5 Essential Financial Planning Strategies if You’re Living in Singapore
When you’re living in Singapore, having the right personal financial strategies can be confusing. You may have assets or investments both in Singapore and abroad, and wonder whether to amalgamate them or where you should save and invest going forward. You may be re-evaluating your priorities, and anyway it’s important to check from time to time that your financial planning is going to satisfy your evolving financial goals in life.
In this article, we’ll outline some simple financial planning strategies if you’re living in Singapore to introduce structure and make a significant, positive impact on your long-term financial health.
1. Assess your income and expenditure
While it might sound obvious, increasing your income over time is integral to your financial health, allowing you to pay down debt and start building your savings and investments.
A great first step is to budget. Start by noting all of your current monthly income and expenditure. This allows you to see if you are overspending in certain areas, or under-allocating in others perhaps, and, by putting your expenses alongside your income, how much you have left over at the end of the month.
If you have very little left at the end of the month, think about how you can either reduce your expenses or increase your income, or both.
One of your first priorities with any excess income should be to pay down any high-interest debts you have, such as credit card debt. As a rule of thumb, prioritize any debt that the interest rate is higher than the profit you could realize if you invest instead.
2. Get protected
The fact is that life can be extremely uncertain. None of us can guarantee the future, however you can insure against many of the situations that could otherwise catch you out.
Some of the most sensible insurance options if you’re living in Singapore are for:
- Death or disability
- Loss of income
- Travel incidents
There are lots of options for insurance providers in Singapore, and it’s always worth comparing different providers to ensure you get the right type of insurance plans with an adequate amount of coverage to meet your needs.
For international individuals, it’s worth looking to private rather than state providers to ensure you get cover that can cross borders when you do.
3. Retirement planning
Whether or not you’re planning to retire in Singapore, the golden rule with retirement planning is that the sooner you start saving the better. This is because the earlier you start saving, the more you benefit from your contributions compounding over the years before you retire.
As such, retirement planning should always be a financial priority. While everyone has different ideas and goals, here are some of the fundamental considerations:
· Explore individual retirement accounts: get yourself a retirement account and start contributing into it monthly straight away. These monthly contributions will compound into a significant sum at the time of your retirement. Whether you invest in Singapore or another country should be part of your conversation with your financial advisor.
· Start early: don’t push it to the next month or year. The earlier you start, the more you benefit from compounding.
· Invest safe: look for investment options that are low risk even if they offer only a modest return. While your risk level may depend on how long you have until you retire, you should always play it safe when it comes to your future quality of life.
· Be smart about taxes: Consult an expert and take advantage of the available tax benefits or tax relief for saving on your retirement plans.
When you are young, your financial obligations are typically fewer, so you have the ability to save more and invest for your future. Once you have family obligations, you may have less excess income to save. So just to reiterate, the sooner you start saving, the more benefits you’ll enjoy later.
4. Hold emergency funds
Another financial planning priority should be establishing an emergency fund. The purpose of an emergency fund is firstly to cover significant unexpected expenses should they occur, and secondly in case you suffered an unexpected drop in your income for any reason. Having an emergency fund in these situations will save you from unnecessary debt and interest and also improve your financial confidence because you would know that you have a backup to fall back on should you need it.
Your emergency fund should ideally be equal to at least six months of your average monthly expenses, although it can take some time to build it up to this amount. This fund will cater to your need for immediate cash in case of an uncertain event.
5. Make Investments
The first four strategies we’ve outlined are fundamentally defensive and about building up your foundations and resilience to ensure that your finances are on a secure footing long-term. With that established, the final strategy is to start building your wealth by investing.
Once you have budgeted to reduce unnecessary expenditure and maximize your income, paid down high-interest debts, insured against unforeseen circumstances and established an emergency fund and started setting aside contributions for retirement, it’s time to look at other areas to invest in.
The first step when investing is to create a plan with your financial advisor which sets out your goals and defines your risk appetite. Then, you can create a diversified investment strategy that may include investing in some of the following asset types:
· Real Estate Investment Trusts (REITs)
· Individual stocks and shares
· Government or corporate bonds
· Investment funds (ETFs, unit trusts, mutual funds)
Ideally, don’t go all in with just one of these options. Instead, invest in a combination of several asset types to reduce the associated risk of each investment class.
In combination and as part of a structured long-term plan developed in partnership with your FA, these strategies will provide you with both financial security and wealth long-term.
Get in touch, and let us help you achieve your financial goals.