Not the sort who likes to handle finances? Take our six-step challenge to change your mindset and start building your savings now.
This six-step challenge is designed to help busy people who aren’t particularly proactive with their finances to get ahead in the coming weeks or months. It is principally for people who are starting from scratch financially, but if you’re on the next level, skip the bits you’ve already done and set yourself other challenges instead. Let’s get started!
STEP 1 Do a thorough assessment of your finances. Where is all your money going? There are all the regular bills, of course, but the real issue here is all the incidentals and discretionary spending.
Don’t do guesstimates because, if you are like most people, you will underestimate how much you spend on your “little extravagances” (like takeaway coffee and staycations!) because this keeps them “little” and then we won’t feel guilty about them. Do your sums, and try to shock yourself with the results.
STEP 2 Step While you are compiling your financial audit, do an emotional one, too. How happy are you? What are your goals? Where would you like to be in the next few years? What steps do you need to take to get there? Think about what, if anything, you would have to rearrange with your finances to put yourself in a better position to enrich your life.
STEP 3 Step Saving is not investing. Saving is a way of growing poor slowly. The returns nowadays from a relatively decent cash or savings account barely keeps up with inflation, so you can’t rely on your bank interest to grow your savings significantly.
If you want to get ahead, it is time to invest – to park your money where better returns are made. Yet it is important to take an informed approach. As well as our guide to investing there is heaps of information online. Or why not sign up for a short course? That way, you will meet like-minded people, and, hopefully, some good tutors whom you might be able to call upon for mentoring long after the course is over. When you are ready, take the plunge!
STEP 4 How’s your crisis fund looking? Would you be able to go six months without income and still pay the bills? If not, armed with the information you gained in Step One, channel some of your discretionary spending money into a crisis fund until it’s sufficient. Remember, a crisis fund is not your savings. Crisis money is for a crisis; savings are for your next holiday or a treat. Keep them separate.
STEP 5 So, what’s happening with your CPF? If you’re not sure, set aside some time to get acquainted. How much did it grow by last year? If it grew by similar amounts each year until the year you plan to retire, would you be happy with the final figure? What can you do to bump it up? Are you comfortable with how you spent your CPF since you started working, and is the strategy right for a person of your age? Seek professional advice where needed.
If you got this far, well done. Keep the momentum going. Do a detailed financial health check at least twice a year – how about in the middle of the year after you’ve filed your taxes, and at the end of the year when bonuses come in but expenses tend to spike because of the holiday season? There is no “done” box to tick as this is an ongoing task, but give yourself a pat on the back at least!