Money management is the process of tracking expenses, budgeting, banking, and evaluating taxes of one’s money. The latter is also considered managing investments. It’s a strategic technique to make your money yield the highest-interest output value for any amount you spend.
Managing your money and expenses is important. It should be part of your wealth plan. And it should be a major aspect of your personal financial management strategy. How you budget and what you keep after spending your income determines your financial stability now and in the future. If you have no idea of what you are doing with the income you make, then you need help.
Here are a few tips to help set your financial goals, create a budget, and get started on the road to economic stability:
1. Start By Saving First
There is no point in working so hard every single day if you are not going to have anything left for yourself. And that is why one of your financial goals should be to pay yourself first by saving some of your hard-earned monies before spending any of it.
Singaporeans are among the best savers in the world, which is an achievement by itself. Singapore has an average savings rate of 24%. So, this should be your ideal savings rate if you want to keep up with the average saver in the country.
Don’t worry if you cannot save this kind of money in the beginning. What matters is that you make that first step toward monetary stability by saving perhaps, 10% of your income. Set this rate in your budget always. To make it easier, this could be the rate you save after taxes. You can manage that, can’t you?
To make it easier for you to save and pay yourself first, opt for automated savings. You could then issue a standing order to your bank to channel an amount equivalent to your selected savings rate to a savings account. It should be an account you cannot withdraw money from easily. That will make it harder for you to spend it on monthly expenses.
With time, you will realize that you don’t miss the money you save. That will go a long way in helping you develop financial discipline in the long term even when you spend much more than you intend. Managing finances is a good skill to have.
2. Limit Your Budget Spending
Do you have any idea where your income goes? Well, you should keep track of your spending. That is what a budget is for.
The average household in Singapore spends $4,910 a month on goods and services. This translates to $58,920 a year. A typical household spends their money on housing and related expenses, food, and transport.
It’s very important that you understand what your money does for you or what you waste it on. Spending money is easy. Who doesn’t like spending money? But there should be a limit to what you spend. If you don’t watch your monthly expenses, you will soon run out of money.
If you have no idea where your money goes, getting a loan will not help. You will still spend the borrowed money on expenses you cannot account for. In the end, you will have huge debts to pay yet, the loan will not help you in any way.
If you have no idea of how to get started on limiting your spending, then use the average expenses as your guide. Learn what a typical family spends money on, and make sure you do not exceed that amount. Or you could adjust the expenses to fit your lifestyle while ensuring you do not exceed the average yearly spending.
3. Don’t Borrow More Than You Need
One of the general rules of personal finance is to always be prepared for emergencies. But no matter how well prepared you think you are, financial emergencies can arise. These emergencies may cause you to seek loans to enable you to survive until your finances stabilize again.
You may not want to spend money you did not set in your budget. But life works that way, sometimes. A good example is the Covid-19 pandemic. Who could have foreseen such a disaster?
There’s nothing wrong with borrowing and spending funds so long as you are smart about it. Just make sure that you never borrow more than you need. It may be tempting to do so because your income and credit qualify you for certain loans. But it’s never a good idea to ignore your budget and spend money unnecessarily.
4. Limit Your Credit Card Purchase
Your credit cards can be a tool that empowers you financially. But those cards can also lead to your financial destruction. You can’t manage finances without learning how to control your use of credit cards. There is a reason as to why 57% of Singaporeans believe that credit card debts promote excessive spending.
The average credit card debt in Singapore is around $1,956. That may not seem like much, but when you consider the high-interest rates that such cards attract, spiralling in unmanageable debt is very easy to do.
So, don’t pay for purchases that you neither need nor can afford just because your credit card limit is high. Limit what you buy using credit cards and make sure that you pay them off in time. Then you would be able to enjoy the rewards associated with owning such a financial tool. Having bad debts? Learn what is the best way to clear your debt.
5. Have Different Accounts for Savings and Emergency Fund
It’s always advisable to have different accounts for different purposes. It allows you to stay in control of your financial goals and keep track of your savings progress. Different accounts also make it much easier to stay organized.
If you want to invest, have a savings account for investments. If you want to buy a house, have a house savings account. You should also consider having a dedicated emergency fund savings account. The emergency fund can help you deal with a job loss, sudden illness, a major car repair, and even crises like the one the Covid-19 pandemic has caused.
You should consider splitting your savings of 46% across all your savings accounts equally. You could also decide to save much more in those accounts that you consider a priority. It all depends on your short term and long-term financial set goals.
