Right-Sizing The Dollars And Cents

If there's anything that we've learnt in the past months, it's to plan ahead.

Portrait of Tammy Strobel

1 Reset Your Budget

Before you slash your expenses, place them in two categories: essential and non-essential items. Essential items include housing, food, Internet service, handphone, transport and healthcare expenses. A new wardrobe and handbags are non-essential.

Organise the items in an Excel sheet or Word document so you can see how much you spend on each item monthly. It'll help you to cut non-essential items first, say experts of this budget-honing strategy.

Sure, it may be painful to cut back or give up some luxuries like monthly spa treatments. Giving them up isn’t going to make you financially secure, but overhauling a bunch of habits in one effort – even a forced one, to simplify your life – will mean savings that are much greater than a few dollars per day.

Adam Wong, editor-in-chief of The Fifth Person, an award-winning site that provides investment knowledge and promotes financial literacy, points out: “Instead of going on a binge when life returns to normal, ask yourself if you (really) need those items... you can certainly reduce spending if the Circuit Breaker has shown that you can survive (happily) without some things.”

The cuts in overall expenditure can contribute to a significant amount of savings in a year, highlights Dawn Cher, an independent financial-lifestyle specialist who's behind the popular financial platform SGbudgetbabe.com.

She explains: “Instead of spending on food delivery or takeouts, cooking at home can save you a fair bit each month. Shopping, except for essential household items, can wait. Next, stretch your dollar – see if there are cashback credit cards or promotions that you can take advantage of.”

After you’ve sliced the non-essential spending, review all your fixed (essential) expenses to see how you can reduce them further. That is, look out for better deals.

Dawn adds: "Your handphone bill will drop considerably by switching from a fixed telco contract plan to a SIM-only plan. You also can change your utility provider from Singapore Power to Geneco – this saves you 30 per cent on the average.”

To keep track of things every month, financial adviser Ho Hui Min of Advisors Alliance Group (AAG) suggests: “I’d do up a comprehensive financial worksheet (for clients) to keep track and review their cash flow every quarter. This is to make sure that the goals are met."


2 Save Up To A Year of Expenses

It was the norm to have at least six months of savings for a rainy day. In today’s climate where many faced financial difficulties after losing their jobs, the safety net is to build a stash of savings – up to a year of your total monthly expenses.

Adam tells Her World: “If you lose your job, at least you have 12 months of living expenses to get back on your feet, without fear of running into financial trouble quickly.”

Set aside your savings first before dipping into the pot (to spend). There are two ways to save more money: Earn more than you spend, and spend less than you earn.

Adam says: “The first method (of earning more) may take some time to build, as many can’t double their income quickly. But spending less is a decision one can definitely make today.”

Forced savings can save you. This means taking the savings out before one gets the chance to spend them. He adds: “One tip is to transfer 15 per cent of your take-home salary to a high-yield savings account every pay day, and only spend whatever that is left.”

The theory behind these automatic savings is: You’ll not miss what you don't see, so your savings will grow steadily.

And think about the times when you tend to overspend, like holiday expenditures. Reallocate the money you’re not spending now into the savings account to build up a bigger SOS fund, instead of spending it on other things.

For savings to grow consistently each year, Hui Min suggests creating fixed systems like standing instructions to the bank. “This way, your savings and expenses remain constant every month. This also reduces any urge to spend more than needed,” she says.


3 Earn A Side Income

With more time spent at home, many have turned to freelance work as a side job, on top of a main one, as a way to make extra cash.

Think what skills you have that could be marketable. You could offer services such as graphic designing on portals like Fiverr, resell items online, build websites, or try drop-shipping (see page 106), suggests Dawn of Sgbudgetbabe.com.

Fiverr is a global freelancer platform that connects businesses with skilled freelancers offering digital services like graphic design, digital marketing, animation and programming. Another popular freelancer platform is Upwork. Both take a percentage of earnings from the freelancer and client.

A freelancer can make from US$50 ($68) writing an online article, or from US$100 ($137) optimising website content for SEO. Building a website, which entails writing codes, can earn you up to US$4,095 ($5,631), according to Fiverr.

Video editors can charge between US$100 and US$3,200 ($4,400) to edit everything from social media videos to event footage. Mobile app development is one of the highest-paying gigs on Fiverr, with projects costing up to US$3,000 ($4,125). This requires knowledge of software engineering and coding.

4 Protect Your Future

One should look at buying an insurance policy that you need, and what you don’t have. Hui Min says: “Insurance is the bedrock of financial planning, providing stability to ensure that no matter what happens, we’re well on track with our short-, mid-and long-term financial goals.”

