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Beginner’s Guide To Setting Up An Emergency Fund

WHAT IS AN EMERGENCY FUND?

An emergency fund consists of the money you set aside to cover large, unexpected expenses. It serves as your cushion to save you from drowning into debt and other unfortunate events. It can be used for unforeseen medical expenses, home appliances replacement, automobile repairs, and managing unemployment.

HOW MUCH MUST I SAVE?

When you are starting to build your emergency fund, it is important to value what you have. No matter how small, every dollar counts. Focus on the habit and consistency of saving money. When your financial situation improves, you can increase your savings.

The right amount for you depends on your financial situation, but a good rule thumb is to have enough money to cover your living expenses for six months. If you lose your job during pandemic, you can use your emergency fund for necessities while you hunt for a new job. You can also use the money to supplement your small business. Start small and increase your savings as your financial situation improves.

WHY SHOULD I TRACK MY INCOME AND EXPENSES?

Tracking your income and expenses enable you to get a realistic view of your financial situation. It can pinpoint the amount that is sufficient to cover your living expenses for six months. You can track your cash flow by writing down how much money comes in every month and by writing down your fixed and variable expenses per month.

Do not forget to include recurring expenses such as your rent, utility bills, school fees, and childcare.

WHERE SHALL I PUT MY EMERGENCY FUND?

You can put your emergency fund inside a savings account with a high interest rate and an easy access system. Since an emergency can strike at any time, having quick means to access your funds is crucial. However, you must keep your emergency funds away from your primary bank account. This will help lessen the temptation of dipping into your reserves. Moreover, having a high interest savings account enables you to reap the benefits of compound interest.

HOW CAN I PLAN OUT MY EMERGENCY FUND?

Establishing financial goals and developing a plan to achieve those goals go hand-in-hand. Part of your plan may include specific and realistic targets to work toward. For instance, you may save S$50 per week to put into your emergency fund. Once you have created a robust plan, make sure you follow through.

Sticking to your plan can sometimes be the hardest part of saving for an emergency fund. A good way to stay on track is to save automatically. You may automate your savings and set up a systematic transfer from your primary savings account to your “emergency fund” savings account. Alternatively, you may keep a money jar and label it with: “for emergency use only”.

Sources: 1 & 2

5 Luminous Lessons Harry Potter Taught Us About Money

The magical story of a young wizard named Harry Potter has captured the hearts of fans of all ages and with a good reason. In fact, I am wearing my Hufflepuff shirt while I am writing this.

Despite being in a fictional world, the Harry Potter characters’ financial problems cannot be solved with a wave of a wand. They also have to struggle with the challenges of saving, spending, and growing money throughout the series. Here are just some of the personal finance lessons that you can learn form the wizarding world of Harry Potter:

GET THE A DEPENDABLE AUTO-INSURANCE

In the “Harry Potter and the Chamber of Secrets” book, Ron and Harry crashed a car into a tree. It caused an irreparable damage to a car that they do not own. This scenario taught us the importance of having a car insurance.

In Singapore, it is mandatory to have your car insured. Examine your options and look for an auto-insurance that suits your needs and your budget. Some of the plans that you may consider are the FWD, Aviva, and NTUC Income auto-insurance plans. FWD has three auto-insurance plans from Classic to Prestige. Its annual premiums start from S$731.38. Aviva offers three auto-insurance plans too from Lite to Prestige. Its annual premiums start from S$883.12. Lastly, NTUC Income has Drivo Classic and Premium plans. Its annual premiums start from S$$970.35. Annual premiums are usually based on the driver’s profile and the car itself.

SORT OUT YOUR WILL

After living in an uncomfortable cupboard under the stairs for eleven years, the book’s main protagonist Harry Potter found out that he was a wizard and that his parents left him a considerable amount of money. His family’s wealth was beyond what he can imagine! Although his parents died at a very young age, when he was just a baby, it was clear that they a robust financial plan in place. They left all their wealth to Harry. This helped him secure his school supplies and daily needs throughout the years.

