We hope 2016 was a good year for you and before 2017 approaches, maybe it’s time to carry out a financial audit to ensure that 2017 will be an even better year for you. As a new year approaches, most people start the year optimistic, but with a forecast for slower growth in Singapore, it is necessary that Singaporeans take precautions to ensure that they continue to thrive with slower economic growth.
If you’ve been spending too much and saving too little in 2016, fret not as we bring you a step-by-step guide to carrying out a personal finance audit to help you move closer to your personal finance objectives.
Was 2016 a year of prudent spending or wasteful expenses? When you look at your year’s spending, it gives you an idea of where your money has done. If you have been tracking your expense diligently, give yourself a pat on the back. You can now set out to achieve your top financial goals, be it to clear any outstanding debts, set up an emergency fund or save towards your retirement.
After going through your past year’s expenses, you can have a clear idea of your average monthly spend. Use this to compare it against your monthly income, and see how much money you usually have left.
Say you earn $4,000 and have an average monthly expense of $2,500, think about what you can do with the remaining $1,500. Can you save it in a higher interest account, use it to settle any outstanding debts or perhaps, put some money in an endowment policy?
Clearing off any outstanding debts should always be the top priority when it comes to financial planning. Debt often accumulates interests and hold us back from moving forward to grow our wealth.
However, not all debts are equal. For example, a housing loan is clearly a large sum of debt which cannot be easily paid off. However, its interest is generally low compared to other debts, and it helps you own an asset(property) as well. Compare this to credit card debt, which does nothing except to accumulate interests on your balances. Look into all your existing debts and loans to see if you can come up with a faster way to pay them off.
For your mortgage loan, check if it’s time to refinance since the Federal Reserve in the US has just risen rates and are looking to increase rates three more times in 2017. This will likely affect your SIBO-pegged loans. If possible, you may want to look into getting a fixed rate loan in order to lock in the lower interest rates now. Refinancing or repricing your home loan can potentially help you save thousands of dollars so take action now!
Insurance is an important part of personal finance that shouldn’t be left out. In fact, you may find that those who leave out insurance may actually be the ones who need it the most. While Singaporeans are covered by the Medishield Life, the limits and coverage are seldom enough on their own, thus the need for additional insurance on our part.
If you haven’t taken any insurance coverage yet or you are unsure about how much coverage you have, it’s a good time to approach your agent for a meeting to review your coverage. As we move through life, our priorities change as well, in 2017 so you might want to emphasise on certain coverage, especially if you are the breadwinner at home.
An emergency fund is extremely useful in times of uncertainty or slow economic growth. The money from an emergency fund can be used to tide you over a period of retrenchment, recovery from an accident or sudden home repairs.
Saving the rest or your unused income is not the same as saving for an emergency fund. With the fund, you need to set a target amount to achieve. Most personal finance advisers recommend a minimum of 6 months’ worth of expenses as an initial target. It is best to put this fund in a higher interest account where you do not make any withdrawals until there is an emergency need.
After you’ve reached your initial target, you can start to work on ways to grow this fund via various means that are low risk to help you build the fund slowly towards 2017.
Although it is not time to file taxes yet, it makes sense to be aware of what type of tax reliefs you can apply for in 2017. Tax reliefs can help you save hundreds of dollars per year! These include CPF Cash Top-up relief for Singaporeans and Permanent Residents who have made cash top-ups under the CPF Retirement Sum Topping-Up Scheme. You can do this by logging in to your Singpass and choosing to top up either your loved ones’ Special Account or Retirement Account. If not, you can top-up your own retirement account as well to claim the exact amount of tax relief as the amount you’ve topped up.
If you have a retired parent staying in your household, you can also claim the Parent relief – the Parent Relief is given to promote filial piety and recognise individuals who are supporting their parents, grandparents, parents-in-law or grandparents-in-law in Singapore. There is a list of criteria to fulfil before you can claim it though, and you can find out more here.
Whatever your age, you should be saving regularly towards your retirement. If you think that your CPF money is enough to help you in your retirement, think about whether you can survive with just a monthly payout of $660. If not, it’s best that you start putting aside an amount towards your retirement goal.
The best way to do this is to set your savings to work automatically each month to go into your emergency fund and retirement savings account. If you’re just starting out in your work life, putting aside just 10 to15 percent of your annual salary can compound to become a large sum when you reach 55 years old. If you are in your 30s, you should earmark about 15 to 25 percent towards retirement.
If you’ve saved up a sizeable amount for retirement, remember to start growing your retirement portfolio. Look at simple investment plans such as investing regularly every month with a fixed amount into buying an index fund. For the more sophisticated, you might want to set up your portfolio to invest in different assets that give you a variety or returns to reflect your risk appetite.
With these 7 easy steps, take action now to draw up your financial resolution and plan for 2017 to start your year on a positive note!