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6 Step Guide On Optimising Your Personal Finance

Published by Autumn on May 17, 2021

You can start investing with very little. Here’s what you need, to get started. 

The thought of investing need not sound daunting if you take small steps towards achieving your big goal. Regardless of how much you have, there is comfort that you can start investing with very little, whichever life stage you are at. 

The idea is to leverage on compound interest to build from this pot. Here’s a 5-step financial checklist to get you started on your investment journey. 

1. Build your 6-month emergency fund

Having an emergency savings fund equivalent to 6 months of your daily expenses is a starting point on your investment journey. It gives you the financial safety net if you encounter unexpected costs along the way. 

For starters, you don’t want to have to exit your investments if you encounter unexpected hefty repair costs such as a home appliance breaking down or if your bathroom tiles pop out. 

Among the hard lessons from 2020, the most enlightening ones would be that your health and job could be taken away from you at any time. For those working in the retail, aviation or tourism sector, the pandemic could have adversely impacted your career and/or salary packet. 

Similarly, if you have a serious medical condition that robs you of your ability to work, you need a safety net that enables you to pay off immediate bills and manage basic living expenses. Even if you have insurance, it may take you a while to receive payout. 

2. Ensure you have sufficient insurance protection

Common insurance coverage such as health insurance, life insurance and critical illness insurance can give you the peace of mind, knowing that you and your loved ones will be taken care of in the unfortunate event that you are unable to work or pass on. 

This forms another valuable immediate-term safety net that you may prioritise more than growing a nest egg for your future.  

3. Pay off your high-interest debt

Paying off high-interest debt is the next logical move to make. In general, anything around 5% per annum and above can be considered “high-interest”, and you should pay it down as soon as possible. Credit card debt, personal loans or even education loans can be considered as “bad debt” to pay down.  

Think about it this way, our money will automatically be “earning” the interest rates that we would have incurred if we hadn’t cleared the debts. This is akin to earning guaranteed returns on our funds! 

On the other hand, we need not be too hasty to pay down our home loan. This is because home loans are typically much lower cost, as it is secured by our physical property.  

4. Understand your risk tolerance level

As a general rule of thumb, younger investors can afford to take more risk in the pursuit of higher returns. This is because you can ride out market volatility and business cycles to benefit from long-term growth trends. 

As an investor you also need to understand your risk appetite. Even young investors may not be able to stomach great risks in the financial markets, likely because they also have heavy financial responsibilities to manage. 

Typically, the older a person gets, the more risk averse they get as well. This is because they have a shorter runway to grow their investments to start funding their retirement. That is why they cannot afford a market crash wiping out 30% of their portfolio. 

5. Don’t neglect your CPF portfolio and Supplementary Retirement Scheme (SRS)

Quite uniquely in Singapore, you are forced to “pay yourself first” via up to 37% of mandatory CPF contributions out of each pay cheque. This represents a big percentage of your earnings and savings, so refrain from thinking that this money is “not yours”. 

While your funds are in your CPF accounts, they earn a relatively good interest rate for the risk you are bearing: 

Your funds in CPF are growing towards the day you are able to leverage on CPF LIFE for a monthly payout in your retirement. This can be another powerful safety net that enables you to take more risk with your cash investments, knowing that your downside is secured by CPF LIFE. 

During your working years, you can also choose to top-up more into your CPF Special Account or Retirement Account in order to snowball your retirement portfolio, while also enjoying tax deductions. While contributing to your CPF is irreversible, which means that top-ups cannot be withdrawn, contributing to your SRS account is not. 

Your SRS account is meant for you to grow your retirement portfolio while providing tax incentives. Each year, locals can contribute up to $15,300 to their SRS account and receive a dollar-for-dollar tax deduction. When you eventually decide to withdraw, you will only need to pay income tax on 50% of your withdrawals after you have reached your statutory retirement age. 

In the scenario that you desperately need to make withdrawals before reaching your statutory retirement age, you can do so by incurring a withdrawal penalty of 5% and be taxed on 100% of the withdrawal amount. 

6. Become a more successful investor by staying on top of your financial health

To set yourself up to become a more successful investor, you can use the 5-step guide described above. By covering important financial bases first, before moving on to investing to build your nest egg, you will have greater peace of mind and even higher risk tolerance to grow your investment portfolio. 

Your individual financial needs are also constantly changing. For example, as your salary and expenses grow, what you set aside as your 6-month emergency fund may become insufficient, as would your requirements for insurance coverage. Similarly, your risk tolerance level can change, which may affect how you want to use CPF and SRS top-ups. These are all intertwined decisions. 

You can stay on top of your finances – helping you make better and faster financial decisions – by leveraging on Autumn which gives you a broad overview of your entire financial life in the palm of your hands. 

With Autumn, you can constantly keep track of your net worth by pulling information from local and overseas banks, CPF account, property (and home loan debt), as well as insurance coverage. The app also empowers you make better financial decisions with a Retirement Calculator, Aspirations Planner, assessment of the best home loan rates available to refinance/reprice, highlighting your insurance gaps and more. 

Autumn is a digital health, wealth and lifestyle solution that helps you simplify planning into small steps. As an independent and bank agnostic platform, Autumn delivers personalised data driven insights to motivate you to take positive steps to achieve your best future.

 

“The information in this article is not intended to be and does not constitute financial advice, investment advice, trading advice or recommendation of any sort offered or endorsed by Autumn.” 

Want more content like this? Embark on a journey with us to learn about health, wealth, and retirement. Download Autumn, your personalised digital wealth and wellness solution to plan a better future. With Autumn, Live Unleashed today because you are prepared for tomorrow.

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