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Follow The 50-30-20 Rule To Simplify Your Budget

Keeping our spending under check on a daily basis might be challenging due to the prevalence of unforeseen occurrences and appealing cravings. While it may be difficult, that’s no excuse to fully disregard it. Creating a budget and working within the constraints you’ve set can help you reign in your spending habits. However, having a budget and sticking to it are two whole different things. Keeping track of every single dollar you spend can be a real pain in the rear. When it comes to budgeting, most people start off strong but eventually give up and go back to their old ways.

But budgeting is essential to long-term financial pleasure because it forces you to put some money aside each month—critical when it comes to saving for retirement. In a survey conducted by HSBC, they found that seven out of ten Singaporean workers over the age of 45 plan to retire within the next five years. This is only achievable if you have a considerable amount of savings.

How do we fix this? Is there a reliable plan of action you can take to establish discipline in your financial ways? In what ways can you guarantee that you save aside money each month for your golden years? Using the 50-30-20 rule, which was devised in part by Elizabeth Warren, you can streamline your budget and save for retirement without having to make those decisions at the start of every month. Here’s the deal with this strategy.

What is the 50-30-20 rule?

According to the 50-30-20 rule, your earnings should be distributed as follows:

50% should go toward meeting your requirements;

30% should be set aside for discretionary spending;

20% should be allocated to emergency funds, investments, and savings.

Let’s pretend that your net monthly income is S$7,000. The guideline states that you should set aside S$1,400 for savings and investments while spending the remaining S$3,500 on necessities. Of course, in practice, this is easier said than done. But if you budget according to the category each item belongs to, you can stick to the plan.

50% of your money should be spent on needs

This entails costs like those incurred for groceries, housing society dues, Singapore Power fees and gas. Insurance premiums and vehicle registration fees fall into this category, as do child support and alimony payments. The term “necessary spending” is used to describe the costs of maintaining a minimal level of regularity in your life.

If you want to save money, you might have to make some changes to how, when, and where you shop, as well as the kind of things you buy. You might, for instance, wish to research your shopping options in Singapore so that you can pick the best supermarket or store. According to ValueChampion’s analysis, NTUC FairPrice consistently offers the lowest grocery store pricing.

30% of your income should go toward discretionary spending

Your discretionary budget is the sum of money you spend on things you want to do but don’t have to. This purchase isn’t strictly necessary, but it will definitely enhance your life. Activities such as going to the movies, eating at a restaurant, or taking a vacation fall under this category.

Make sure you don’t define your “wants” as “needs” in order to keep this portion of your spending under control. Labeling something as “essential” can make you spend more money on it, but giving it some serious thought can help you figure out if you actually need it. If you have a monthly discretionary spending allowance of S$2,100, you can spend as much as S$70 per day. Given that Singapore is one of the world’s most expensive cities, where even a pint of generic beer may cost between S$15 and S$20, that sum may not go very far.

So, make it a weekly ritual to record how much you’ve spent on these extraneous categories. Taking a long vacation abroad requires significant savings, so if you want to go, it’s best to limit your other spending when possible. A good credit card that offers cash back or miles can help you save an additional 3-5% on your expenditures, even if you don’t have much wiggle room in your budget.

20% of your income should go into savings, investments, and emergencies

Putting money aside and saving it for your future retirement is crucial, but it can be difficult because you won’t see any immediate returns. As a result, the 50-30-20 rule can be used to ensure that you save at least 20% of your monthly take-home pay on a consistent basis. Waiting till the end of the month could leave you with no spare funds for investment.

A smart first step is checking that you are purchasing quality merchandise. You might think a term deposit is a safe and sound way to invest your money, but the returns on equities and mutual funds could be far better. You can accomplish this by comparing the services offered by several Singapore-based online brokerages. Finding an online broker with a minimal trading fee is essential to maximizing your profits and minimizing losses.

