If you are in your early 20s, you might want to start planning your finances – you do not really have a long way till retirement. Early financial planning can help you in the long run, particularly due to what we call the “power of compounding”.
5 THINGS YOU NEED TO START DOING now!
1.Track your Expenses.
This is one of the most important things that you should start as part of controlling your personal finance. Without tracking where your money is flowing to, you will never be able to find the areas where you are spending excessively. It will also help you keep track if you are going to exceed your budget for the month.
As you continue this habit of tracking your expenses, you start to create a conscious psychological note to yourself that you should be spending within your budget.
Everything starts small.
2. Create a Savings Account with Automated Transfer.
Most people save money every month this way:
Income – Expenses = Savings
However, it is better to think about how much you want to save each month, save it and then spend what is left over. Consider changing your savings pattern to:
Expenses = Income – Savings
Keep saving a fixed amount every month, preferably 10% of your take home pay.
As your pay increases over time, increase the amount you save proportionately (10%) or exponentially (more than 10%).
Set up a new savings account in additional to the account that receives your salary.
Setup an automatic transfer in your Salary Account to automatically transfer a part of your salary into your Savings Account every month during payday.
This money can be your rainy day fund, investment or retirement fund, down payment for your future home, or any other purpose that can help you in the long run.
You might want to read one of the post we wrote earlier about teachings from Mr Li Ka Shing.
3.Make Use of Credit Card Rebates and various promotions.
Many think that credit cards are a taboo when it comes to financial management. However, they are actually one of the best tools you can have to improve your financial position.
When used correctly (paying the bills on time etc), you can actually earn cashbacks and rewards provided by the credit card companies and banks.
However, if you are unable to pay your credit card bills every month, the interest charged by the financial institutions can easily cripple your financial position.
Based on your income and age group, there are several credit cards in the market which you can apply for. Here is http://www.moneysmart.sg/credit-cards which you can visit.
4.Improve your Financial Literacy.
Financial literacy is one of the key to financial freedom. Having knowledge opens up avenues for you to different investment tools and allows you to understand how to manage financial risk based on your own risk tolerance.
Never stop learning about financial planning and investments.
Benjamin Franklin once said “An investment in knowledge pays the best interest.”
Also read: How to get out of the Rat Race?
5.Get Out of Debt.
Debt management is imperative for financial success. Besides the cost of an education and a primary residence, if you are unable to pay by cash do not make the purchase. As far as the other two are concerned, it is better for you to pay off your education loan before you buy a home.
When it comes to property, do not stretch your budget. Make a purchase that you can easily afford and pay it off. For Singaporeans, there is a robust system in place (Central Provident Fund – CPF) and the housing loans that are carefully structured to cater to one’s personal requirements. Source for one that suits you in terms of its repayment schedule. Make sure it is within your payment means.
A right mindset and attitude are the most important tools you can have to help you in your financial journey. Once you have these, you will be well on your way to building a secure financial future. While the journey is long and not always easy, be sure to take the time to appreciate what you have. It is also crucial to savour the small victories that will help you stay on your long-term course.
Article by Chee Siang
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