There are numerous options from life insurance, hospitalisation insurance to critical illness insurance and more. When it comes to deciding which insurance plan is adequate for you, always speak to a trusted financial adviser that you’re comfortable with, so you can share your financial aspirations and decisions, adds Hui Min.

This year, insurers in Singapore have responded with additional coverage for Covid-19. They include AIA Singapore, NTUC Income, Great Eastern, Manulife, Prudential and AXA. The wide-ranging benefits include daily hospital cash payouts, hospitalisation income, and a one-time payout if the insured passes away due to Covid-19.

Insurers such as AIA Singapore have also reduced the barriers to allow more people in Singapore to get lifelong protection for death and critical illnesses, with boosted coverage up to five times during their working years.

Tay Jin Li, AIA’s head for product & funds development, implementation & distribution, says: "The coronavirus crisis has made us realise the importance of a stable income stream to cover everyday expenses and support our loved ones even more."

She adds: "If one has dependents, you need to ensure that you have sufficient life insurance coverage to provide for their needs, in the event that you’re no longer around."


5 Is It A Good Time To Invest?

There is never a best or ideal time to invest. One can’t predict when prices will soar or plunge. Hui Min of AAG says: "We are operating in an unpredictable market where in April, one could say the demand for a cup of bubble tea was higher than for a barrel of crude oil, where prices fell below zero for the first time in history, amid the coronavirus crisis."

Every investment comes with risks. The higher the risks, the higher the expected returns. The most common risks are exchange rate risks, reinvestment risks, and market risks, adds Hui Min.

Investing isn’t for everyone, especially if you can’t stomach losses. “The stock may fall lower than the price that you have bought,” she says. “You’ll need to be mentally strong while keeping calm when prices start free-falling, so you won’t make a wrong decision in panic selling.” There is also a huge investment of time to keep abreast of market trends. Investors constantly do their homework, monitoring their portfolio for changes.

Whether it’s a good time to invest now also depends on your financial situation, says Adam of The Fifth Person. "If you’re neck-deep in debt or you need the cash (or savings) for emergencies or health matters, investing should take a backseat."

If your finances are already in order (with sufficient emergency funds set aside), the next step is to understand what are your investment goals, investment time horizon, and risk profile. This will then decide the type of investments to focus on. Many investors start by investing in the local market, as it's easier to grasp. Some buy US-listed stocks to diversify their investments. However, Adam points out: "If you’re looking for stable dividend income, then an investment in Facebook may not make sense since it doesn’t pay a dividend. And there's the fact that the US also has a 30 per cent withholding tax on dividends for foreigners.” But an investment in a Singapore blue chip that pays a steady dividend yield of 4 to 6 per cent may be worth considering. Another advantage is that dividends are tax-free in Singapore.

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“If you're neck-deep in debt or you need the cash for emergencies... investing should take a backseat.”
− Adam Wong, editor-in-chief, The Fifth Person 
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"Don't worry dear, Mummy bought everything you'll need for the next 60 years."

6 Clear Your Debts

If you’re saddled with debt, now is a good time to pay it off, starting with the ones with the highest interest rates. Credit cards, for example, are notorious for their ultra-high interest rates at 25 per cent per annum on average, says Adam.

“If you’re faced with the choice of paying a 25 per cent credit card balance or an 8 per cent personal loan, go with the higher-interest one first,” he says.

Don’t even think of investing in the stock market in the hopes of make a “killing” – if one is debt-ridden. “It’s highly unlikely to make a return on the portfolio consistently,” he cautions. “You’ll be taking a gamble, and risk losing more money if you’re not familiar with investments.”

Reducing debt requires much self-discipline, too, emphasises Dawn. Avoid the “I deserve it” habit to justify unnecessary spending. Experts say it’s also a slippery slope that negates the hard work that you’ve put in saving money.

“A friend owed $30,000 in credit card debt several years ago,” Dawn recalls. “She aggressively reduced her daily expenses. She stopped shopping (until her debts were cleared), took public transport instead of taxis, and put all her bonuses towards paying off the debts right away.”

While banks are offering loan deferments these days, one should consider factors such as how much emergency funds you have, if you have alternative platforms to grow your money, and how much returns you get, before taking it up.

Expect to pay more interest in total, with deferring payments and extended payment periods. Before applying for one, speak to the bank on the payment schedule and increased interest cost.

Hui Min says: “Deferment shouldn't be the first consideration if your cash flow is healthy. But look out for good deals such as housing loans, which are one of the lowest. Speak to a mortgage specialist on refinancing your home loans."

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