You should also have some cash on hand to cover unexpected costs, such as those associated with medical care. You can redirect some of the money you had planned to spend on discretionary items toward saving and emergency costs if you find yourself short.

Conclusion

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The 50-30-20 guideline is simple to implement because it highlights your biggest outlays and provides straightforward targets for reduction or elimination. This is not, however, a hard-and-fast rule that must be strictly adhered to. This is only a suggestion to help you establish good spending habits; you may always move money around as needed.

If, for instance, your monthly expenses average out to be S$7,000 and your income is S$7,000, you could divide your cash as follows:

The 50-30-20 guideline is designed to help you regularly prepare for retirement by identifying and reducing wasteful spending (especially recurring ones that build up and take away huge amounts of your money). Keeping a monthly spending log will relieve you of the mental strain of figuring out where your money went. It’s true that reducing your spending on luxuries will take some work. Your future self in retirement, however, will be eternally grateful if you are able to accomplish this.

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Money Tips For Millennials In Singapore

It’s the process of accurately and quantitatively determining an investor’s risk tolerance, or appetite, so that pivotal portfolio decisions can be made on the basis of that information. It’s a simple way to express the percentage of a portfolio’s value that an investor is willing to lose.

An investor’s risk appetite may fluctuate in response to fluctuations in the market, economic or political events, regulatory or interest rate changes. This emphasizes the significance of risk profiling. Investing strategy development is a starting step.

First, let’s review the idea of risk:

1. Take stock of your financial situation

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Good financial health, like physical health, is predicated on the maintenance of healthy routines. What’s one good practice to begin with? Be sure to take care of yourself financially first. A portion of every paycheck should be set aside for savings before bills and other expenses are paid. The goal is to save up enough money for six months of living costs in case of an unexpected event. 

If you lose your work unexpectedly or experience any other type of financial hardship, having this reserve will be crucial. You can rest easy knowing that you have enough money to handle your expenses for the next six months. One way to maintain a healthy financial position is to avoid taking on too much debt or taking out too many loans. 

2. Obtain sufficient insurance

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Large medical expenses and the loss of income are two important events that you should absolutely be covered for, despite the fact that there may seem to be many things you need to protect against.  

Term insurance is enough for most people and provides adequate coverage at an affordable cost. The good news for young individuals is that insurance premiums typically aren’t prohibitively expensive.

3. Increase your financial literacy

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In addition to focusing on the short-term by saving and insuring yourself, you may also consider the long-term by considering how you can make your money work harder for you, such as through investments. Even if you aren’t ready to invest just yet, you should keep learning so that when you are, you can do it confidently and without becoming lost in the plethora of available resources.  

After you’ve settled the fundamentals, you may turn your attention to the bigger picture, such as how your CPF fits into your broader financial strategy.  

Planning your finances with CPF in mind

It’s important to keep CPF and other national schemes together. Why? Consider that the CPF Board pays extremely good interest at virtually no risk, in addition to our employer’s contribution, and our own contribution. Everyone in Singapore, young and old alike, should know that the Central Provident Fund (CPF) is the backbone of our retirement savings and should be factored in carefully.  

In addition to saving for retirement and paying for housing, CPF can be used to pay for medical bills through MediSave, pay for housing through the CPF Ordinary Account (OA), and invest a portion of your CPF Special Account (SA). CPF, however, is largely designed for our own retirement, and its primary function is to ensure that we have a secure, minimum level of income in our dotage. Therefore, we need to exercise caution when using CPF.

Spend your CPF wisely

a. Your CPF SA savings should not be invested

You can earn interest of up to 5% per year on it, which is excellent. It’s completely safe, it outperforms inflation, and there’s no reason to take any chances with it.

b. Don’t put all of your real estate eggs in one basket

Don’t put yourself in a financial bind by purchasing a home that’s out of your price range. Since it is best to pay off debts with the lowest interest rate first, you may want to try making a portion of your monthly housing payments in cash. In comparison to the rate you would earn on a cash savings account, the interest you earn on your Ordinary Account is 2.5% to 3.5% each year. 

