Money Matters: What You Need to Know

Throughout our formal school education, hardly anyone teaches us about managing our finances. 

Sure, we might learn about compound interest and economics and tuition fee loans for the sake of our education. But no curriculum ever dives into detail about what kinds of savings plans or investment plans you need for the future. This may seem like a non-issue to some, but as we get older, we might realise that our peers are much further ahead in terms of financial literacy and money management, leading to feelings of inadequacy or even actual financial struggles.

That’s why we’ve compiled 5 handy tips for you to get started with knowing your finances and planning for your future! We won’t go into detail about each type of investment — there is a lot! — but we’ve included some great links jam-packed with helpful information.

1. To get started, you need to save first

In order to increase your wealth through investments, the first step is always to start saving. That way, you’ll be able to invest sums of money each month without constantly feeling tight on cash, especially since most students or fresh graduates don’t have a mid-high range salary.

Here are some good ways to save:

• Have a side hustle. It doesn’t have to be complicated or stressful; it could be something as simple as selling your old clothes, selling handmade art or trinkets, or even taking on freelance jobs that allow remote working.
• Set a monthly or weekly budget. Without a budget, you might be prone to overspending. Track your expenses using a finance or accounts app to see how much you usually spend during each time period. Then, set a reasonable budget that allows you to live comfortably but not spend too much.
• Find cheaper alternatives. This comes in many different forms. For example, instead of buying that premium bubble tea for $7, you could get a simpler yet equally tasty option for just $3. It may not seem like much, but all these savings add up.

When you’ve saved up enough to feel comfortable splashing money on pricier products, hold on to your wallet for now. Start thinking about investing instead.

2. Read up about savings plans

Most financially-savvy people will know that it’s not very productive to keep your savings in a bank account without any returns. Instead, it’s better to shift to a savings account, which is a bank account that gives you monthly interest.

Depending on how much money you have stored in the savings account (the minimum amount is usually $1000), you’ll earn interest either monthly or yearly (per annum, or p.a.). You typically won’t withdraw money from these accounts, but you’ll add part of your monthly income in, let the money stay there and accumulate interest. The more money you store, the more interest you’ll earn. 

This is different from a checking account, which is what most of us probably already have. We simply use these to securely store our money and make daily transactions, without earning interest. 

You can check out various websites for information on the different kinds of savings accounts with the best interest rates.

3. Get to know basic investment plans

There are several different types of investments you should know about.

There are growth investments, such as shares (also called stocks) and property. These investments are highly subject to changes in the market, but they provide much higher returns over time. It is recommended that beginners in investment should follow Bogleheads’ 3-Fund Portfolio, which is a simple guideline on the 3 things one should invest in to get the highest returns while spending as little time as possible. These 3 things are local stocks (the easiest to start with!), international stocks, and bonds. Check out a simple, Singapore-based guide to the 3-Fund Portfolio here!

Property investment comes in two ways. The first is to purchase a second home, which will increase in value over time due to developments in the area, such as the building of train stations, new shopping malls or tourist attractions. The second is to rent out your home or part of your home to earn rental income. However, you need to have enough money to purchase a home in the first place.

You can also try defensive investments. These are focused on bringing in a consistent amount of income, rather than achieving high returns. The savings plans that we talked about earlier are a form of defensive investment. Other types of defensive investments include endowment funds and bonds.

Endowment funds are investments that include an insurance plan for you. Every month, you put in a fixed sum of money, and you’ll be paid interest over time. The money you put in will become the insurance premiums you would normally pay. This is a relatively simple and low-risk investment plan, starting from as little as $50 per month. Check out some of the best endowment plans here!

Government bonds are a type of defensive investment and are also known as fixed interest investments. This is when the government borrows money from investors and pays them back with interest. The interest rate increases over time and peaks when the investment matures. However, investors can choose to withdraw their bonds at any time with no penalty, unlike other corporate bonds. In Singapore, the Singapore Savings Bond (SSB) is one of the most common bonds.

4. Understand the risks

For all types of growth investments, the returns on investment (i.e. the money you earn from investing) are high, but so are the risks. This is because shares tend to fluctuate rapidly depending on market conditions. It’s important to start thinking about growth investments early, but you should only start investing when you have a stable income, paid off your debts and have enough savings to lose some money initially.

Defensive investments have lower returns, but are relatively stable. For example, bonds are held by the government, which means your funds are secure and you are guaranteed to receive a stipulated amount of interest in return. If you’re a beginner, you’ll want to find an investment plan that is comparatively low risk, but with relatively high returns. You can then work your way up to even higher returns as you gain more experience.

5. Be consistent and patient

The word ‘investment’ already implies being forward-thinking and looking towards the long term. At the start, you might be earning only a few dollars in interest, and if you embark on higher-risk investments, you might even lose some money. But don’t quit just because you haven’t gotten immediate returns; at the end of the day, it’s all about being consistent with the money you put in, and being patient to see the results. 

When done correctly, investments can be very helpful in giving you some passive income to do things you enjoy, or to stow away for rainy days. Unfortunately, many of us don’t have the right resources to learn more about investing in our early twenties. We hope this article is helpful in getting you started on investments and planning for your future!

• Investments
• Planning
• saving money in college