Five Personal Finance Moves I Would Have Made in My 20s
Do you want to travel the world, retire with $1 million in your bank account, and have the financial freedom to achieve your life's passions? You’re not alone – over 80% of millennials between the ages of 25 to 35 are keen to put aside $300 every month, just to reach that retirement goal of $1 million.
But this doesn't mean that you'll have to give up your current lifestyle entirely. After all, your 20s are when you want to be open to travelling the world, living your dreams, and seeking out new and meaningful experiences.
Let three working professionals share five financial planning moves they think any savvy adult should make to put you on the path to a stress-free retirement.
1. Set Clear Financial Goals Early in Life
It's important to figure out your financial goals as early as possible, so that you'll have the time to work towards achieving them. Think about what you’d like to achieve with your finances in the long run.
When asked about his financial goals in life, Eric Tan, 41, a Singapore Armed Forces (SAF) senior military expert, shared that he had three – “to fully service my housing loan in 15 years, to ensure that there are enough savings for retirement, and to make sure that there are enough savings for my children's education."
For Tan Shufen, 43, a purchasing manager with a travel retail company, the goals she had in mind were to retire early and have financial freedom.
Everyone's financial goals may vary and some may seem daunting at first but by starting early, no goal is too big to complete.
Pro-tip: According to respected American financial planner Michael Kitces, big, long-term financial goals should be broken down into smaller ones so that they can be achieved more easily.
2. Find ways to save towards your goals
When questioned about what she could have done better in terms of finances or financial planning leading up to her 40s, Shufen remarked that she would have saved as much money as she could "instead of spending it on shopping, drinks and restaurant dining."
It’s easy to be tempted to indulge in retail therapy or dine at trendy restaurants when you’ve just started working and start to enjoy a stable income stream. There is nothing wrong with such indulgences every now and then, but make sure to be mindful of how much you save versus how much you spend.
You don't have to start saving a large percentage of your income from the start. For Shufen, 10% of her income was what she started with in her 20s, and she slowly worked her way up to 30% now. Similarly, Eric saves upwards of 30% of his income these days. James Ong, 48, an economics teacher, takes saving even further and says he now aims to save at least 50% of his monthly income.
A simple and effective way to save is to “pay” yourself first every month, upon receiving your salary. Ideally, you could have two bank accounts, one for receiving your income and paying for your expenses, and another for channelling your savings. Don’t start spending your salary the moment you receive it. Instead, decide how much you’d like to save every month, and when you receive your salary, transfer that amount to your bank account designated for savings first. You’ll then be able to spend your remaining money guilt-free, knowing that you’ve achieved your savings objective for the month.
Another way to ensure you’re disciplined about saving is through an endowment plan, such as Income’s Gro Secure Saver. Depending on your lifestyle and financial ability, you can choose to pay your premiums for 5, 10 or 15 years. You can also pick your policy term (how long before it ends and you can cash out), and a smart way to do this is to time the end of your policy with milestones you might need the cash for in future (like a home renovation for instance). At the end of the policy term, you can get back at least all the premiums that you’ve paid on the basic plan, on top of the non-guaranteed bonuses (terms and conditions apply). The application process is also fuss-free, as you can purchase your plan online at your own convenience and no medical check-up is required.
Saving can also be an important foundation for the rest of your financial planning journey. As Eric mentioned, it is important “when young to build a sizeable nest to probably invest or buy good property".
Pro-tip: While it's good to save as much as you can, make sure you have enough spending money for your monthly expenses and commitments.
3. Learn How to Invest in Your 20s
Another way to achieve your financial goals is to invest early, and invest wisely. Retrospectively looking at her 20-year-old self, Shufen recommends that young adults "start getting educated about investing early and benefit from the notion of compounding interest."
Einstein once called it the "eighth wonder of the world"! For example, if $100 invested returns 5% in a given year, the amount will grows to $105 at the end of the first year. If you allow this extra $5 to be re-invested, and if investment returns come in at 5% again in the second year, the $105 will compound to $110.25.
Your 20s are the perfect time to acquire investment knowledge. You can learn to invest by reading investment classics, considering the advice of investment gurus, or attending workshops organised by financial institutions.
Eric consulted with friends who were investment consultants to steer him towards the products most suitable for him. He began with pure cash savings and fixed deposits in his 20s, progressed to investment-linked and endowment products in his 30s, and decided to concentrate on property in his 40s. Before any purchase, he made sure to ask three guiding questions before each purchase: What’s the projected return? How long is the duration of the investment? How much is the premium?
If, however, you’re not confident of managing your own investment portfolio, you can consider Income’s VivaLink, an investment-linked plan that lets you build wealth and stay insured, starting from only $100 a month – less than having a tall Caramel Macchiato every day for a month.
VivaLink is versatile, and if you find that you have more to invest in a certain month, you can make ad-hoc top-ups. Similarly, if you would like to further diversify your investments into different funds available under VivaLink, you can make fund switches as many times as you like with no extra charges. You can also rest assured that each fund is continuously monitored by a team of experienced investment professionals. Your protection needs are also not forgotten, as VivaLink provides protection for death and total and permanent disability (TPD before the age of 70).
Pro-tip: Sign up for free financial literacy courses provided by MoneySense in conjunction with Institute of Financial Literacy @ Singapore Polytechnic.
4. Pay Off Your Debts
As you grow older, you may take on more debt in the form of car loans, wedding expenses, mortgage loans, or student loans.
For many in their 20s, housing loans start coming into play. Eric suggests that it's sensible to "reduce your interest payments" for "housing loans by repaying capital." HDB loans have a maximum duration of 25 years. Making a partial or full redemption, when you have the means to do so, and shortening the loan duration, will reduce the overall interest paid.
James, on the other hand, always had the financial goal of "staying debt free" and tries to "pay off any debts as soon as possible".
Another kind of debt that most people will have but few realize the dangers of is credit card debt. In Singapore, one in five credit card holders only pays the minimum sum. Avoid this practice and aim to always pay them off in full, as credit card debts have high interest rates.
5. Find a Trusted Financial Advisor or Investment Consultant
Both Eric and Shufen benefitted from consulting trustworthy financial advisors. Eric’s advisor guided his purchase of a whole life insurance with coverage till he is 100 years of age, while Shufen bought term insurance to cover critical illnesses for the next 25 years of her life with the advice of hers.
However, Shufen's experience with advisors has not always been smooth sailing. Back in her 20s, she was sold an endowment plan that was not suitable for her financial goals at the time. Thinking back, she reflected that she "should have looked for a financial advisor that understood my needs and risk profile, and someone who would have explained the differences in products to me". Since then, she has been more careful.
Picking the right advisor is important for achieving your financial goals. Look for one who can provide you with more value beyond just telling you which products to buy. A good financial advisor should be there to hold your hand through your financial planning journey, providing you financial solutions catered to your needs while explaining the mechanics of each product to ensure you understand what you are purchasing.
Time is on your side, so don't make the mistake of starting your personal finance planning only when you're in your 30s later.
Income offers savings and investment-linked plans that meets the protection and investment needs of young adults like you. For savings plans, you can chat instantly with an advisor today. If you’re happy with your choices, you can even buy selected savings plans (including Gro Secure Saver) online! For investment-linked plans, connect with an advisor today.
This article is meant purely for informational purposes and should not be relied upon as financial advice. The precise terms, conditions and exclusions of any Income products mentioned are specified in their respective policy contracts. For customised advice to suit your specific needs, consult an Income insurance advisor.
This advertisement has not been reviewed by the Monetary Authority of Singapore.