Pay down a part of your mortgage with cash if you have the means to do so. It’s wise to maintain a minimum balance in your CPF OA as a form of financial insurance. For instance, if you’re having trouble making ends meet or have lost your job but must keep up with house payments, you may want to consider these options. 

Saving more in your CPF

The Central Provident Fund (CPF) is a risk-free savings account that offers competitive interest rates (up to 4%-5% p.a.). The power of this compounding is magnified when used to build a retirement fund. However, in my opinion, young Singaporeans are not likely to have enough money or the will to contribute to their CPF. 

Furthermore, young people who have not yet married or purchased a home would need sufficient liquid assets for such a transaction. Because of the volatility of the stock market, I wouldn’t recommend risking these assets on an investment that would only be used to raise a short-term objective of less than five years. I also wouldn’t advise putting the money in a restricted account like the CPF SA. It makes more sense to put the bulk of your savings into low-risk investments like Singapore Savings Bonds.  

One feasible proposal is to utilize a portion of your annual bonus (about 10%) to increase your CPF SA once you’ve paid off your mortgage and are in a stable financial position where you’re saving more than you think you need. 

Prioritizing life aims over temporary ones

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Instead of viewing financial planning as a target number to be attained, I propose that we view it as a means by which to achieve our life goals. Although it plays a crucial role, money is ultimately just a facilitator. 

It’s easy to get stressed out and end up with regret if you try to maximize your money by following the latest investment fads, trying to time the market, or investing your CPF SA. 

We can use money effectively as a tool for achieving our goals if we aim for sufficiency rather than maximization. By protecting what really matters to us, we can live a life of contentment despite falling short of the ideal material standard. 

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Is Investor Risk Profiling Important?

What is investor risk profiling?

It’s the process of accurately and quantitatively determining an investor’s risk tolerance, or appetite, so that pivotal portfolio decisions can be made on the basis of that information. It’s a simple way to express the percentage of a portfolio’s value that an investor is willing to lose.

An investor’s risk appetite may fluctuate in response to fluctuations in the market, economic or political events, regulatory or interest rate changes. This emphasizes the significance of risk profiling. Investing strategy development is a starting step.

First, let’s review the idea of risk:

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Risk in the financial markets includes more than only the potential for total loss of an investment owing to the asset (such as stock, bond, or fund) being worthless. In reality, risk is more commonly understood to refer to short- and medium-term volatility, or the daily, independent of fundamentals, variations in price that the market offers of the asset. 

Typically, there are 5-10 items on the investor risk tolerance questionnaire, with 3-5 possible responses to each. 

When the points are added up, financial planners and investors get a clear picture of where the respondent falls on a scale measuring their willingness to take on risk.

This is analogous to the expansion they’ll require to fund retirement and other long-term objectives. In contrast to wants, needs, preferences, and the like, “need” is a more pressing concern.

Financial risk profile consists primarily on the following elements:

(a) What annual percentage drop in value of the portfolio can the investor bear?

(b) what percentage of a loss on any given investment they would be willing to take. Based on this, individuals can choose how heavily weighted their portfolio will be toward their highest-confidence wagers.

(c) What is their time horizon, or holding period, which is the most important question to ask. This is the approximate number of years the client has before they will be forced to sell their holdings (almost out of desperation) at any price the market offers, rather than waiting for the best or optimal price for the asset. 

Investing strategy planning

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When you know how much you can stand to lose, you can better organize your entire investment strategy. 

The answers to these questions help us determine the appropriate allocation of our investors’ funds between equities (the common stock of firms), which tend to provide larger growth but also come with greater market volatility, and bonds (fixed income), which are more slow and steady and safer. A person with a low risk tolerance, for instance, may make cautious investments that lean toward low-risk options and away from riskier ones. 

