Managing money can be daunting for many during this ongoing pandemic. With looming economic developments, higher cost of living and intensified competition, there is now an imperative to secure a proper financial plan.
On Money and Me, Michelle Martin spoke to Willis Lau, Financial Advisor and TikToker, on how Millennials can better understand their financial plans and develop an optimistic attitude towards investing and saving.
Michelle Martin: On your TikTok channel, you share tips all the time. So, how about sharing some of them for the Millennials. Do you have any money management tips for them?
Willis Lau: Firstly, it is important to understand the big picture of money management. So essentially, it is to understand what having a financial plan means. Often, when people talk about money, they tend to relate it to getting insurance, getting a savings account, or just investing, for example. But there is actually a lot more to it.
Tip #1: Think about wise spending through this question: how can we spend effectively?
I think it is a lot easier to work on this rather than on saving and investing. So, start thinking about the credit cards you can use and the payment platforms that you can pair them with to get rewards, discounts, or even cashback, for example.
Tip #2: Look for the best places to keep your emergency fund
Next, I believe most of us would have set aside some emergency funds - that are parked in some savings account with a decent interest rate.
But, with what has happened [the pandemic], I think many of these rates have been revised. Now, it is important to look at where else one can park their money, to prevent them from being eroded by the current low rates.
So in short, for funds that we are not really using but are setting aside for emergencies, we should pay attention to platforms that can give a decent rate of return. In general, these platforms could be high yield bank accounts, cash management accounts or even short term endowments.
Michelle: Now when it comes to building a financial plan, I am sure you must have some good hacks for us?
Hack #1: Understand and manage your cash flow well
The first would be to understand your cash flow – your “ins’ and “outs” – that is related to your budgeting and spending. At the end of each month, you should ask the question: is my net cash flow positive or negative? Ideally, it should be positive.
But I also understand that in some months, there might be the presence of big-ticket items, such as a wedding or perhaps a renovation. If there is a reason to justify the cost, then that is okay. But in general, we need to have a healthy cash flow.
And I have also seen people getting into personal loans just to pay off those big-ticket items. So this brings me to my next point, which is to plan ahead for such big-ticket items. The interests [from the loans] are pretty high so you would want to ensure that your money is being well spent.
Hack #2: Start building your emergency fund - now would be good
Secondly, we need to talk about emergency funds. Have at least six to 12 months of funds, so that when a crisis comes, you would still be able to do the things that you want. For those who have not started, it would be great to start setting aside some money for these funds.
With that said, we can also start to look into building a safety net and that is where insurance comes in. Understand what kind of policies suit you the most and more importantly, find out the essentials that you need at the start.
Because you do not want to be over-committing to these long term commitments. And yes, critical health illness would be at the top of that.
This article was first published in MONEY FM 89.3.