10 good money habits to pick up
January 6th, 2009 by ALVIN SOONG
The Straits Times recently compiled the 10 good money habits one should have:
1 Take stock of your cash position
2 Set a realistic budget. Review every 12 months, or when your circumstances change, such as when you receive a windfall or inheritance, or when you have a new addition to your family.
3 Paying yourself first. Have a disciplined approach to saving. Buy in one go rather than make frequent shopping trips because you tend to spend less with fewer trips, and look for cheaper alternatives or substitute goods and services if you need to spend.
4 Start a regular savings plan. When building your liquidity, look out for regular savings plans that pay higher interest rates.
5 Managing your debt. A healthy debt servicing ratio - derived from debt divided by income - should be 35 per cent or less. (eg. Out of every $1,000 of after-tax and CPF income, you should spend $350 or less in debt repayments).
6 Adopt a long-term view for investments. Don’t neglect long-term savings and investment needs when faced with the current short-term economic challenges. Take the long view that the current crisis may drag on longer than expected.
7 Understand your risk appetite
8 Go for low-cost and resilient funds
Firstly, it recommends only funds with a track record of at least three years.
Secondly, fo for funds with lower expense ratios - what investors pay to the fund manager on an annual basis. (Eg.For bond funds, low expense ratios could range from 0.25 to 0.75 per cent, depending on the nature of the fund. For equity funds, which are actively managed, a rule of thumb would be an expense ratio of 2 per cent and below).
9 Contribute to the Supplementary Retirement Scheme (SRS)
(However, do note that withdrawals from your SRS account before the retirement age of 62 is subject to tax and incur a penalty of 5 per cent. After the retirement age, withdrawals from SRS are still subject to personal income tax, but one can choose to spread the withdrawals over 10 years, and only 50 per cent of the withdrawals will be taxable. This means that a retiree who has no other income at the age of 62 will be paying zero or very low tax when he withdraws his SRS funds as he will fall under a low tax bracket. This reduces tax payable since it is a deferred tax scheme. At 50 per cent tax savings, SRS funds that are withdrawn over 10 years will incur zero tax if the chargeable amount for tax computation is less than $20,000.) - Search on other articles in my blog on SRS
10 Pick robust stocks
It is advisable to invest in blue-chip companies with established business track records and sustainable business models. This is vital in recessionary market conditions, as it means that the organisation will have the right business models to ride out difficult times. Another factor to watch out for is the management of firms, since they are the drivers and executors of the business. It is important for the company to have a strong balance sheet and cash flows. Valuations tell you whether the stock is worth investing in. (Don’t be surprised if the stock market decouples from the real economy in 2009 and shoots up towards the later part of the year. The Straits Times Index made powerful runs in 1998 and 2003, two of the worst years for the Singapore economy over the past decade).
