10 financial resolutions to make this 2020

New year, new you and new financial resolutions to make this 2020 (and hopefully keep). 

It's that time of the year again. The time of year when you ponder over the past year's milestones and mistakes, and set yourself a new set of goals.

You want to tick things off on your list. You are invigorated and energised to start the year on a positive note. You want your fitness and finance in top shape; the latter a crucial goal for Singaporeans. It's a good call. 

But here's a news flash - one that we often tend to overlook when setting financial goals. 

If you ate hawker food, saved more than 50 per cent of your annual income, and took public transport to get around all year, you may still be far behind on achieving those goals.

Why, you ask? Good question. In this article, I delve into my learnings and discoveries, and personal experience in managing money efficiently over the years. 

So, let's get started.

1. ALWAYS RESEARCH BEFORE YOU BUY

Knowledge is king and more so when making a decision about purchasing a financial product. You've got to know where your money goes. I research the available options and compare to gauge what suits me best before taking a final call.

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This goes for everything under the sun, from deciding between taking a taxi, Gojek or Grab to credit cards, loans, travel and home insurance, and telco plans. 

Make sure to not just go by hearsay or Google reviews. Do some digging yourself and find what suits your needs. Not only will you likely end up saving money, you will also learn a thing or two about the product itself and your usage habits in the process. 

2. MAKE SMART DECISIONS

A pair of Yeezys will look great with your denims for the Chinese New Year, but wouldn't your favourite pair of sneakers, that are just as comfortable and half the price, work the same? Is it a want or a need?

To determine if something is a want or a need, I ask myself these three questions:

1. Do I need it?
2. Will I use it within the next week or month?
3. Can I afford it without touching my savings?

Only if the answer is yes to all three will I go ahead with the purchase (so no Yeezys, dang!). That being said, if you've really, really wanted something for a really long time, that's okay too! Give yourself a tiny break by making allowances for 1 or 2 impulse purchases a year. Just make sure they do not eat too much into your hard-earned savings.

3. PLAN A SPENDING BUDGET

It might sound like a tall order because there are so many factors to consider, but I assure you that the time you spend figuring this out will help your cash flow and credit balance in a huge way.

This holds true especially when it comes to big ticket expenses like a holiday, home renovation or an impending wedding, because it gives you time to save up, which in turn helps cushion the blow to your savings. 

First, take stock of what you usually spend in a day, followed by month and year. This would include daily meals, a budget for plane tickets, hotel accommodation, shopping, festive shopping, etc. Set a conservative target amount for each, and test it out for a month or two, making tweaks to the budget until you find a comfortable balance. 

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Second, add a buffer for unforeseen situations. This is your mini-emergency budget for times when your computer breaks down, child falls ill, or need a replacement phone urgently. 

To further save in the long run, mark your calendar and cash in on shopping festivals - both online and offline retail stores. Take, for instance, Christmas gifting. This can cost you anywhere between $10 to a few thousand per gift, depending on the recipient.

By cashing in on shopping festivals, you are assured the best deals and prices for the same product you'd otherwise shell out a chunk for. Personally, I take advantage of online sales like 11.11 or Black Friday to help ease the gifting bill for Christmas.

4. GO ON FINANCIAL DATES

A financial date? Yes, you read that right. Block a date night (or brunch, if you so wish) with your partner to discuss financial matters once every month. Schedule a date with your partner and update each other on personal finances, investments, and review your progress towards achieving your financial goals together. 

Whether it's a joint savings account or planning for big ticket bucket lists (annual family holidays, home makeover etc). After all, communication is key when you set out to achieve your financial goal together as a unit. 

Count this date as a handy exercise on building a healthy financial life and empowering each other with information in case of a mishap when insurance policies need to be activated or investment liquidated. You'll thank yourselves for life.

5. REVIEW YOUR PLANS

To keep my finances in check and ensure that my spending budget is working well, I set aside 10 minutes every week to review my financial health. I take stock of what I have spent on and plan for the expenses, which I will be making the following week or month.

