To #YOLO Means I Have to Work Harder on Early Financial Planning
Lifestyle | 01 Oct 2019
I was told that to lead a #YOLO lifestyle also meant that I have to work harder on early financial planning. Financial planning has been consistently preached to millennials, but what exactly is financial planning?
Simply put, financial planning is coming up with a detailed financial plan on how a person can meet his/her long-term objectives, like buying a house or car. This includes having enough income after retirement. This does not bode well especially since Singapore has been ranked as the most expensive city in the world to live in according to the report on the annual worldwide cost of living by the Economist Intelligence Unit (EIU).
Having sufficient financial resources will better prepare for the rise in the overall living expenses in the country. How do millennials exactly go about financial planning?
I have lived that, and here are some tips to share on early financial planning:
1) Start Early and Use Your Age to Your Advantage
Saving up is the oldest trick in the book to retire comfortably. To start to plan ahead rather than procrastinating to a later stage, I was able to save more money. Additionally, with a longer time horizon, the amount I set aside for savings regularly is much less than if I started properly saving money 10 years later.
2) Never Underestimate The Power of Compound Interest
I took advantage of compound interest. I first came across this term back then during Economics lectures in Junior College, defined as accumulated interest earn overtime. Interested to learn more, I became a self-starter. I read up on different savings plans with a small sum of savings under my belt (see point above). Get rich quick they said! A small amount of interest compounded overtime did great wonders – and well over what I have expected.
Scenario: Start saving $2,400 a year (that’s $200/month) from the age of 25 at a 5% interest rate per annum, and incur over $150,000 of savings by 60 years old. Say you save the same amount annually but at a much later stage at 40 years old, your 20 years of saving will only hit $90,000.
3) Consider Multiple Stream of Income
Hustle hard, am I right? Having multiple streams of income than a main source of income will give you more financial security. While I highly encourage millennials to moonlight and source for freelance opportunities, a better consideration is having your money work for you.
For example, rather than just setting aside savings in the bank, look at other sources of income. Low-risk plans like savings and endowment plans, especially. Diversifying income sources is a safety net in the event when our investments disappoint during market mayhem. Additionally, multiple income streams will keep your financial plans on track.
4) Discipline Yourself to Save Regularly
In order to save up feasibly, find the key to your self-discipline to save on a regular basis. Only spend what is left after savings and not the other way round. Indubitably, it’s hard to save up when you have the weekends out splurging money on your #TGIFs. #Hashtag #BeenThereDoneThat #AmIRight?
Consider endowment plans instead. An endowment plan is a form of forced savings that, for its meaning, ‘forces’ you to save a certain amount on a regular basis. Endowment plans typically range between as short as 3 years and 20 years. For millennials, commitment tends to be a big issue. And that’s ok; short-term endowment plans provide fluidity and special exclusions for free withdrawal without penalty. Most of all, you can save for as low as $5,000 and enjoy a guaranteed return of 2.25%. Read more.
What do you think about early financial planning? Comment down below. Meanwhile, seize the day!