As the saying goes, the best time to invest was yesterday and the second best time is today. The earlier you start investing, the sooner you can tap on the wonders of compound interest and reap greater returns. However, this advice may not be the best for you if you can’t afford to invest just yet.
Fret not though – this doesn’t mean you can’t take active steps to start, and gradually build your financial foundation to start investing.
Here are 6 money moves you can make:
1. Track your money and come up with a budgeting plan
You don’t have to keep track of every single penny on a spreadsheet. Instead, you can simply use the Planner Bee app, a handy tool for you to manage money, insurance and investment all in one place. By recording your expenses diligently, it allows you to better understand where your money is coming in and going out from, and if you are headed in the direction of your goals.
While there’s no magic answer for you to find more money in your budget, you can start with the 50-30-20 rule. This rule is simple – simply divide your wages into three broad categories; 50% for your needs, 30% for your wants, and 20% for savings or debt repayment.
Another advantage of the 50/30/20 rule – it can help you better gauge your salary requirements when you negotiate a job offer or ask for a pay raise. No matter which budgeting option you choose, remember that the best budgets are made to free your mind (and your bank account), not break it.
2. Start an emergency fund
You’d never know when life throws curveballs at you – this is why it’s important to prepare for the unexpected.
From accidents, lost jobs to medical emergencies, these are the realities of life that would require funds. However, if you are financially prepared, things can seem less daunting and stressful in the event that something unfortunate happens.
This begs the next question – how much do you need in your emergency fund? Use this Emergency Fund Calculator to work out your required amount.
You may also use this formula to decide the size of your emergency fund:
Size of fund = (Monthly basic personal expenses + loan repayments + monthly expenses for dependents ) x expected longest period of unemployment in months
3. Pay off high-interest debt
Not all debts are made equal – there are “bad” debts like your credit card debt, which usually charges high interest rates. Other debts, such as your student loans, usually have lower interest rates.
The high-interest debt can burn a hole in your pocket, so you should pay it off as soon as you can. If you’re only paying the minimum sum, the interest will still add up over time. If possible, put any extra money from your budget into paying off this high-interest debt, and keep going until this debt has been cleared completely. For instance, you could start small and set aside just an extra S$10 a week to pay off your high-interest debt. That would be an additional S$40 a month, and you can gradually aim to set aside more savings for this debt.
4. Invest in yourself
If you find yourself living paycheck to paycheck, it can be challenging to set aside money for investment. Why not try investing in yourself and create multiple income streams?
For instance, you can upskill yourself with SkillsFuture’s variety of courses, or make use of online learning marketplaces including Coursera, Skillshare, and Udemy. Over time, as you hone your skills, you can even turn it into a side hustle to earn extra income.
5. Start investing with a small amount
No amount is too small to start – never underestimate the power of a dollar. Did you know that S$1 is all you need to set up your Supplementary Retirement Scheme (SRS) Account?
Challenge yourself to start by putting aside a small amount of money into your “investment fund”. Try keeping up with it on a weekly basis – it could be just your spare change, or a few dollars. Next, you can put your investment fund into robo-advisors, which are digital platforms that provide automated, algorithm-driven financial planning services with minimal human supervision.
This method also helps you build healthy financial habits, so you can afford to invest more in the future.
6. Avoid timing the market
Time in the market is more important than timing the market – that’s why we repeatedly emphasise on the importance of investing early.
If you start investing with a small amount, and consistently do so over time, you’re harnessing the power of dollar-cost averaging (DCA). DCA is an investment strategy of putting in an amount of money regularly (e.g. monthly or quarterly), instead of investing a lump sum of money. This strategy can be adopted for a short period of less than a year, or even for a longer term goal like retirement.
After all, investing your money – regardless of the amount – is better than leaving it idle in your bank account that yields low returns.
Build healthy financial habits today
Getting stuck in the rat race can feel demoralising, especially when your peers are talking about their return on investment. However, instead of letting that get to you, use it as a motivation to start investing.
Concentrate on taking one small step at a time to gradually climb out of your financial ditch. While the journey won’t be easy, healthy financial habits add up and can help pave the way for a better financial future.
