And just like that, 2019 is gone and in comes 2020!
The start of a new year is always a great time to take stock of our personal finance. And, therefore, we give you a 7-point checklist to help you get ready and take on 2020.
1. Restructure your debt
Between accidental injuries, retrenchment and just plain bad luck, debt can happen to the best of us. Incurring debt is nothing to be ashamed of, but it certainly isn’t something to ignore.
If you have debt (we’re talking about unsecured debt, such as from credit cards and credit lines), one of the most important things in the new year is to commit to clearing your debt as quickly as possible. This means getting a sense of how much you owe, and making a plan to pay off the entire sum.
In this process, a crucial step is to reduce your interest rates, which will directly impact your ability to repay your debt. This process is known as restructuring your debt, and it involves transferring sums owed from higher-interest instruments to lower-interest ones.
For example, say you owe $10,000 at 28% interest per annum, and plan to pay $1,000 a month until the debt is paid. You will need 11.5 months of payments, and would have paid a total of $11,519.62 (which means interest of $1,519.62) by the end.
However, if you apply for a balance transfer with 0% interest, or a personal loan at 10% EIR per annum, not only will you pay off your debt faster, but you would’ve saved a chunk of the $1,519.62 interest charge.
Example: Paying off $10,000 debt
|Type of Debt||Monthly Payment||Interest Paid||Time Spent in Debt|
|Credit card at 28% p.a.||$1,000||$1,159.62||11.5 months|
|Personal Loan at 10% EIR p.a.||$879.16||$549.91
|Balance Transfer at 0% for 12 months||$1,000||$0
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2. Refinance your mortgage
For those of you who have a mortgage with the bank, remember to make a quick check for promotional offers in the new year. Because your mortgage payments likely range from hundreds to thousands of dollars per month, lowering your mortgage interest by even a little can result in huge savings.
Just be sure to keep a long term view, and read the fine print. You don’t want to sign up for a mortgage that offers you a small upfront saving, yet locks you in to high monthly payments you have trouble affording down the road.
3. Start investing
Haven’t you heard? Investing is the new saving. Sure, multiplier accounts can grow your money – provided you’re willing to jump through all the right hoops. Instead, grow your money faster by combining saving with investing.
Put aside a portion of your monthly disposable income into an investment account and watch your money grow. The trick is to ride out the natural economic cycles. This means buying and holding for the long-term, rather than trying to time the market, so as to fall on the right side of the 10% returns the market historically makes.
Notice how we said ‘long-term’? That means the sooner you start, the better. In fact, with all other factors being equal, someone investing early with less money will almost always end up with more money than someone who started investing later, even if the latter puts in a larger amount. This is all thanks to the magic of compounding interest.
Don’t believe us? Here’s an example:
|Amount Invested||Rate of Return Per Annum||Time Invested||Total|
|$200 per month||10%||20 years||$151,206|
|$500 per month||10%||10 years||$105,187|
Feeling a bit hesitant to start investing still? Well, know that you can easily and quickly start investing using a robo wealth adviser.
4. Top up your CPF Special Account
Incidentally, the demonstration of the power of compounding interest above is also the reason why you need to do this next item.
You are aware that your CPF Special Account (aka CPF-SA) earns higher interest of up to 5%, right? While the returns aren’t exactly dazzling, your CPF-SA offers a virtually risk-free way to grow your money.
Instead of spending that leftover thousand dollars from your bonus on frivolous purchases, topping up your CPF-SA is a move that could grow your retirement funds the easy way. Do note that topping up your CPF-SA is irreversible!
5. Cash in on your points/miles
As part of your financial spring cleaning, don’t forget to go through your credit card accounts for points or air miles you haven’t cashed in on. Or worse, cashed in on but not yet used, and which are now in danger of expiring.
One good way to extend the validity of your hard-earned perks is to convert your miles or points into vouchers, which you can then use to pay off a ticket or offset your shopping when you are ready.
6. Check your corporate perks
Another area you should remember to check is your corporate perks, which expire annually. Do you have benefits lying around that you can claim, such as for dental check-ups, or even a new pair of spectacles? How about gym membership packages?
Another commonly missed corporate perk is for your telco provider. Check if your company has a corporate scheme with Singtel, StarHub or M1, which you can leverage for massive savings. That’s how I got my current iPhone Xs for just $78 – 100% true story.
7. Start a weekly money Bingo
Here’s something fun for the last entry on the list. Set yourself a money challenge for 2020. Say, you save $1,000 and use a money Bingo to achieve it.
Yep, just like its name suggests, you’ll print out a Bingo sheet containing various sums of money. Your goal is to pick a sum of money to put aside each week, crossing off the buttons as you do. Keep at it and you’ll have saved an extra $1,000 by next year-end!
Rather than slavishly putting aside a set amount each week, this money Bingo challenge provides variety and flexibility – you can set aside smaller amounts during leaner months, and save larger sums when you have extra. It takes a chore and turns it into something fun.
Think $1,000 is too small an amount? Feel free to double, triple, or add a zero behind the numbers in the Bingo sheet. Good luck!
And now you’re all set to write your own financial goals for the year.
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