Your spending habits today could mean a meager retirement fund tomorrow. Here are the things 30-something Singaporeans should look out for.
We all develop financial literacy at different rates. But after a certain point, learning too slowly can be dangerous. The last thing you want is to worry about a small retirement fund when you’re already pushing 60.
Here are the signs 30-something Singaporeans should look out for and fix:
You Have an Expense Ratio of More Than 80%
Your monthly expense ratio is the percentage that you spend, out of your pay cheque. For example, if you make S$4,000 a month, and you have an expense ratio of 50%, then you spend S$2,000 a month.
Since 20% of your pay is deducted for CPF, an expense ratio of 80% means you’re living from cheque to cheque. You have no savings, and a single emergency can drive you into debt.
People who don’t save will eventually run out of money. Remember that income tends to fall as we near retirement age, and that our health also declines. The risks of medical emergencies, retrenchment, rising mortgage repayments, and so forth are amplified if you need loans to deal with them.
Try to save at least 20% of your monthly income after CPF. This means an expense ratio of 40% or below.
The first step is to accrue an emergency fund of six months of your income. After that, invest the money for your old age - speak to a qualified financial adviser about where you should be keeping your money.
You Owe 1-2 Months of Your Salary in Debt
By 30, you should have learned not to have credit card debt at all.
The proper way to use credit cards is to pay off what you owe, at the end of each billing cycle. The interest from “rolling over” your debt is high (24% per annum). The reward points and discounts are only worth it if you don’t incur any interest.
For other loans, such as personal loans, the combined total owed should not be more than a month of your income.
These debts can stop you buying a house, as the bank will check your liabilities before extending a home loan (the Total Debt Servicing Ratio). At present, your maximum monthly repayment is capped at 60% of your monthly income, inclusive of other debts.
As most housing loans typically take 25 years to pay off, you do want to be able to start getting them by 35.
You Haven’t Upgraded Your Skills Since Graduation
In this digital age, dying or changing industries don’t give you a few years to learn a new trade. Disruptive business models can turn things around in a matter of weeks. Just think of how private car hires have disrupted traditional taxies, or Netflix has displaced many television stations.
Whatever industry you work in, it’s safe to keep expanding your skills. Use initiatives like the SkillsFuture programme to keep nimble and adaptable.
You Don’t Know What Your Retirement Figure Is
By 30, you should have a retirement sum in mind. This is calculated based on your desired post-retirement income (S$1,500 a month? S$3,000 a month?) You also have to factor the impact of inflation, as S$3,000 today is worth much more than S$3,000 in 30 years’ time.
By the time you’re 30, you should have a quantifiable goal - such as to have at least S$500,000 in savings by the time you’re 65 (this will vary based on how you want to live after retiring). If you don’t know this number, speak to a financial adviser or wealth manager.
Note that wanting “to be rich” or wanting “more money” does not count as a goal, as you cannot put together a portfolio without exact numbers.
It’s Not Too Late to Catch Up
The good news is that at 30, you still have time to fix these issues. You just need to be committed to changing your financial habits today. It’s important that you don’t wait to do so, as some of these get harder to fulfil with time (e.g. if you don’t start paying down your debts now, the interest will make them worse).
You can start improving your finances with these easy money habits you can set in minutes. The trick is to automate your savings as soon as your salary comes in, so you don’t get tempted to spend it all.
Having difficulties paying your credit card debt quickly? Consider getting a personal loan for debt repayment. Generally, personal loans have lower interest rates than credit cards (around 4.5% p.a. for a personal loan), which means you save money on interest rates. Assuming you manage to repay the personal loan on schedule, you can finally be debt-free within 5 years or less.
Alternatively, if your debt spans several credit cards and amounts to 12 times your monthly income, a debt consolidation plan is the more appropriate tool. This lets you consolidate all your credit card debt into one loan, which you repay in monthly instalments. You can use SingSaver.com.sg to compare debt consolidation plans and find one that’s right for you.