5 Financial Decisions That Your Future Self Will Thank You For

We have all heard the familiar adage about saving money for a rainy day, yet many often say, “I wish I had saved more money when I was younger”.

As time passes, our hopes and aspirations evolve, and so do the resources required to fulfil them. This includes everything from ensuring your retirement to buying the home of your dreams. In time to come, it is likely that you will find yourself having to prioritise your funds for certain wants and needs.

The last thing you want is to look at one of the most important needs – your retirement – and realise that you are falling short of your goal.

1. Start saving as early as you can

Time is your ally when it comes to planning for your financial future. The earlier you start saving, the better. More choices will be open to you when you have more resources saved. This also means that you can start investing earlier and enjoy more compound interest on your investment.

For example, once you set aside enough for your retirement or create enough income streams to fulfil your retirement needs, you can turn your energy and money towards other aspects of your life.

You will also feel less pressured to scrimp and save on even basic things such as food. Saving early allows you to enjoy more later, at a higher quality.

2. Keep tabs on your retirement savings

Keeping an estimate of how much you need in retirement savings will help you manage your finances as you go through life. A good first step is to take stock of how much you spend every month now, and what you would consider necessities, such as food and water.

Using this amount, you can calculate how much you will need to sustain your life every month of your retirement, in future. Adding a buffer of 20% to this figure will also help give you some breathing room in case of unexpected lifestyle changes.

Be sure to account for inflation! It has a huge impact over long time horizons.

3. Maximise your usage of CPF accounts

While CPF contributions are compulsory, it is wise to treat CPF accounts as the cornerstone of your portfolio since it can help provide basic needs such as housing and healthcare. While not a liquid asset, it can provide the foundation for your retirement plans, and it can also be used for investing.

Even if you are a self-employed person, CPF accounts can provide advantages that investment vehicles generally do not provide. They come with stable yearly interest rates on your CPF funds, so you can benefit from compound interest without worrying about losing money.

4. Buy insurance

Insurance protects against unexpected changes to your life. If you fall gravely ill unexpectedly and need some financial support while you recover, your savings may not be enough. Draining your savings would also set you back several years, preventing you from achieving your life goals.

Having insurance allows you to go about your daily life in peace without having such concerns. You may never need to file a claim, but you will also have had many nights of peaceful sleep.

Also, insurance is more affordable when you are younger. If you delay your purchase, you are likely to end up paying more for the same coverage later.

5. Build multiple streams of income

Investment has its risks, but it is also a good supplement to your work income. Being fit and able to work is a blessing, but there is always a possibility that illness or injury can stop you from earning an income. The earlier you start investing, the more compound interest you can earn, and the easier it will be for you to sustain or improve your quality of life later.

Building multiple income streams using different investments also diversifies your risk, so you will be unlikely to lose all your money in one go if there is a market downturn.

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