It’s almost the new year, and if your finances are out of sync, now’s the time to fix it.
The key is to take small, manageable steps; once you get the basics done, you can gradually pay down any loans or costs that have been bugging you since 2018.
Here’s how to do it:
Step 1: Track your expenses over the past three months
It’s easy to do this if you use a debit card or credit card. Just open up your statements, and look at the expenses over the past three months.
You’ll want to divide them into general categories, such as:
- Loan repayments
And so forth. The aim is to get a rough estimate of how much you spend each month. This will help you to plan your budget for the coming month.
Step 2: Plan expenses for next month based on how much you have right now
What you’re doing is zero-based budgeting. That means you’re planning next month’s expenses, based on how much you actually have – not on how much you predict you’ll make next month.
When planning your expenses, try to allocate every dollar. For example, if you have $5,000, it may look something like this:
- Loan repayments $700
- Utilities $170
- Telco bill $70
- Conservancy fees $200
- Transport $120
- Entertainment $300
- Savings $1,000
And so forth. By planning your budget this way, you’re doing two things:
First, you make it easier to track your spending next time (as you allocate the funds rather than track the aftermath).
Second, because you’re working from the cash you have instead of projections, you’re less likely to be caught off-guard (e.g. if someone fails to pay you an expected sum).
Step 3: Optimise your cards and credit accounts
Check your credit cards and lines of credit. You don’t want to have too many of these open, especially if you’re not using them.
Remember that credit cards and credit lines have annual fees, typically around $150 a year. You’ll be charged this whether or not you use them.
Yes, you can call to request for fee waiver, but beware: some banks are inclined not to waive the fees, if you charge nothing to the card.
Remember, the best card last year probably isn’t the best card this year. Credit card features change all the time. So you should optimise not just your card usage, but also the specific cards that you should keep.
Use GoBear to find cards that are more appropriate to your lifestyle. Look around for a better cashback credit card, or air miles card, and switch if you find it.
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Of course, once you find the right ones, close the credit cards and credit lines that you’re not using.
Step 4: Review your savings
You should try to always have six months of your expenses set aside. This should be in stored in an accessible way, such as in Singapore Savings Bonds (SSBs) or a simple savings account.
Don’t lock these emergency savings in endowment products, fixed deposits, or other accounts with a fixed maturity date. You’ll risk being unable to withdraw the money when you need it.
If you don’t have six months’ of expenses saved up, it’s advisable to allocate a higher portion to savings the coming year, until the fund is built.
Step 5: Review your investment options
You’ll have to speak to a qualified financial advisor for this one. Review if your investments are performing as expected. If your unit trust is not delivering the expected returns, for example, your financial advisor should be able to explain why.
As a rule of thumb, your long-term investments (e.g. for retirement) should grow at around two per cent above the rate of inflation. That means you’re looking at returns of roughly five per cent per annum in Singapore, or most developed countries.
Alternatively, you can park a small sum of money from the beginning of the year to try out the stock market. Mind though, that you don't need a sizeable amount You can opt to trade using Contract for Difference (CFD).
CFDs give you the same exposure as though you're buying the stock at full price but you're trading at a fraction of the cost. While this definitely amplifies your gains, your losses are also equally amplified. So be mindful of the risks and mitigate them accordingly.
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Ready for 2019
You’re mostly set for the year, but remember one other detail: keep your expense calculations for 2018, don’t dump them yet. At the end of 2019, you’ll want to review whether expenses have gone up or down!