3 Insights To Turn Your Financial Health Pink Today

Do you worry about your health? You’re not alone. In a 2018 Mobile Health study, it was shown that almost 60% of Singaporean respondents use a fitness or diet tracking app. It is now as common a habit as that cup of coffee you never fail to buy every morning before heading to work.

However, when was the last time you checked in on your financial health? It’s a crucial aspect of life that is often neglected. A 2017 SMU survey revealed that nearly half of older Singaporeans anticipated they would struggle in retirement, and similarly, less than half considered themselves well-prepared for this eventuality. Among 1,500 Singaporeans polled in 2019, 63% of the millennial age group shared on their difficulties in having sufficient income due to conflicting financial goals; hence resulted in their struggle to stick to their saving plans.

A regular financial health check-up to re-align towards your financial goals can bring peace of mind about your future and this is ever so crucial when you live in the most expensive city in the world.

If you identified with the statistics above, don’t fret! You can get started right away towards a healthy financial status by acting on these insights based on three key monetary vital signs.

#1 Set up an Emergency Fund

An emergency fund is a sum of money you set aside for a rainy day. It should come to your aid for unpredictable life events such as accidents, unexpected loss of income or sudden, life-altering injuries that result in a financial crisis.

It is meant to be a cushion, to prevent you from incurring debt through credit cards or loans to cover your unforeseen expenses. While you may be able to rely on insurance to cover a bulk of such expenses, your emergency fund can help offset interim loss of income or additions to your cost of living.

An emergency fund should be your top priority, even before setting aside funds for savings or investments. How much you set aside, or how quickly your emergency fund grows towards your ideal amount depends on your income as well as your expenses and liabilities.

At a minimum, you should save up to six months of essential monthly expenses for your emergency fund before setting any other financial goals. You can obviously aim higher, and it’s recommended to do so, especially if you have people who depend on you financially or if you are in a career with high turnover or injury rates.

Building an emergency fund requires discipline and dedication. You can kick things off by assessing your cash flow after setting aside essential living expenses from your income. How much of this cash flow can you afford to save each month? Which splurges each month can you cut back on to increase your savings?

You may initially feel the pinch of forgoing some of the luxury you are used to, but you will thank yourself in the future whenever you find yourself in a pinch.

#2 Reduce your Debt-to-Income Ratio

The second insight towards a pink financial health is the Debt-to-Income Ratio (DTI). This is calculated by adding up your monthly debt and dividing it by the sum of your monthly gross income.

According to Value Champion (2017), the average debt of a Singaporean household is about S$57,637 per capita. This was largely made up of mortgage loans, credit card bills, car loans, and student loans. Singstat stated the median household income to be $9,023 in 2017 which equals to S$108,276 annual household income.

This indicates a DTI ratio of 53% for the average Singaporean household while an ideal DTI ratio should be maintained at 36% or less.

If you have a soaring DTI ratio, all is not lost! Start taking inventory of your debt and list them in order of their interest rates. Credit card bills and personal loans with higher interest rates should be paid off first, before you focus on paying off lower interest car loans or student loans.

Another way to manage the DTI ratio would be to boost your income, through additional jobs (yikes!) or earning passive income through shrewd investments such as property, stable dividend stocks or investment-linked products which are widely available in the market from any insurance companies.

To help you reach a good DTI ratio, consistent monitoring coupled with financial discipline through frugal spending and paying off your debts first will let you sleep easy at night!

#3: Grow your Retirement Savings For Financial Well-Being

As a Singaporean, you may feel your retirement is secured with just your CPF. After all, you contribute monthly towards your retirement fund, right?

However, additional retirement savings should still be a key financial check-point. Why? In Singapore, the average life expectancy is forecasted by World Health Organization (WHO) to rise to 85.4 years by 2040.

Unfortunately, your CPF contributions are unlikely to sufficiently cover your expenses for that long. Therefore, after setting aside money for your emergency fund and debt repayment, it is prudent to save towards your retirement - even if it is only 2% to 3% of your income every month.

By your 30s, your goal should be at least 0.4x of your annual income towards retirement, and from your 40s onwards, at least 1.2x of your annual income with the hopes of saving even more once your children are financially independent.

If you’d like to grow your savings at a faster rate, you can choose to put your money into savings or retirement plans. These plans allow you to receive 100% of your premiums upon your selected retirement age with attractive returns (given that you have duly paid all your premiums, of course!). Such plans also give you an annual income during retirement, allowing you to maintain a certain quality of life.

A survey that polled 2,000 working adults in Singapore noted that almost 75% are not on track with their retirement plans. The question is, are you one of them? It is never too early nor too late to begin planning for retirement.

Keep Working On Your Financial Health

The insights shared to turn your financial health pink can sound very daunting to overcome. However, baby steps now can snowball into financial well-being in the long run, so get started today!

Disclaimer:

This article is for general information only and does not take into account the specific investment objectives, financial situation or needs of any particular person. The views expressed herein do not necessarily reflect the views of AXA Insurance Pte Ltd and should not be construed as the provision of advice or making of any recommendation. There is no intention to distribute, or offer to sell, or solicit any offer to purchase any product. We recommend that you seek the advice of a qualified financial advisory professional before making any decision to purchase an insurance or investment product. Whilst we have taken reasonable care to ensure that all information provided was obtained from reliable sources and correct at time of publishing, information may become outdated and opinions may change. We are not liable for any loss that may result from the access or use of the information herein provided.