 

An increased allocation to stocks is often recommended for a long-term investor who is comfortable with a buy-and-hold strategy for 10 years or more.

In conclusion

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Your financial adviser should go over a risk tolerance questionnaire with you before making any investment recommendations. Don’t ever bypass this vital procedure!

In terms of taking on risk, each investor is unique. Depending on their personal risk tolerance, some investors are more daring than others. An investor’s risk tolerance is proportional to his or her comfort level taking calculated risks.

It is acceptable practice for a first-time investor to begin with a portfolio that is well-diversified. You can start taking calculated risks if you’ve built up your investing expertise and self-assurance. In the meantime, keep educating yourself about investing.   

I’ll help you get your investing career off the ground if that’s what you want to do.  And ladies, don’t be afraid to dive into the investment world. In fact, it is crucial that you have a firm grasp of this topic as part of your overall financial planning. Get off on the right foot and keep going! Be forever a student. Keep your trusted financial advisor involved in the process of planning, reviewing, and monitoring your investments.

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What Are The Advantages Of Unit Trusts For Singaporean Investors?

In Singapore, many people choose to put their money into unit trusts, which are similar to mutual funds but offer a different set of advantages. Among the many advantages of unit trusts for Singaporean investors are:

Well diversified

Unit trusts provide investors with the opportunity to distribute their money around by investing in a wide variety of assets, including stocks, bonds, and other securities. Distributing the investment risk in this way lessens the blow of a single investment’s bad performance on the portfolio as a whole.

Managed by professionals

Unit trusts are managed by professional fund managers, who are in charge of making investment choices on the investors’ behalf. When compared to individual investors managing their own investments, the performance of funds managed by these professionals may be superior because of their competence in analyzing financial markets and selecting investments.

Accessible

Suitable for both small and large investors due to their accessibility, unit trusts are a popular investment vehicle. Investors can get in on the action with even a modest initial outlay, then ramp up when their financial situation improves.

Liquid

Investors can purchase or sell units of a unit trust on any trading day, giving the investment a high degree of liquidity. This allows them to enter or leave their investment position as they see fit, according to the fund’s terms and conditions.

Affordable

Investment costs can be reduced by using a unit trust rather than buying individual stocks or bonds. This is because the fund management can take advantage of trading and other cost economies of scale by combining the money of numerous clients.

Well- regulated

Investors in Singapore unit trusts enjoy some measure of security because of oversight from the Monetary Authority of Singapore (MAS). The Monetary Authority of Singapore (MAS) establishes rules and regulations for fund managers and unit trusts to ensure they operate in a transparent and fair manner, inspiring faith in the investment product among potential buyers.

Flexible

Many distinct types of unit trusts are offered in Singapore, each with its own set of investing goals, risk tolerance, and expected return. This gives investors the freedom to pick the investing strategy that best suits their requirements and tastes.

Offers tax benefits

Capital gains are not taxed in Singapore, making it one of the few countries in which to do so. According to the Singaporean tax authority IRAS, “gains from the sale of a property, shares, and financial instruments in Singapore are generally not taxable.” 

Unit trusts, like any other type of investment, are not without their share of potential downsides. In addition, before making any financial commitments, investors should think long and hard about their investment goals, level of comfort with risk, and whether or not they should consult a professional. Before investing, potential buyers should read the fund’s prospectus and familiarize themselves with its fees, charges, and track record.

Investors in Singapore may find that unit trusts provide a solid return on their money. If you need help with your investments, talk to a professional. That way, your portfolio will always reflect your financial objectives and comfort level with risk. 

There is always the chance that you could lose some or all of your initial investment when you make an investment. The fund’s past performance is not a guarantee of future outcomes. Investors risk losing money due to fluctuations in the value of their investments and the income they generate. 

Finally, keep in mind this:

The unit trust’s tax treatment may vary from investor to investment and from jurisdiction to jurisdiction. For specific tax guidance, you should seek the help of an accountant.