Abstract

• What is Financial Budgeting?
• Why Financial Budgeting?
• Unique 5 step approach to Financial Freedom
  • Income
  • Spending
  • Savings
  • Insurance
  • Investment

Adulting – It is an informal term to describe behaviour that is seen as responsible and grown up. This behaviour often involves meeting the mundane demands of independent and professional living, such as paying bills and running errands. This word is often faced with uncertainties by a young adult entering the workforce for the first time. We would often hear them say, “Yay! I just got my 1st pay check, what’s next? What should I buy with it?” Hold on a minute. Let Abundant Life Planners help you navigate through your 1st pay check and beyond.

What is Financial Budgeting?

Financial Budgeting is the process of creating a plan on how you would spend your money. Creating this budget in advance allows you to ascertain if you would have enough money for your needs or your wants. Budgeting is simply balancing your expenses with your income.

Why Financial Budgeting?

• Helps to Control Your Spending – Allows you to be aware of the minute details of your expenditures
• Keeps You on Track for Your Financial Goals - Allows you to save for your Financial Goals
• Provides financial stability for family – Allows Spouses to be on the same page with regards to Financial Matters
• Helps You Avoid or Get Out of Debt – Helps to minimize chance of getting into debts due to over expenditure
• Helps You Prepare for Emergencies – Remember the golden rule of having 3 – 6 months of income as rainy-day fund.
• Helps You Save Money instead of just Delayed Spending – Allows you to really save funds and pay yourself first instead of just delayed gratification. What is delayed gratification? It’s the process of saving up to spend on a material want later.

With Abundant Life Planners, we have developed a unique 5 step approach to Financial Freedom to help you approach Adulting with ease.

• income

• spending

• Savings

• Insurance

• Investment

Income

• Ascertain all income that flows in on a monthly basis. This will allow you to understand your current financial position.
• Break up your income based on the Golden Rule of Budgeting.
  • 50% - Necessities – Limit your spending on daily necessities to half of your income
  • 30% - Wants - Limit your spending on luxuries to 30% of your income
  • 20% - Long term savings – Pay yourself first. 20% of your income should be driven to build your long-term financial goals.
• Accumulate passive income or work part time to gain additional income.

Spending

• • • Monitor your monthly spending
      • Create an expense sheet using Microsoft Excel Spreadsheet
      • Use budgeting apps that are widely available
      • Organize past expenditures based on category of items spent
    • Minimize unnecessary expenditures
      • • Bring your own coffee or take away from a nearby coffee shop instead of purchasing from coffee houses
        • Watch Netflix instead of nights at the movies
        • Purchase necessities and store in bulk due to economies of scale
        • Stay home and cook own meals instead of spending at restaurants. Save money while staying healthy!
        • Run and jog round your block or swim at your nearby swimming pools instead of forking out monthly dues for gym memberships
        • Take public transport instead of Grab
        • Watch your online shopping frequency; the more you browse, the more you tend to buy

The list goes on but I am sure by now, you get the gist! You can have fun while still saving money in the process!

• Maximize credit card reward programs - 3 most common form of rewards would be rebates, miles and reward points
  • Accumulate rebates - You know how the saying goes right? Cash is king! Accumulate your spending on certain credit cards to get cash backs or rebates. One of the best credit cards for this purpose now would be those with cashback. You may get up to 8% cashback on dining, grocery, dining and petrol
  • Accumulate miles - This would be more useful in a post Covid-19 world when leisure travel resumes. But you may not know one useful tip. There is an app that allows you to convert your miles to cash that can be used at participating outlets as well.
  • Accumulate reward points - This is the most useful for people who enjoys redeeming various vouchers or experiences from their reward points.
• Identify which expense is fixed and which is variable. Try to reduce/minimise fixed expenses, these are bills that you have to pay even if you don’t use. E.g. subscriptions like Netflix, Spotify, gym memberships, etc.

