The smart way to grow your money

Singapore

THE economic repercussions of Covid-19 have nudged many to take a sobering look at their financial health amid fears of job losses and pay cuts.

In Singapore, less than half of millennials are able to sustain themselves for six months or more if they lose their jobs, OCBC's Financial Wellness Index 2020 showed.

As people live longer and face more unprecedented crises, it is key to start financial planning upon joining the workforce to prepare for their sunset years. Singaporeans' life expectancy in 2019 was at 83.6 years.

But what exactly constitutes financial planning, and where is the starting point? This has proved daunting to many; about 42 per cent of millennials don't know the best way to grow their money, according to OCBC.

Financial planning does not have to be a tall order when broken down into small, achievable steps. There are just three key pillars: savings, investment, and insurance.

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Tan Siew Lee, OCBC head of wealth management, outlined a few simple ways to build up savings. For a start, individuals should keep a detailed ledger of all their expenses.

"By monitoring your expenditure like a hawk, it helps draw attention to certain adverse spending habits that might have gone unnoticed and identify certain expenditures you need not have made. Sometimes, just slight changes can improve the quantum of your savings," she said.

In an era of digitalisation and mobile apps, there is no need for complex spreadsheets. Many of the financial planning apps and online budgeting tools today have made expenses-tracking a breeze.

After totalling one's monthly expenditure, about six to 12 months worth of that amount should be set aside as emergency cash.

"If your savings are in an investment instrument that does not allow you to liquidate and use it immediately in the case of an emergency, then it would defeat the purpose of emergency cash," said Ms Tan.

It helps to set a monthly budget to stay on track. This involves identifying sources of income and assessing spending priorities and the possible trade-offs. Having a plan beforehand will more directly affect spending decisions, said Ms Tan.

Ultimately, having a disciplined savings programme helps inculcate a "save first, spend later" habit. "You don't have to actively concern yourself with the need to save because it's done automatically and on a regular basis," Ms Tan noted.

On OCBC's mobile banking app, for example, the "savings goal" function helps users ringfence a portion of their monthly income to fund their long-term goals.

After personal savings and insurance needs have been adequately covered, the next step is to channel any excess money into investments to beat inflation.

Millennials who have just entered the workforce may be cash-strapped and have competing immediate goals like marriage or buying a house. But investing does not require a huge amount of capital, said Ms Tan.

There are many solutions out there that require a relatively small minimum capital outlay. For instance, OCBC's robo-advisory platform, RoboInvest, allows users to invest in selected portfolios with a minimum of US$100.

Gen Z customers (aged 19 to 22) make up the fastest growing investor segment on RoboInvest, up about seven times from the previous year.

Ms Tan said: "Squirrelling away some funds into monthly investment plans that work on autopilot might be an easy solution to gradually build up investments over time. As and when they can afford it, individuals should increase the quantum of their contributions or may consider investing a lump sum."

Risk tolerance may also change with time as millennials approach more mature stages of life. It may mean less capital for investments, or less ability to take risks due to heavier family responsibilities.

In this case, monthly investment plans become all the more important as it ensures that individuals get into the habit of allocating some funds, no matter how small, to grow their investment portfolio, said Ms Tan.

Amid growing market uncertainty and investment fads, she stressed that "time in the market matters much more than timing the market".

Earlier this year, speculative behaviour led to much volatility in prices during the GameStop saga. While some investors made quick gains, often less reported were the ones who lost a great deal of money participating in the wild price swings of this trade, said Ms Tan.

She added that "slow and steady works better" over the long term, and may be more suited for investors who cannot stomach volatility.

"Investing regularly in quality assets over a long stretch of time may not be the most exciting or fastest way to make money, but it works."

As of last December, Singaporeans are able to, via SGFinDex, consolidate their financial information across seven major banks and relevant government agencies for a more holistic view of their financial status.

This comes as part of a national push for more effective financial planning. Having a more aggregated view of one's personal balance sheet will allow individuals to better identify any gaps and take active steps to improve their situation.

"The earlier you start, the more time you have to grow your funds through the power of compounding," said Ms Tan. With a longer time horizon, individuals have a wider buffer of time to recoup and recover from potential losses.

Those who are new to the workforce should also not neglect their longer-term goals such as retirement, even as they focus on more immediate needs like buying a car or getting married.

"The bottom line is the sooner you start planning for your retirement, the more you may have in your golden years," said Ms Tan.

• The Money Playbook is a new personal finance column that discusses how to take charge of your financial well-being.This is the last of an eight-part series.