Republic Polytechnic


OSG Monthly
 Office of Student and Graduate Affairs
January 2012
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ADVERTORIAL
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Student Wellness
 

Financial Wellness: Managing Money for First-Time Income Earners

Article contributed by DP Credit Bureau (www.dpcreditbureau.sg)

You finish school. You find a job. Buy your first car and your first house. Settle down and start a family. Retire happily with lots of money in the bank.

Dreams come true for a lucky few. For others, life is a series of financial challenges. Without financial literacy or advice, many have to figure out how best to manage money. Some live day to day, allowing the demands of the present to swallow up both money and time; watching money coming in fast and going out even faster. At this critical stage, one financial misstep could mess up your future.

Managing your money is essential when it comes to planning your future. Thus, here are 6 things you should know about managing your personal finances:

  • Create short- and long-term financial goals. By creating some realistic financial goals in life, you can aim to turn those dreams you have into reality. Your dream car or house may not look so distant when you plan for it early! Aim to pay off that student loan or finance that short holiday with your friends; these are some of the short term goals you can aim for. Saving up for that car you've been eyeing or that condominium you desire are some examples of long-term financial goals you could aim for. Be specific in the details, such as exactly how much you want to save over a designated period of time. These goals will help you know how well you have been managing your money and it also motivates you to be disciplined in your spending.
  • Create a budget for your monthly expenses. Many fresh graduates make the mistake of spending whatever they earn. Save some money by sacrificing that premium coffee for a more affordable option. Rather than living within your means, try living below your means. By creating a spending plan and paying attention to where your money goes, you learn self-control. Meet your needs, but hold off on your wants, then save any extra into your bank account. Be consistent with your savings and it can go a long way to making that dream a reality.
  • Start an emergency fund and a savings fund. As you've probably heard somewhere along the way, it's always good to save for a rainy day. The rule of thumb is to put 20% of your income aside every month to save. Once you've saved the equivalent of 6 months of your income that will become your emergency fund. This fund is not to be touched unless there is a medical emergency or if you get retrenched and need support while in between jobs. After you have saved enough for the emergency fund, continue setting aside 20% of your income into a savings fund that will be used to meet the short- and long-term goals you have set. With the help of a financial planner, you could look into investing these savings into unit trusts, bonds or stocks.
  • Avoid consumer debt if possible. Avoid borrowing when possible but if you have to, borrow only what you need and not anything more. Make sure you pay promptly or risk being charged an interest rate as high as 24 percent a year. In the end, you may find yourself paying substantially more than you had borrowed initially.
  • Get an insurance policy. This may seem like a waste of money because the last thing you'd want to think about is sickness and death. But 10 years down the road, it will be a good investment. Protect yourself and your family by investing in whole-life insurance, rather than investment-linked Insurance. No one is immune from sickness, so don't take the risk of not having a policy.
  • Build a good credit report. A study of 600 students from 10 tertiary institutions, between the ages of 18 and 25, conducted by Nanyang Technological University showed 9 in 10 students have no idea what a credit report is. Credit reports contain your credit history and are used to decide whether you are a risk to lend money to. A bad report might lower your chances of getting a loan or may cause you to be given a higher interest rate for the loan. Just one missed credit card payment will blemish your credit report for 7 years. Protect and improve your credit reputation by paying your bills on time, paying down your debts and staying out of bankruptcy. Who knows when you might need a loan in the future? All you have to do is to check your credit score with a credit bureau every 6 months. Check that it reflects you accurately and in doing so, would help you maintain a good credit image.

These 6 tips would help you to learn to manage your money before it manages you.
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