Why understanding personal finance is more important than ever

According to Ms Tan, we can bolster our financial literacy in three main areas, which should be done sequentially: Budgeting, saving and investing.

1. Budgeting

The first step to successfully managing our finances is to keep track of our monthly expenditure and set up a budget.

“Tracking your expenditure gives you an idea of ​​what you are spending on and highlights areas where you are over-spending,” said Ms Tan. Thereafter, it makes it easier for you to set up a budget for different categories of spending and gain greater control over your money.

2. Saving

With budgeting down pat, it’s then time to start thinking about saving. Ms. Tan noted that savings are particularly important for rainy days: “Having sufficient savings can tide us through unexpected and difficult circumstances such as retrenchment, a medical crisis or the death of a loved one.”

Knowing how much to save is also important. According to Ms Tan, saving sufficiently to cover at least three to six months’ worth of expenses is a good guideline, with this increasing to 12 months for those with more unpredictable income streams, like gig workers.

As the age goes, if you take care of the pennies, the pounds will take care of themselves. Savings accounts like the DBS Multiplier Account and POSB Save-As-You-Earn Account can help contribute to your nest egg by rewarding you with higher interest rates for reaching certain benchmarks, such as achieving a regular monthly savings threshold or crediting your monthly salary into the account.

3. Investing

Once you’ve secured sufficient emergency savings, it’s time to work that spare cash harder through investing. Among the chief benefits of investing is that over time, it can help to mitigate longevity and inflation risks. According to Ms Tan, it is critical that you understand your financial situation, objectives, risk appetite and the type of investment products available before you start investing.

You can start small with a regular savings plan like the DBS Invest-Saver where you set aside a fixed amount each month to invest in an exchange traded fund and/or unit trusts. Using a robo-advisor like DBS digiPortfolio is also an option for fee-conscious investors who want investment advice at a reasonable fee*, along with curated investment portfolios,” she said.

In the current context of the economic slowdown, rising cost of living and increased volatility in the stock markets, some investors are inclined to adopt a “flight to safety” approach, shared by Ms Tan. “Coupled with their increasing yields, low-risk cash alternatives like fixed deposits, Singapore Savings Bonds (SSBs) and Treasury bills (T-bills) have become popular options among retail investors who wish to diversify their portfolios.”

In addition to integrating these three core concepts, it’s important for people to consistently do their own research. After all, financial literacy is a lifelong journey. Said Ms Tan: “Everyone’s life goals and circumstances are different, which calls for customized approaches and solutions.”

TAPPING ON EXPERTS TO ENHANCE FINANCIAL LITERACY