it shows that you have experience managing debt. There are many great benefits to having a good score – you qualify for more competitive interest rates, your mortgage depends on it, in some cases, it also affects your car insurance. However, a high debt servicing ratio isn’t good for you either; it could also affect your credit score negatively.
Total debt servicing ratio can be derived by taking the total monthly debt repayment sum divided by total income. A healthy debt ratio should be 60% or less.
A healthy debt ratio should be 60% or less.
According to CEIC, the average Singapore household debt reached US$250 billion in December 2020. It also accounted for 67.1% of the country’s Nominal GDP in September 2020, compared with the ratio of 65.0% in the previous quarter. This figure tells us that many Singaporeans are in debt! It doesn’t take a long time to build debt, but it can surely take an extensive period to be paid off.
Some of the best ways to manage your debt include paying off the high-interest debt immediately, sticking to your budget and coming up with a debt-reduction strategy.
4. Start investing and saving from young
It’s easy to see why young people don’t get that hyped-up about investing. Since most people invest for the long-term, you won’t notice a whole lot of short-term gains as your investing efforts may only come to fruition 40 years down the road – depending on your time horizon.
Your early 20s is the best time to start investing. This the age at which you will enjoy the most freedom financially, without a lot of larger commitments like a family or mortgage.
Thus, it makes a lot of sense for you to pour a portion of that hard-earned money into an investment fund. Investing at a young age is one of the best and smartest ways to grow your wealth because you will naturally have a longer time horizon to work with.
Investing young will teach you about financial independence and discipline early. The little amount of money you put into your investments will serve you later in your life.
5. Invest in yourself first
There are so many ways to invest your money: stocks, unit trusts, robo-advisors, real estate, gold, cryptocurrencies, P2P lending, and the list goes on and on. But there’s another type of investment that we tend to overlook but might have the best dividends: investing in yourself.
In a world filled with so many goals, pursuits, ambitions, and adventures, we often put ourselves last. We work hard to please others – our partners, our bosses, our families, and friends, but we rarely take the time to re-energize ourselves.
If we were to dig a little further, our motivation to please others stems from our underlying need to feel appreciated and — perhaps to feel wanted – in some way or another. Unhappiness stems from feeling taken for granted or in another light – underappreciated.
Read more: The real cost of our purchases is time, not money
To a degree, we accept bad behavior because we don’t put ourselves first. As Bill famously quotes in the American novel “The Perks of Being a Wallflower,” many times, we “accept the love we think we deserve.” About being taken for granted, we need to ask ourselves before we look outward; are we taking ourselves for granted?
Many times, we “accept the love we think we deserve.”
People often take themselves for granted by using their time, efforts, loyalty, and skills on people who don’t deserve it. Recognize this and respect yourself enough to walk away from endeavors that no longer serve you. That is the first step to investing in yourself.
Investing in yourself helps build your confidence, self-esteem, your wealth and improves your career prospects. You’ll start bringing in people, ideas, and experiences that you might have been holding against yourself all this while.
Ignore these: 5 “tips” that are flawed
1. Renting is throwing money away
Owning your own house has long been the hallmark of success in many cultures. For example, in the United States, having a white picket fence has often been synonymous with the American Dream.
Though buying a house means creating an asset in the long-term, homeownership may not be as affordable to everyone, especially in a country like Singapore, which was ranked second among the most expensive residential property markets worldwide, according to a 2019 report by CBRE.
This decision depends on your financial capabilities, first the downpayment and then the monthly mortgage repayments.
On the flipside, renters get to deal with less headache from repair costs and they can easily move out if they decide to relocate.
Before you dive headfirst into buying a house, consider the local price-to-rent ratio, whether you’ll dabble with alternative investment options and the opportunity cost of other investments.
2. Credit cards and personal loans are evil
You may have heard people say that credit cards and personal loans are the root of all evil and that you should stay away from both as much as you can. It’s not without some truth , but it’s not this binary either.
Abusing credit cards and personal loans can harm your finances in the long run, and you may struggle to get out of debt for years (or even decades) if you’ve gotten into such a predicament.
Fortunately, though most Singaporeans own credit cards, and very few are in debt from them, the latest YouGov Omnibus research finds. Despite high credit card ownership, credit card debt is notably low among Singaporeans. Among those Singaporeans who own one, the overwhelming majority (88%) pay off the total outstanding amount on time. Only one in eleven (9%) pay it off partially, while the remaining 3% pay off the minimum amount.
Credit cards and personal debts are not inherently evil, they just need to be used correctly.
There are many reasons why people apply for these financial products: business owners may use loans to bootstrap their businesses; you might just be on the lookout for a new car; while others apply for a credit card as a faster way to get out of debt via balance transfers. Your parents might use travel credit cards to fund a nice summer vacation for a substantially less price than the original full price.
Credit cards and personal debts are not inherently evil, they just need to be used correctly. Be a smart user by being disciplined and committed to paying your debts back on time.
3. You need a college degree to be successful
Although common wisdom preaches that a college degree is necessary in life, I’m sure you have heard countless success stories of people who didn’t finish college.
Some of the ultra-millionaires and billionaires of the world such as Steve Jobs, the late founder of Apple, and Bill Gates, the founder of Microsoft, didn’t have college degrees either. But of course, these guys are the exception, not the rule.
Because you don’t have a piece of paper to tell much of who you are and what you can bring to the table, it’s recommended that you take the time to build your experience instead. Many companies look for individuals who believe that growth and development is a lifelong process.
Some of the things you can do to enhance your development are to first, find your passion and purpose in life and dedicate your life to pursuing that goal.
Find a mentor.
Next, find a mentor who can help nurture you and show you the ropes so you can learn faster.
Attend networking sessions and expand your network – don’t just talk to those within your circle but look beyond that. Lastly, read a lot of books and take online courses.
In today’s vastly progressive world, employers are starting to look at talents based on their skills and talent rather than one’s academic qualifications.
4. You must aggressively pay down your debt
Paying down debt aggressively may not necessarily be worth your money or your effort. This may sound counterintuitive but hear us out.
You may experience debt fatigue as well if you are too focused on achieving the goal of being debt-free. Rather than paying off your debt progressively, you are essentially biting off more than you can chew when you force yourself to pay off your debt beyond what you can commit to.
You might need to take on a new lifestyle to accommodate this new goal – so you stop hanging out with friends and you don’t indulge in some forms of entertainment anymore. Before you realise it, you’ll soon start hating this new life you chose.
Although some people don’t mind living extremely frugal lifestyles, not everyone is willing to trade in their night out with friends or dinner dates with an aggressive debt payoff scheme.
As social creatures, we all need a little fun and joy in our lives.
The need to sacrifice your pleasure for financial freedom doesn’t mean you have to take the extreme route. No one wants to be shackled by debt, but as social creatures, we all need a little fun and joy in our lives.
Besides, putting all your extra cash into paying your mortgage or car loan may not make too much sense financially because you could also use that extra money for investments, your emergency fund or your retirement fund.
5. You have to live and die by a strict budget
Here’s a hard truth, budgeting is extremely difficult.Though it is important to be in control of how and where your money goes, life may not necessarily pan out the way you planned. There might be emergencies that you need to attend to, like a medical emergency or house repairs.
Read more: Back-to-Office Money-Saving Tips
If you’re having trouble with your finances, try out our money management app. Planner Bee is aimed at offering an all-in-one experience where you can easily see and control your finances, including setting a realistic budget.
You can track everything from insurance and savings to debt and investments. The best part is that it uses the same encryption standards as banks to safeguard your privacy. The app is free to download and use. Download Planner Bee here: iOS, Android.