5 Retirement Expenses to Prepare for

How does your ideal retirement look like?

Retirement planning is one of the major components of any financial plan. It allows you to build for the future based on your current circumstances.

While we can’t see the future with a crystal ball, what we can do is to plan for it.

Some of the most common retirement expenses one should plan for are:

Housing

Housing is a big expense no matter what stage of life you’re in. While the majority of retirees own their own homes, some still have to factor in mortgage or rent payments.

Transport

While you’ll no longer use your car for commuting to work, transportation is still a large expense. Insurance, gas, and repairs should be part of your budget. If you live in a city with public transport, see what senior citizen discounts you qualify for.

Health Care

According to a report by Asia-Pacific Risk Center, an average of US$37,427 will be spent on healthcare for each elderly person by 2030. It’s important to note that MediShield Life doesn’t cover some health care expenses like dental work, glasses, hearing aids and long-term care.

Food

As long as you aren’t planning on dining out regularly, your budget for food shouldn’t increase significantly. At the same time, you’ll have more time to cook meals at home.

Entertainment

How would you like to spend your retirement? Think about expenses for travel or even local entertainment like movies, museums, or concerts.

6 Ways To Have Minimum Debt For The Holidays

Christmas is almost here, meaning the shopping season is in full swing. Between gift giving, travel and holiday parties, the expenses add up quickly this season. Many find themselves struggling to figure out a way to pay for it all, and turn to credit cards so they can afford the holidays.

For those turning to cards this year, here are some tips to keep your debt to a minimum:

Create A Budget

The holiday season should not be an excuse to spend wildly. Just like other purchases throughout the year – determine how much money you can afford to spend. If you are using a credit card, you are borrowing that money, which means you can not afford it.

Have A Plan

Make a list of exactly who you plan to buy for and what you want to give them. Once you’ve bought their gift, cross them off. Don’t give in to the temptation of buying additional little gifts throughout the season that are just “perfect for them”. This also goes for who is on your list. You are not Santa, and thus not expected to buy for everyone you know. If you are worried that someone not on your list may have a gift for you, keep a few bottles of wine wrapped up under the tree in case they pop by.

Get Creative

If you have a large group of friends, colleagues or family, instead of buying for each person, try secret santa or white elephant gift exchange.

Borrow Party Clothes

Instead of spending a fortune on a new dress for your work party, see if you can borrow one from a friend.

Sell old items for holiday cash

Go though your clothes and sell the stuff you never wear on Carousell or Refash. You can also post items for sale on Facebook. Holiday Cleaning can especially be a win-win when it comes to kids toys – tell them that to make room for their new gifts, they need to give away the items they don’t play with anymore.

Pay it off quickly

If you do wind up using credit cards, pay off your balance as soon as you can, within the billing cycle, to avoid costly interest charges.

2017: Try Budgeting Yearly

budgetingAs the year 2016 draws to a close, I invite you to try something different for the coming year: yearly budgeting.

If you’ve done any kind of budgeting exercise, you’ve probably made lists or spreadsheets of your monthly expenses. Things like rent or mortgage payments, utility bills, and student loan payments.

Why should we budget for a full year? It’s because if you set aside just enough money to cover your monthly bills, you won’t take into account all the unexpected or one-time expenses that are bound to happen. Such expenses do not only include bad stuffs like car repairs and medical bills. One-time expenses include holidays too!

Budgeting yearly makes it easier to save up for those expenses. By working those items into your budget, you can work backwards and save a little each month toward your goal.

If you’ve tried monthly budgeting in the past and found yourself coming up short because of unexpected expenses, try yearly budgeting to give yourself a cash cushion.

Money Advice that Don’t Grow Old

Personal finances2

Many recommendations I’ve made are as applicable today as they will be in future, and they bear repeating. Here are some of the best financial moves for you to consider:

1. Understanding and managing your thoughts, feelings, and beliefs about money is as important as understanding how money works. Our brains are programmed to make poor financial decisions. Exploring your money history and learning to identify your unconscious beliefs about money can change your financial behaviours forever. It is important to gain control of your finances and become comfortable using money as the valuable tool it is.

2. Building an emergency reserve to cover living expenses for three to months if you lose your job or experience a business slump is a necessity. If you are retired, having one to three years of cash available to cover living expenses can help you avoid taking money out of investments when their value has declined.

3. Retirement will happen, sooner than you think. Start early — as in the day after university graduation — and be consistent in investing at least 20 percent of your paycheck.

4. Learn to appreciate the word “budget”. Creating a way to track and manage income and expenses is an essential skill to thrive financially. Numerous free or inexpensive tools, like Mint.com and Expensify, can help.

5. Run from consumer debt. Personally, I use credit cards for almost every purchase for convenience and cash back rewards. However, it’s of vital importance to pay the card off every month, without fail.

