How to plan your family finances like a pro
In our third instalment of Personal Finance seminars, we had Dawn Cher, better known as SG Budget Babe, who shared with us some pro tips on managing our personal finances. Having just started her own family in the past year, Dawn also shared from her personal experience as to how her decisions to spend, save, and invest have changed since she started working.
If you've missed out on this session, here's a brief overview of the topics covered.
Step 1: Reduce your expenses
Whether you're drawing your first pay or preparing for your own family, your new-found independence means that you'll be responsible for more and more expenses. From monthly bills to angpows (red packets) for weddings and baby showers, or even home loans and children's expenses, you'll have increasingly more things to pay for.
Hence, it's essential that you optimise your finances by reducing expenses wherever possible. For example, it could be choosing a cheaper electricity provider and mobile phone plan. It could also be making use of cashback credit cards or rebate apps like ShopBack to get rebates from your groceries and shopping.
Pro Tip: Use an expense tracker
When you note down your expenses on a tracking app, this habit makes you aware of where you're spending on and where you can cut down on your expenses. This conscious habit will influence your decision as to whether to eat at a hawker centre instead of a restaurant for lunches. For Dawn, tracking her expense made her realise that she was spending a lot on snacks, and cutting away the snacks helped her save up a bit every month.
Step 2: Build your savings
It is essential to have savings so that you have emergency cash to fall back on. As a rough guide, Dawn recommended setting aside at least 3 to 6 months worth of emergency funds.
Whether you put it into a savings account, fixed deposits, or Singapore Savings Bonds, you should ensure that you have at least some liquid funds that can tide you over in the short term. The other goal of saving is to let this sum grow on its own.
You can easily find a savings account that gets you over 2% interest per annum when you meet the transaction requirements with the bank. For example, with the DBS Multiplier account, spending just $1 on a DBS/POSB card qualifies as a transaction, and you can even make use of a joint account to make it easier to clock the higher interest rate on your respective Multiplier accounts.
Pro Tip: Start saving as early as possible
The magic about savings account is the effect of compounded interest. While it may be difficult to build up a decent sum of savings when you have student loans to pay off as soon as you start work, you should aim to start as early as you can because any amount saved will be multiplied over the years.
Some people may think that it's easier to start saving after they've paid off their loans or when they earn a higher monthly salary. However, that may not be true because your lifestyle would have changed along the way. If you're so used to living by the monthly paycheck, it'll become even harder to start saving when you have a higher monthly income. So, start early, and adapt along the way.
Step 3: Protect yourself with insurance
While it all sounds good to cut down where you can and save up as much as possible, unexpected things can happen that might thwart your plans. You've to insure yourself against unexpected medical bills that might impact your ability to work. As Dawn says, "getting insurance is like outsourcing your biggest financial risks to a third-party".
Depending on your commitments and the different risks you might have with your job, there are insurance plans that are better suited for you. Regardless, insurance is a necessary protection for yourself and your family. Dawn also advised on speaking with multiple insurance agents to get different suggestions and ideas before going with one whom you feel more confident about.
Pro Tip: Consider both term and life insurance plans
Imagine you're fresh in the workforce with a salary that's relatively low. If you've to commit a monthly sum to repay your education loan, and another sum to pay for a life insurance plan, the amount you're left with every month will restrict how much you can spend or invest.
That's when you might want to consider a term insurance plan that usually comes with a lower monthly premium. The downside of buying a term plan over a life plan is that you'll not have any cash value at the end of the term, but you will have insurance coverage throughout. The upside is that you'll have more cash on hand, which you can use to repay other loans, put into investments, or spend on necessities.
Summary – Be conscious of your commitments
To end off the session, Dawn also shared her knowledge and experience in investing in both low-risk and high-risk assets. From bonds and fixed deposits to stock and cryptocurrencies, she recommends for all investors to consider their budget, risk appetite, technical knowledge, and time available to monitor the markets before making an investment.
When you have a family of your own, it's important to be aware of your needs and prioritise for them. For example, your home loan, your household expenses, and children's expenses are necessities that you cannot cut away. However, you can reduce expenses by buying and paying only for what you need.
Insurance is also a necessity to protect yourself from the unexpected. And if you still have free cash after accounting for all your needs, that's when you should look into building up your wealth with savings and investments.
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