Use the start of the year to take small steps. Let's be honest and look at this objectively - you wouldn't go from being an intern to a CEO in a year. So it's important to set realistic plans for the entire year by making small changes in your financial life and sticking with them if they start to show results.

6. MANAGE DEBT WISELY

You've got to be smart about debt. If you are carrying debt that amounts to 3 times your last drawn salary, clear it off with a low interest loan instead, and pay in instalments.

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Credit cards impose a higher interest rate on unpaid bills as compared to a personal loan, which charges you a flat interest rate (as long as you do not default on your payment).

For instance, let's assume you carry $10,000 in credit card debt at an interest rate of 28 per cent and plan to pay $1,000 a month until the debt is paid off. You will take approximately 11.5 months to repay, and would have paid a total of $11,519.62. This means you are paying $1,518.62 in interest charges alone. 

If you were to take up a $10,000 personal loan at an interest rate of 10 per cent to pay off said credit card debt, your monthly instalments will be at $879.16 ($120.94 less). You will take 12 months to repay, and would have paid a total of $10,549.92. That's $969.70 saved on interest charges. 

7. MAINTAIN OVERALL CREDIT HEALTH 

Think of your overall credit health as a financial resume, which banks refer to when considering a credit card or loan application to assess credit worthiness. If you are new to credit, start cultivating good habits that will help you build a healthy credit score. 

My advice would be to start off with just 1 credit card for key purchases. Start getting used to planning, spending, paying the bill on time and in full. Only when you are comfortable and disciplined enough to manage your money and payments, should you sign up for another credit card. 

Your credit score is determined by how healthy you manage credit; this can be anything from credit card debt to repayment of personal or housing loan, essentially any transaction with a financial institution. However, if your credit score isn't as healthy, don't fret. Try doing these to bump it up: 

1. Repay loans on time
2. Never default on loans
3. Avoid making multiple loan enquiries in a short time
4. Only have a few credit facilities open

If you are looking for a career in finance, your credit score may determine if you get hired or not. The Monetary Authority of Singapore (MAS) announced on 27 Nov 2019 that credit checks for employees and potential hires by financial institutions are appropriate. So, it's seriously time to get your credit score in check. 

You can obtain your personal credit report from the Credit Bureau of Singapore (CBS) at a fee of $6 ($6.42 with GST). 

8. REFINANCE TO GET THE BEST PLAN 

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Don't just stick with what you have, shop around to refinance your home loan and insurance when the minimum lock-in period is up. Depending on the policy, for home loans that would usually be 2 years and for insurance it's 1 year. 

It may be a little troublesome given the advance notice and paperwork involved, but refinancing your home loan can offer you lower monthly installments and, at times, free gifts such as luggage or vouchers.

Signing up for a new term insurance policy will offer you higher coverage and might even be at a lower monthly cost. A recommended coverage would be 10x your annual income.

9. INVEST, MAKE YOUR MONEY GROW

Start treating your regular savings as a fixed expense and set up automatic transfers to a high-yield savings account or put it in an investment. 

There are several investments that cater to different investment appetites. Look at short-term fixed deposit accounts like those from Maybank or CIMB that offer high interest rates for a short lock-in period of 6 months or 1 year.

If you have a lump-sum, consider putting your savings into an investment plan like HSBC's Life Online Endowment that has guaranteed returns of at least 2.5 per cent p.a. Alternatively, if your risk appetite is low to none, put your money in risk-free Singapore Savings Bonds.

Offered directly by the Singapore government, it gives you a modest interest of 1.88 per cent p.a that is paid out twice a year. 

10. KNOW YOUR DATES

Manage your cash flow, avoid late payment fees, keep track of expiry dates, and maintain a good credit score. This means setting up a separate calendar to remind yourself when bills are due, expiry dates for insurance policies, the minimum lock-in period for your home loan and so on. 

Here's a pro-tip: set advance notifications (3 days) to remind yourself of a due date. This can help plan your time to pay a bill or text your insurance agent for a meeting. 

This article was first published on SingSaver.com.sg.