 

Savings

• Review Your Current Net Worth
  • List down the total assets that you own and its current market value. Assets could be both liquid and non - liquid assets. Liquid assets could be your Savings at Bank and also your Fixed Deposits, something that could be easily liquidated in the market to use as real hard cash. As for non - liquid assets, it usually refers to properties or even cryptocurrencies bought at Initial Coin Offerings where there is a lack of secondary market to release the assets back into cash.
  • List down the total liabilities that you own. Liabilities could be separated into 2 big categories. Current liabilities could be your utilities bill, hand phone bill or even your credit card bills that is usually settled in the next month. Long term liabilities are usually bigger in debt amount for example, property mortgages or vehicle loans.
  • Subtract your total liabilities from your total assets and you get your current net worth. If you get a positive number, congratulations! That means that you have more assets than liabilities. If your figure is negative, it would be advisable to start thinking about what’s causing that negative figure. Are you over - leveraging yourself or are you over - spending?
• Review Your Saving Account Interest Rate - There’s always a necessary to keep funds liquid in a savings account for daily use. But there’s also a way to hack that as well as you go into Adulting. Get a good savings account that provides you with the highest interest rates. The current low interest rate environment is not helping, but make the best out of every situation.
• Review your debts if you have any - There are good debts and bad debts. Good debts are like property mortgages, it helps you in building your net worth. Bad debts could be credit card debts that you can no longer pay in full. Try and pay off debts that have the highest interest rate. Credit cards are a double edged sword, it allows you to earn miles and cashbacks when used well and paid on time but turn into a deep hole if you end up over - spending and falling into the credit card debt trap.

Insurance

• Consolidate all your existing insurance policies - 1st step of Adulting usually involves your parents passing you your insurance policies to start paying for it. Wait, here’s a small tip for you. Before you start doing that, consolidate all the existing policies and look through all of them.
• Review your existing insurance policies and optimise your insurance portfolio - This is very important in ensuring that you are getting your money’s worth while being covered. Chances are that there would be policies that are obsolete or irrelevant in today’s context and by removing those policies or riders, you could save quite a bit on the insurance premiums. Sit down with a trusted Financial Services Consultants and find out what really matters to you at your current life stage. From there, he or she would be able to help you review if the current policies are still relevant or if you could take up a new policy and still save on premiums. You would probably need to top up your insurance coverage as you start working now as well.

Investments

Before we even touch on the topic of investments, let’s first discuss why is there a need for investments. Isn’t keeping cash good enough? With regards to this topic, we will need to touch quickly on the topic of Inflation and how Inflation eats up the value of your assets. Inflation is a measure of the rate of rising prices of goods and services in an economy. If inflation is occurring, leading to higher prices for basic necessities such as food, it can have a negative impact on society. The Consumer Price Index is designed to measure the average price changes of a fixed basket of consumption goods and services commonly purchased by resident households over time. It is widely used as a measure of consumer price inflation. The higher the Consumer Price Index, the lesser the basket of goods and services that we can purchase using the same amount of money. This is often referred to as Purchasing Power Parity.

• The investment options available in the market are:
  • Fixed Deposits
  • Singapore Saving Bonds (SSB) and Corporate Bonds (CB)
  • Structured Deposits (SD)
  • Unit Trusts
  • Real Estate Investment Trusts (REITs)
  • Shares
  • Exchange-Traded Funds (ETFs)
  • CPF Special Accounts
  • Investment – Linked Policies
  • Endowment Policies
  • Properties
  • Cryptocurrencies
  • Options and derivatives
  • Central Provident Fund (CPF)
• Portfolio building is an important aspect for investment planning - It will be advisable to build your investment portfolio by diversifying across asset classes and also across currencies.Depending on your Financial Goal, different asset classes can be used to achieve that goal. For example, if you are intending to invest for retirement planning, you would have a portfolio of passive income that can come from dividend payouts, annuities and even Real Estate Investment Trusts. If you are looking to invest your funds just to prevent deflation, you could invest in the share market if you are well-versed, or allow fund managers to handle for you in unit trusts. Then start your first investment.
• Optimise your investment portfolio for Better and Higher Returns - Once you are in the market and have received your first quarter of dividends or results, you will start to study the market and the various investment tools more and thus, push for better investment returns.