Unforeseen events can strike at any moment. It is important to save up for your retirement as soon as possible. Moreover, you must create a will that ensures the list of beneficiaries on all of your savings and investment accounts.

SEE THE POWER OF COMPOUND INTEREST

Harry not only benefits from his parents’ wealth, but also reap the rewards of compound interest. His money was untouched for eleven years. When he opened his vault for the first time at the Gringotts Wizarding Bank, he discovered the amount of gold and money that was in his vault. Despite having this wealth, he did not lead a lavish lifestyle.

Like Harry, you may benefit from compound interest by leaving your money untouched for years in a bank or by investing your money for the long haul.

APPRECIATE WHAT YOU HAVE

As I said above, he did not lead a lavish lifestyle. Harry was humble. In fact, he wore the same glasses for seven years. He appreciates what he has and exemplifies this trait the most in the first book. When Hagrid gifts him Hedwig the owl, he was amazed and accepted it wholeheartedly. He was also very grateful when he was gifted the Nimbus 2000 by Professor McGonagall.

In our world, it is easy to be caught by all the sale items and designer brands. However, you must remember to strike a balance between your needs and wants. Appreciate what you have and live within a realistic budget that you set.

SECURE YOUR MONEY IN A SAFE PLACE

Harry’s immense fortune was stored in the Gringotts Wizarding Bank, located in the heart of London. The bank is operated and guarded by goblins. These goblins serve as the gatekeepers to the underground vaults. It is often described as the safest place in the Wizarding World.

Image Credits: unsplash.com

While you cannot keep your wealth within the protection of magical spells and goblins, you can secure your money in other ways. Firstly, you may set up an auto-deposit scheme to send a portion of each paycheck to your savings account. Secondly, you may store your emergency fund in a place where you will not be tempted to spend it frivolously. For instance, you may set up a different account exclusively for that. Lastly, secure your online banking apps through Two-Factor Authentication.

Sources: 1, 2, & 3

How To Save For Retirement As A Young Adult

Time is of the essence. Crippled with all the uncertainties brought by the pandemic, having reserved funds can help cushion the blow of unforeseen events such as pay cuts and layoffs. Saving money is important, especially when your finances are limited. Consider saving money to grow your emergency and retirement fund.

Retirement may seem like a long walk ahead for someone in his or her 20s or 30s. However, it is best to start saving for retirement before you hit 35 years old because your priorities will change at that time. Financial priorities such as spending for a wedding, an education loan, house loan, and other major transitions may occur once you hit your 30s. Typically, you spend more money on yourself during your 20s. Why not consider spending more money for your future?

In your early 20s, you may save at least 5% of your income or sign up for your employer’s Retirement Plan. Avoid debt as much as possible and get educated about your finances. Widen your financial knowledge by reading financial books on investments and business opportunities. Pay off your debt, if necessary. It makes sense to pay off your debts or at least your high-interest debts before you save for your retirement. Not all debts are created the same. Pay off your high-interest debts first followed by the lower-interest debts.

The next step is to set up a budget. Systematically allocate your income onto distinct categories and stick to that budget. Do not spend beyond what your budget is for that month. This allows you to save regularly rather than arbitrarily. Make critical decisions about your expenses and cut down the unnecessary, especially when you hit your late-30s. Ideally, this is when you hit maximum savings. By this time you should have at least S$50,000 to your Retirement Savings.

Image Credits: unsplash.com

The third step is to seek for an employer that supports your goals. If your employer offers Retirement or Pension Plan then embrace this company benefit. As a young adult, you may also invest your money in accordance to your financial goals.

Lastly, you are saving money for your retirement to prepare for the unexpected. Contemplate and reconsider the realistic measures that are suited for you and your lifestyle. Seek the financial experts’ help as much as possible. Then, plan your exit with joy because you are well prepared for it.

Splurges That Turn Out To Be Wise Savings

Having money allows you to live the life you desire to live, if you spend it wisely. You have to weigh whether an item is an essential (need) or a non-essential (want) expense. In some cases, you have to spend more at the moment to save more in the long run.

