With the cost of living increasing and more rate hikes expected, 2023 may bring more disruptions to your plans. Therefore, it's vital that you review your financial strategy and know how to be prudent with your money. Here are some financial tips to help you out.
If one of your goals this year is to stay ahead of your finances, it starts with learning how to manage your money and building on it.
From maximising your emergency savings to boosting your retirement funds and optimising your credit card strategy, here are the top financial tips for you to take charge of your finances.
Reduce your non-essential spending
The much-dreaded GST increase has finally happened this year, increasing from 7% to 8%. While this isn’t an earth-shattering amount, the additional 1% rate hike still means that everyday goods and services have become more expensive.
Luckily, it isn’t all doom and gloom; the Singapore government has allocated a further S$1.4 billion to the Assurance Package to help Singaporean households cope with the GST increase.
Consisting of cash payouts, CDC vouchers, and GST vouchers, these amounts will be disbursed over five years to offset the additional GST increase.
That said, with more price hikes underway due to inflation, it’s imperative to review your spending habits to reduce discretionary expenses wherever possible. These include cooking and eating more at home, cutting down on food and entertainment-related expenses, buying in bulk, buying supermarket house brand products, and cutting back on streaming services, among others.
Rebalance your investment portfolio
If you have an investment portfolio, it’s high time that you review and rebalance it.
Rebalancing a portfolio involves buying some stocks and selling some bonds and vice versa so that it matches your investment objectives and risk tolerance. It also allows you to evaluate which of your holdings are performing/underperforming, weigh each asset class, and course-correct your investments.
Ideally, your investment portfolio should be well-diversified across different asset classes. This helps to maximise returns and minimise risks.
The traditional 60/40 portfolio strategy is a favourite among investors, where 60% of your portfolio consists of equities while the remaining 40% is invested in bonds.
This is built on the fact that the stock market correlates negatively with bonds; when the stock market goes down, the bond market rarely goes down simultaneously. This allows investors to rely on bonds for protection when the stock market experiences a downturn.
In short, a 60/40 portfolio is a balance between generating consistent returns and risk.
However, depending on your risk appetite and investment horizon, you can change the ratio. For example, if you have a higher risk appetite, you may consider allocating 70% of your portfolio to equities and 30% to bonds.
When rebalancing your portfolio, consider your life/financial goals, financial condition, risk tolerance, and market conditions.
Review your mortgage
Interest rates for home loans are expected to remain high in 2023. Furthermore, the US Fed has also said that it will continue to raise the federal fund rate — which is the interest rate banks use when lending money to each other — until inflation is curbed. The expectation is that interest rates will be in the range of 5% to 5.25% in 2023.
As such, it's also likely that home loans will become more expensive in 2023. Indeed, interest rates for fixed home loans offered by banks are now as high as 4.5%. Some experts also predict that the 3-month SORA rate will hit 3.99%, which would see interest rates for floating-rate home loans surpass 5%.
If your lock-in period is ending, consider refinancing or repricing your home loan to lock in more favourable rates. Since the interest rates are expected to go up, opting for a fixed-rate home loan can give you better peace of mind.
As for the lock-in period, it depends entirely on you; if you believe that interest rates will fall by 2025, then going for a 2-year fixed-rate loan will offer you some flexibility. On the other hand, if you think the market is too uncertain to predict, a 3-year lock-in period might suit you better.
Optimise your emergency savings
When the US Fed raises the federal funds rate, it doesn’t only affect mortgage rates; low-risk instruments such as the Singapore Savings Bond (SSB), T-bills, high-interest savings accounts, and fixed deposits have also seen their interest rate go up, resulting in higher yields.
For instance, at the time of writing, OCBC is offering its 360 savings account customers up to 4.08% p.a. for depositing a minimum of S$20,000 for an 8-month fixed deposit.
Meanwhile, issues of the SSBs have reached their highest in recent months, ranging from 2.8% to 3.47% p.a. on average. Similarly, yields of the last six T-bill issuances were from 3.9% to 4.4% p.a.
Since these instruments have very little risk, offer high liquidity, and offer almost guaranteed returns, they are ideal places to park your emergency funds if you want to grow your savings.
Make voluntary top-ups to your CPF and SRS accounts for tax reliefs
Did you know that you can enjoy tax reliefs of up to S$16,000 a year when you top up your own, as well as loved ones’ CPF Special, MediSave, or Retirement accounts? Every dollar contributed to your CPF accounts entitles you to dollar-to-dollar tax relief.
On top of that, you’re also boosting your retirement savings and CPF LIFE retirement payouts when you reach your payout eligibility age.
Aside from CPF top-ups, you can also contribute up to S$15,300 a year to your Supplementary Retirement Scheme (SRS) to enjoy further dollar-to-dollar tax reliefs. Your SRS funds can also be used to invest in a wide variety of investments.
Review your credit card strategy
If you have a bunch of cards with different benefits, it can be difficult to keep track of each card’s perks. Furthermore, credit card benefits can change over time too.
A yearly review can help you review your credit card strategy to get the most out of your credit cards. For instance, you can determine which card you’re overspending with or not charging enough, allowing you to prioritise between cashback, miles, or rewards.
By understanding how your card mechanism works, you can decide which card is worth keeping, replacing, or cancelling.
Additionally, doing a review of your credit cards can help you make out when your annual fee is due and request a fee waiver. If you’re not sure whether it makes sense to pay your credit card’s annual fee, this article may help.
Look out for key events throughout the year
If you want to stay ahead of your finances, you can keep track of the significant events on your calendar so you know what’s in store for the rest of the year.
For investors, look out for Investor Days or financial earnings reports, where the company’s management will give investors a deep dive into their results, analysis, future plans, and dividend payouts. You should also keep an eye out when a company announces a stock split.
Meanwhile, other events to bookmark include the Federal Open Market Committee (FOMC) meetings on 1 Feb, 22 Mar, 3 May, 14 June, 26 July, 20 Sep, 1 Nov, and 12 Dec as these are the dates where the US Fed will meet to set interest rates.
Lastly, don’t forget to file your income tax returns for the Year of Assessment 2023. The deadlines for paper and e-filling are 15 and 18 Apr respectively.