When it comes to being financially secure, there's a lot that most of us can do to better our situations to get to a more stable and comfortable place with our finances.
The question is, how?
In the recent GoBear Financial Health Index survey, Singaporeans on average ranked themselves at a 6.4 out of 10 for their level of financial security.
Does that number surprise you? Wondering why it's not higher?
According to the same study, the top factors hindering Singaporeans from achieving financial security were as follows:
- 54% of those surveyed said their cost of living outpaced their earning
- 32% said they don't know how to grow wealth efficiently
- 32% said that their current economic situation is not stable
Another area of concern in the study was the level of support Singaporeans received from family or friends. If they were to lose their income, 24% of those surveyed said they would receive no support, while 49% said they would receive support but only for small needs.
With these numbers in mind, it's crystal clear that financial security is still a struggle for many of us while the rest of us could still always do more to improve our finances and save up for rainy days ahead.
How to become more financially secure
If you're currently living paycheck to paycheck, are currently in debt or don't feel as confident with investing or saving, you're definitely not alone!
The good news is there are steps you can take to turn things around and finally achieve the financial security you deserve.
Create an emergency fund
If you're feeling completely off-track with your finances, building an emergency fund is one of the first steps we recommend. Living paycheck to paycheck can put you in a really precarious position financially and set you up for a lot of credit card debt the minute an emergency expense crops up.
Most financial experts advise anywhere between 6 - 9 months of your income to be put away for your emergency, excluding your most recent salary. This amount should be completely accessible at a moment's notice, but shouldn't be used for anything except emergencies.
It's best to stash this amount away in a checking or savings account for easy access. A high-yield savings account is also great to reap a higher investment benefit from your emergency fund.
Of course, in order to build up 6 - 9 months of your savings, you'll need to decide if you want to cut back on your unnecessary expenses or work to earn more through a negotiated raise, new job or a side hustle or two.
Consider long-term investments
It's never too early to start planning for retirement or any of your future goals. Long-term investments, including your retirement fund, but also stocks and exchange-traded funds (ETFs) are a great way to build your future financial security.
The beauty of long-term investments is that they're a great way to make your money work for you through higher interest rates and compound interest.
The catch is, this is money you'll need to put away for several years to reap the benefits and so it's important to play the long game and practice patience with these investments.
If you're feeling a little lost or you're not sure how to start investing, there are plenty of robo-advisor apps to help you get started.
High-yield savings accounts
For the short term, consider an alternative to your standard fixed deposit. There are plenty of great high-yield savings accounts you can consider to park your savings to accumulate higher interest.
While the average interest rate for fixed deposits in Singapore is 0.4 - 1.8%, high-yield savings accounts can go up to 4% p.a.!
The great thing about high-yield savings accounts is that you get the flexibility of your money being accessible whenever you need it with no penalty for withdrawals, while it still earns a decent amount of interest as long as it stays in the account.
Prioritise debt repayments
Debt can take a toll both financially and emotionally. Should you be struggling with multiple loans and feeling a little overwhelmed by it all, the key is to prioritise.
Take a look at the interest rates of all your loans. Then come up with a strategy in terms of which you should pay off first.
Most people opt for servicing the loan with the highest interest rate first as this is considered the most urgent. Others choose to service all the loans simultaneously but in different proportions, with a higher proportion going to the loan with the highest interest rate every month.
Others opt to go for the small fish first, choosing the loan with the lowest amount to refinance. Once one loan is out of the way, this motivates them to pay up other loans as the overall picture of their debt becomes less overwhelming.
You may also want to consider a debt consolidation plan if you have multiple loans with various banks and want to get a lower interest rate by combining them.
Whichever loan you decide to service first will depend on your personality and the terms of your loan, but coming up with a debt repayment strategy or debt consolidation plan is one of the best steps you can take towards financial security.
| See also: Tips for effective debt consolidation |
Follow the 50/30/20 rule
The 50/30/20 rule, coined by US Massachusetts Senator Elizabeth Warren, is a ratio you can follow for your expenses to make sure that you're spending and saving sustainably for the long run.
The rule is simple and goes like this:
1. Calculate your after-tax income
2. Spend 50% of your after-tax income on your necessities including rent, utilities, groceries and transportation
3. Spend only 30% of your after-tax income on your wants such as dining out, Netflix subscription, Starbucks lattes, etc.
4. Funnel the remaining 20% of your after-tax income towards your savings
Aside from that, most financial experts advise spending no more than 30% of your monthly income on rent.
Feeling a bit unsettled with regards to your financial security? The steps above can help set you on the right track towards more freedom and stability when it comes to your money.
While it's definitely a learning curve, taking the time to get yourself to a safer place financially is one of the best investments in your future.
Why not start saving today?