6. A house is a home, not an investment. Don’t buy more home than you can afford, and don’t buy without a down payment.

7. No asset goes up forever. Price declines, even crashes, are part and parcel of investing. It’s essential to understand that the value of your portfolio will fluctuate. Be prepared to ride out downturns. Selling in a down market is a big mistake that will cost you dearly.

8. The fundamental strategy for managing market ups and downs is asset class diversification. This doesn’t mean having money in different banks, with different brokers, or with different fund managers. It’s about having a good balance of mutual/exchange-traded funds that invest in SG and International stocks, SG and International government bonds, real estate investment trusts, commodities and junk bonds.

9. There are no free investments. Pay attention to the fees associated with any investment, as well as how the advisor recommending any investment is compensated.

10. Pay yourself first. The most successful savers and investors I know simply take all their fixed expenses, taxes, and retirement plan contributions off their income earned, then spend the rest. This means learning to live on 30% to 50% of how much you earn. Certainly, it isn’t easy, but one of the most valuable money habits to cultivate is to save something for the future, instead of spending everything that comes in.

You may have likely heard of these pieces of advice before. There’s a reason for that: it works, and never goes out of style.

4 Smart Steps to Financial Freedom

Financial freedom is defined as the state of not having to work actively and be able to sustain a desirable lifestyle. You will have the ability to make choices, to spend time with your family and loved ones, to travel the world or to pursue a lifelong interest which you haven’t been able to. All these can be done without worrying about money. Read on to find out what are some steps which you can take in your pursuit of financial freedom.

1. Create a budget

budgeting

If you are earning an average annual income of $50,000, in 35 working years you will earn a total of $1.75 million in today’s dollars. If inflation averages 3%, this becomes $3 million. But how much are you likely to save? Some people may say, “If I earn more in future than what I get now, I will be fine.” But in reality, this is easier said than done.

Whether we earn $2,000 per month or $20,000 per month, we ALL have a problem with saving money. The more we earn, the more we tend to spend. People who have worked for at least a few years can testify to that. Some fresh graduates earn about $3,000 per month. Three years into the workforce, some of them draw as much as $5,000 to $6,000 per month. Guess what? They feel poorer than they first started out. This is naturally so when you have multiple credit card bills, a car loan to service, a family to support, gym membership fees and many other expenses.

Therefore, it is wise to do a monthly cash flow budget, so that you know where your money goes. It is perhaps the first step to finding the extra dollars for saving and investment.

2. Protect your family and yourself

Our government consistently sets aside 20% of national budget on defence. Without a doubt, protection is of utmost importance. Isn’t it only appropriate that we allocate 5% to 10% of our income to defend against untoward circumstances?

Once you have set aside an emergency fund of 3 to 6 months of your living expenses, you should get down to taking care of your protection needs. This essentially means insuring You, because You are your greatest asset. We should be buying as little insurance as you need. But for most people, these protection needs are quite a lot.

3. Live well below your means

frugal

Being frugal is the fundamental of wealth building. Yet, too often, we have the false impression that all millionaires lead an extravagant lifestyle, which is exactly opposite from the truth! People whom I talk to who are financially carefree are usually living well below their income. They still pamper themselves with the occasional indulgence and frequent holidays. But trust me, these people do their sums.

You should always discuss with your spouse on both your spending habits and hopefully arrive at a consensus. A couple cannot accumulate wealth if one of them is a spendthrift. Few can sustain lavish habits and simultaneously build wealth. Singaporeans generally build wealth by keeping a tight budget and controlling their expenses.

Remember, “The lower your lifestyle, the greater your true wealth”. How so? Say A earns $50,000 a year, spends $20,000 in a year and has $200,000 in saving. B earns $300,000 a year and spends $250,000 in a year and has $1.5m in saving. A is wealthier than B because if both of them lose their income, A can survive for 10 years based on his saving of $200,000 whereas B can only live for 6 years. Wealth is the duration your savings can last based on the lifestyle you are used to if you stop work now.

4. Don’t plan to save cash

Look at your monthly budget. You should have $600 left over every month and save $7,200 a year but where is the money? From my experience, Singaporean can’t save cash, or they simply save only to spend it all later. These folks faithfully put aside $600 every month, only to wipe it all off with a long December holiday. Some prefer to splurge on furniture and electronic gadgets, others on cars and home renovations. The money disappears naturally.

A typical Singaporean worker’s mindset is “I work so hard so I need to spend money to pamper myself.” Notice the logic, work hard and spend hard, work harder and spend harder. The only solution to this vicious cycle is to ensure that you have some form of disciplined and regular savings to help you set aside a certain percentage of your income every month.

Some practical tips are listed below:

  • Get yourself started in a profit participating insurance policy, variable life policy or “Buy Term and Invest the Difference”. Just get started on “something” and see it through!
  • Be persistent in setting aside at least 10-15% of your income every month; never waiver in this.
  • Immediately invest or allocate any unexpected windfall you receive, like a bigger than usual bonus. Chuck it away before you spend it away.