6. Pay Off Your Debt Faster
How much debt do you have at the moment? If you are interested in improving your financial planning skills, then you need to keep track of all your debts.
Do you have any credit card debt? Are you servicing a pay day loan? What is your mortgage debt?
The average household debt in Singapore stands at about $57,600. Knowing where you stand will give you a much more realistic perspective of your debts. But regardless of what you owe, you need to ensure you begin to pay off your debts faster.
Start by looking at your work options. Can you get a second job? Could you take on extra shifts? Is there a possibility of working overtime? Every bit of extra income that you make will be helpful in ensuring you pay off what you owe faster.
Then start making minimum payments on all your debts. Avoid making late payments. After that, channel every bit of extra income to pay off the debt with the highest interest rate. But don’t forget to save while doing so. Don’t underestimate the emergency fund’s ability to keep you from borrowing more.
7. Compare the Best Prices on Everything
Never be ashamed of making the most of your money. After all, it’s yours. You work hard for it. Why shouldn’t you spend it in a way that benefits you the most?
Before buying something, look around for the best deals. Ask whether there are discounts on offer. Wait to buy items and services during off-peak seasons. Save those coupons and use them to cut down on the costs of purchasing a product or service. You can also buy bundled shelf-stable products when they are cheaper and use them when you need them.
You should also find deals that offer free shipping to Singapore. Businesses that offer free deliveries are also worth patronizing. Buying second-hand items of good quality don’t hurt your pocket either. And always invest in good quality items that may be expensive upfront, but will save money in the long term. That’s smart shopping.
8. Restructure Your Debts
Some of the bad monetary decisions that you have made may be haunting you right about now. But don’t worry. You have options that you can pursue even when you have huge amounts of debts. One of those options is to manage your debts by restructuring your debts.
One way to restructure your debts is by tapping into your home equity. Home equity refers to the portion of your home that you own after paying the mortgage for a while. You can tap into this value of your home through a home equity loan or line of credit.
Refinancing a high-interest credit card debt with a home equity loan allows you to take a loan against your home equity as collateral. The maximum loan tenure is 35 years. The loan-to-value limit is capped at 75%. The latter means you cannot borrow a loan that is more than 75% value of your home.
A home equity line of credit (HELOC), on the other hand, is a credit line that is secured using your home as collateral. The borrower can use this line of credit when the need arises.
Generally speaking, tapping into your home equity to manage your debts is likely to be cheaper in the long run. That’s because the loan or line of credit that you use to pay off huge debts are secured by collateral. That lowers the interest rates associated with these sources of funds. Refinancing your high-interest debts from your credit cards this way could also be tax-deductible, which saves you even more money.
9. Maximize Your Retirement Savings
Saving for retirement is always a priority. Singapore is one of the most expensive countries to live in. The longer your money has to multiply, the more funds you will have in your old age. So, the earlier you start saving the better off you will be in the end.
You could start by being part of the Retirement Sum Scheme. This plan is available to all Singapore’s citizens and permanent residents. It allows you to save up for retirement so that you can have a basic income once you no longer work.
But with many affluent Singaporeans missing the mark on retirement savings goals, it pays to diversify your retirement savings. Ensure you spread your financial risks across retirement savings vehicles such as stocks, bonds, unit trusts, etc. You could also invest in start-up companies with a good future.
If you have debts that are choking the life out of you, you may want to consider suspending your retirement savings for a while. You could also think about tapping into what you already have.
But you need to be very careful before taking this decision. Only do this if you intend to stay debt free and have a long-term plan for doing so. Also, you should avoid tapping into your retirements unless the debts that you have are huge, have a high-interest, and you have minimal options for paying them off. You can then channel the savings you make into catching up with your retirement investments.
10. Maintain Good Personal Finance Habits
Saving money once or twice is good. But it is better to stay disciplined by maintaining financial habits over a long period.
Make it a habit to pay yourself first. It doesn’t matter what other financial responsibilities you may have. Create a budget and stick to it. Let the emergency fund be your friend and continue to refill it each time you dip into it. Make it a habit to live within your means and avoid unnecessary expenses. And compare prices when shopping all the time.
Consistency is key. Many people tend to underestimate just how effective small financial changes can be. Good habits of managing income take time to be established. So, you must implement them regularly and for a long time for them to work in your favor.
Learn how to manage money. It is the best way to take control of your life and help yourself out of the financial hole you may be in right now. Take that first step today by using any of the above tips to enjoy your income. And see the difference that makes in your life when you manage finances.