Your 20s can be both an exciting and scary time. You’re starting a career, learning how to be an independent adult and trying to finding your place in the world.
Taking care of your finances is one area that many young professionals aren’t proficient in. Here are 10 smart money moves you should make now.
1. Improve Your Financial Literacy
Personal finance lessons aren’t a part of the Singaporean school curriculum, and for many young adults who are joining the workforce, they’re now just learning how to manage their own money.
One of the smartest moves you can make right now is to get smarter about money. Perhaps you don’t speak of financial matters with friends and family, but there are plenty of resources out there that can help you improve your financial literacy.
In the age of the Internet, knowledge of all kinds is available if you merely Google it. A good resource by MAS is the MoneySense website which provides online educational resources to help Singaporeans become more financially savvy. MoneySense also offers free events on financial matters.
You can also facilitate self-learning by reading books on personal finance. This allows you to build your own knowledge bank so that you can make better decisions when speaking to a financial professional or purchasing financial instruments or products.
And if you haven’t used your SkillsFuture yet, consider checking out courses that can help you better manage your money.
2. Design a Personalised Budget
Having a budget may sound simple but it’s often overlooked. To put yourself in good financial stead, you need to have a solid foundation, and that begins with designing a budget that works for you.
It’s important to ensure that your spending does not exceed your earning. Budgeting is key to helping you know where your money goes.
If you don’t know exactly how you’re spending your money, consider using a budget tracking app. After a month, you’ll see the breakdown of your expenses and be able to assess the areas in which you’re overspending. The cost of that morning latte can add up!
If you have a personalised budget, you can better manage your personal expenses and make small changes where necessary. You’ll also see how maintaining low recurring expenses can help you save money in the long term.
3. Start an Emergency Fund
When you’re young, the world is your oyster. Many young adults tend to live in the moment, and may not consider preparing themselves for emergencies.
However, the reality is that one emergency could very well wipe out your finances, particularly when you’re young and may not have as much savings. It could be having to pay out of pocket for medical expenses, unexpectedly losing your job, or having to chip in money for a family emergency.
Building up your own emergency fund can keep you away from financial troubles and allow you to feel more assured about the future.
A good rule of thumb is to have at least 3 months’ worth of your living expenses stored in an emergency account. This means that if your average monthly living expenses is $1,500, then you’ll need a minimum of $4,500 in emergency funds.
Here are two additional tips for your emergency fund. Firstly, consider putting the funds in an account that isn’t easily accessible (that is, you can’t withdraw money from it via an ATM) so that it remains untouched unless necessary.
Secondly, look for the best interest rates you can get. One account to consider is the UOB One Account which offers up to 3.33% interest on your emergency funds.
4. Assess Your Health and Life Insurance Needs
Not being insured can be a huge financial drain on you or your family, should something catastrophic happen.
As a young person, you may think that it’s too soon to buy insurance, and that it’s only something necessary when you get married and start your own family.
The truth is, there is no right age to start buying insurance. At Singapore Life, we believe that it’s important to buy insurance as soon as you can. There are several advantages to this.
Getting insurance coverage early can protect you against the exorbitant costs of illnesses that may strike later in life. Buying insurance at a younger age also means lower premiums as you have lower individual risk.
More importantly, being adequately insured can provide you with the peace of mind that you and your family will have enough financial resources, if you are faced with an untoward life event.
Consider getting financial advice from trusted professionals who can recommend the insurance products that best fit your needs and budget.
5. Take Advantage of the Power of Compounding Interest
Retirement may seem like a long, long way to go when you’re in your 20s, but now’s actually the best time for you to start saving for your golden years!
With both life expectancy and the cost of living rising, the millennials of today will need more funds for their retirement years. That makes it all the more important to start saving early.
Starting to save for your retirement in your 20s also allows you to benefit from the power of compounding interest
This chart by Business Insider shows the difference between saving for retirement at 25 and saving at 35. In the example given, saving 10 years earlier led to an additional $200,000 in savings, thanks to the power of compounding interest.
There are various financial instruments that can help you save for retirement, be it investment, insurance savings plans, or fixed deposit plans. Whichever you decide on, it’s smart to start planning for your retirement now and make your money work harder for you.
6. Start Planning for Your Next Financial or Life Milestone
What’s your next life goal? Setting personal goals can help you better manage your money because then you know what you’re working towards.
Perhaps you’re planning on getting married soon and applying for a BTO. Or maybe you’d like to pamper your parents and take them on a family holiday. Or you could be thinking of buying a car.
Having a financial goal can motivate you to take control of your finances. Take some time to think of your next financial or life milestone. Consider how much money you need for that event, and if you’re financially ready for it.
If you’re not, then it’s a good time to start planning how you can meet your financial goals and live the life you want.
7. Separate Savings into Short Term and Long Term
We all have short and long term goals. As human beings, we may tend to favour short-term pleasure. After all, saving for a holiday sounds much more fun than saving for retirement.
As such, a smart money move you can make today is to separate your savings into short-term and long-term savings. This ensures that you’re not just indulging your short-term desires but also taking care of your long-term needs, which are equally important.
How can you do this? One way is to utilize different financial instruments for different types of goals.
For instance, saving for the short-term can be done with savings or fixed deposit accounts as these allow you to keep your savings liquid.
When it comes to long-term savings, you could use insurance savings plans or investments. These instruments may be less liquid, but they also often offer higher returns and can be great choices for the long term.
8. Do Not Borrow Unnecessarily
You’re young, you’re earning a good salary, and you want to enjoy life. There’s nothing wrong with that!
However, don’t fall into the trap of trying to keep up appearances or spending irresponsibly to the point that you’re in consumer debt. Consumer debt can come in the form of credit card debt, personal loans or bank overdrafts.
The cost of borrowing puts a strain on your income, and this can be stressful in the long run especially if you do not manage your debt well.
So, it’s smart not to borrow unnecessarily. Instead, for non-essential expenditure, take the approach of saving for it instead of using credit to pay for it. This ensures that you don’t get into the habit of spending above your means.
9. Pay Your Credit Card Bills on Time and in Full
Sometimes, it’s just more convenient to make payments via credit card. Credit cards are not just for big purchases or online shopping; more and more, it’s becoming popular to use contactless or card payments for everyday purchases in Singapore.
What’s more, some consumers use their credit cards for the perks or to rack up rewards and points.
Using credit has become commonplace, and it can be a smart move.
But it’s also smart to ensure that you pay your bills on time and in full. Not doing so will result in late payment fees and interest rate accrual on the outstanding amount – and this amount can stack up quickly!
10. Pay Off Your Student Loans As Soon As Possible
If you pursued higher education, chances are you took on a student loan to pay for it.
Once you’ve entered the working world, it’s a smart move to review your loan documents. Take note of important details such as the total loan amount, interest rate and the repayment terms, if any.
It’s a good idea to pay off the entire loan as soon you can, in order to minimize the amount of interest you pay on the loan. Be sure to factor in your loan repayments into your monthly budget.
Do you have a money tip for young professionals? Share it with us in the comments.