Certain items are worth splurging on to help you earn more money or experiences in the future. Here are just some splurges that are actually wise savings:

#1: PURCHASING AN INVESTMENT FOR YOUR CAREER

Purchases that help you advance in your field are good investments. Know which tool you cannot work without and list them down. For instance, you must invest on a high quality camera and a reliable laptop as a photographer. There are also online classes and software programs that a photographer can benefit from on a daily basis. If an item supplements your future growth, it could be a smart move to spend extra cash on it.

#2: PURCHASING ITEMS THAT YOU USE A LOT

Before spending your hard-earned money on a product or a service, think of how long you are likely to use it. Then, breakdown the price using these factors (e.g., cost per wear). You may realize that the iPad you have been eyeing for so long may only cost you S$1 per day due to your current academic needs.

Home appliances and cookware are just some of the items that we use frequently. You can save so much money by cooking at home. Splurging on quality kitchen items such as knives and refrigerator can make a difference. It is recommended to invest more money on home appliances and cookware that you will use heavily because you will only end up spending more on repairs with low-quality appliances.

#3: PURCHASING ITEMS THAT YOU WILL CONSUME

Now more than ever, it is important to consume items that can strengthen our immune system. You really are what you eat! So, do not feel guilty about spending more money on fresh produce and healthier food items. What you spend on these items may help reduce your hospital bills.

Along with grocery shopping comes the ability to save more time. You may get your groceries delivered to your doorstep instead of going to the store. This will minimize your contact with the crowded places and will enable you to have more time to enjoy your day.

#4: PURCHASING SOMETHING YOU HAVE SAVED UP FOR

It is alright to splurge on an item that you have strategically saved up for in advance. For instance, you may have kept a portion of your monthly salary to splurge on a good laptop or a luxury bag at the end of the year. Some non-essential items are worth spending money on as long as you have saved enough funds to cover your significant expenses. Furthermore, it is a rewarding and a joyful experience to see the fruits of your labor.

Image Credits: pixabay.com

It is more than fine to get spend your hard-earned money on the finer things in life as long as you are smart about your purchases. Consider the points that were previously discussed above.

Sources: 1 & 2

Financial Planning In The Wake Of COVID-19

Financial planning has never been an easy task, but the pandemic has made it even more difficult. Finance professionals are used to consistency and accuracy. They are not trained to plan for unclear economic conditions. No one is! The five-year plan that we are supposed to send to our supervisors is now completely out of the window.

How can you plan for your finances, if you do not know what is going to happen in the future?

#1: HAVE A ROBUST PLAN

You can better understand your financial resources such as investments and cash flows, if there is a robust financial plan in place. A comprehensive plan covers the ares of budgeting, investment, insurance, retirement, credit, and estate planning. When these areas are well covered in a sound financial plan, you have a greater clarity on how each financial decision affects another.

Specifically, the financial-planning team should focus on the following five steps: getting a clear view of the company’s position, building a fact base, aligning the financial plan to a concrete direction, determining the best moves, and identifying the trigger points that prompt businesses to adjust.

#2: KNOW WHERE TO START

Companies and individuals must know where to start. To get this, you need the support of experts. Together, you can see the historical and current financial trends. The January 2020 financial plan can be a good place to anchor on. This can help you to establish any assumptions that will need to change as a result of the pandemic.

#3: ENSURE THAT YOU HAVE POSITIVE CASH FLOW

Set up a realistic budget, which indicates your money inflows and outflows. Having an emergency fund that covers you for three months can ensure that you have enough liquidity to tide you and your dependents during financially difficult times. Doing so will give you some peace of mind even if you suffer temporary setbacks such as losing a job or are unable to make a living because you must be quarantined

#4: GET INSURANCE COVERAGE

Insurance is a means to cushion against financial losses and unexpected events. Find a suitable hospitalization and life insurance plan to cover your hospital bills and critical illnesses. There are also insurance plans that are related to growing your savings like endowment plans and investment-linked insurance plans.

Image Credits: pixabay.com

Focus on what you can control. Set up a sound financial plan, carve a realistic budget, get insurance protection, diversify your investments, and commit to a long-term strategy to achieve our life goals.

Sources: 1 & 2

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