Many Singaporean students graduate and embark into the working world or further university studies without knowing even the basics of money management. How do you create a monthly budget? How can interest help you get more savings? What do you do in an event of emergency? If your JC/Poly didn't have a Budgeting 101 module, and your response to those questions was something like this:
Let this article be a crash course into simple personal finance basics.
Start tracking your spending
Remember when as kids, we finally upgraded from getting pocket money from our parents to getting our very own bank account to put our ang bao money into. There was that feeling of "There's money in my bank account, I can now buy many many things!". This feeling is going to be intensified a hundred fold when you finally start working, and money magically appears every month when your salary is automatically deposited into your account.
This can result in many people spending blindly. If you do not track your spending, there's a danger of never knowing where your money went and finding yourself unable to pay bills at the end of the month. Tracking your spending allows you to understand exactly where your money has gone. Most importantly, it can help you identify places where most of your money is going into so you can start adjusting your lifestyle. For example, you might be eating out a lot at expensive places on weekends when you can choose alternative places to chill at that cost a lot less.
Expenses tracking apps like Wally (it's free!) are especially useful to help you start out and develop a habit of watching where your money goes.
Create a simple budget to stick to
Tracking your spending and having a budget are two halves of the same piece. Once you know where your money is going, a budget can help you figure out where you want it to go. Basically, spending money without a budget is like going to a new country without a map – sure, you’ll probably be able to get around eventually, but it will be more effective and a lot less stressful if you have a map to guide you.
The best way to start is to determine how much you are spending on a monthly basis and divide these expenses into categories. If you have been tracking your expenses, you should probably have a clearer picture of this. Enter this information into an Excel sheet or an online budgeting app like Mint - which basically crunches the numbers so you don't have to do it yourself to let you know if you are overspending or underspending. Based on this knowledge, you can make then adjustments to your lifestyle in order to live within your means. If you find yourself overspending, drink a little less Starbucks, eat at home more often, whatever it takes to keep your finances in check and stick to the budget you've created.
Let your money work for you
When you save money in a bank account, it earns interest. And that interest earns more interest too. All it takes is time. That’s why it’s a good idea to start saving money as soon as you can, even if it’s only $5 or $10 a week.
If you put $100 in a savings account that accrues an annual 5% return rate, and you add $5 every month; after 50 years, you’ll have over $14,000! Here's a list of the best savings accounts currently available. Pick one, and start saving as soon as you can.
Be prepared for an emergency
Not to say that your parents won't be able to help you out if ever you find yourself in need of financial aid. But having an emergency fund is the best way to reassure yourself that you'll be OK if you're ever in a jam.
Start with a simple $10 every week. It will accumulate over time, so if your cat rips a hole in the cat food, gorged itself on 3kg worth of kitty kibble and needs to go to the vet, you can pay for it without stressing over having to find the extra funds needed.
Nobody needs a credit card
Research has shown that our brain actually registers pain when we pay using cash, then if we pay by swiping the debit/credit card. Seeing money leave your hands can actually help curb unnecessary spending. This isn’t to say that credit cards are bad. As long as there's a regular income coming in to allow for paying credit card bills on time, a credit card can be a great help in times of emergencies, or in accumulating benefits like airline miles and cash back.
If you do choose to use credit, the important thing is to never put more on a credit card than what you can pay off that month.