5 Ways to be Financially Prudent in Challenging Times
The start of a new year is a good time to make new resolutions, and one of those changes could be becoming better at managing finances. A few ways to do so include cutting back on unnecessary expenses, planning for the long term, and investing in education.
There’s no better time to make new resolutions than at the start of a new year, and such resolutions often involve aspirations to become better at managing one’s finances. With the global economy still looking rocky thanks to the Covid-19 pandemic, the start of 2021 is shaping up to be a crucial time to form and reinforce some sensible financial habits. Here are some suggestions:
1. Cut back on unnecessary expenses
Daily routines have changed drastically for many people in the past year as work and school shifted online, and daily expenses have changed accordingly. If you found yourself ditching your gym membership when your gym closed during the circuit breaker, or cooking at home more often since slashed capacities and public health concerns made eating out a hassle, you’re not alone.
In Singapore, one survey noted that about 27 per cent of 1,000 respondents had increased their savings. For many, slashed budgets are a response to slashed incomes and the prospect of lower incomes in the near future. Even if you’re lucky enough to be unaffected by the past year’s job market turmoil, the general uncertainty in the global outlook is reason enough to take serious stock of your spending habits.
If you’ve been cutting back on unnecessary expenses, keep that thrift going in 2021. More importantly, take a closer look at your budget, and make sure you are being proactive and disciplined about things like building up that rainy day emergency fund.
2. Think long term
It’s important to keep the big picture in mind when the going gets tough, especially for younger people who have the advantage of time to cultivate healthy finances. List the big-ticket items, like property, that you are aiming to invest in the near future, and make a plan to get yourself in good financial shape to do so. Or, think about what you want your retirement years to look like (yes, even if you’re only 22 years old), and start to plan accordingly.
For instance, make it a priority to eliminate high-interest credit card debt if you have any. Research low-risk financial instruments that will allow you to grow at least a portion of your savings, albeit at a modest rate in the current low interest rate environment. Do not skimp on necessities—insurance plans for medical expenses are also wealth protection instruments—unless you want your savings to be wiped out by healthcare costs.
3. Invest in being a good student
Investing is an important part of a balanced financial portfolio, but it can be a double-edged sword. Controversial trading app Robinhood, for instance, has drawn criticism for marketing to its millennial customers strategies that aim to make retail investing an addictive habit. It takes time and experience to learn how to make sound investing decisions that are right for your long-term financial goals, and getting advice from trusted mentor figures in this often-volatile activity is a good idea. Also consider marking your learning curve over a low-stakes period. Track different stocks and market trends by giving yourself an imaginary sum of money to invest, and see how your information-processing skills and decisions pan out on paper over a period of time before you start to put real skin in the game.
The stock market is hardly the only area of study worth pursuing; your education is a long-term investment in your future. If you are in a position to do so, consider upgrading yourself by signing up for the many online academic or professional courses offered by established institutions now. While these are usually not free, they do tend to cost lesser than physical classes. Another plus: geography is no longer an issue for online classes, so cast your sights wide and take full advantage of borderless learning.
If you are struggling to cope with tuition fees and other education-related expenses right now, try seeking the help of financial assistance schemes offered by your school and relevant community organisations.
4. Generate more income
Juggling a heavy work or school load with a part-time job may sound like a massive endeavour. However, income from part-time work can go towards your savings or expenses such as tuition fees. In fact, in the US, 43 per cent of full-time undergraduates were employed while they were in school.
Time is money, so time management is key when it comes to juggling a side hustle. This may involve being incredibly disciplined when it comes to allocating your time, and cutting out distractions like social media or online games when you are supposed to be catching up on reading or working on a presentation to optimise time efficiency.
5. Find a healthy balance
Life is about balance—a spartan existence where you obsess over every decimal point in your bank account at the expense of all joy is hardly a great way to sustain financially prudent habits. So, while it is important to be sensible about saving, investing, and earning money, it is equally important to know when money is well spent.
Again, that means different things for different people. For some, it could mean buying equipment that will help you master an enjoyable sport that keeps your body healthy and your mind alert. For others, it could mean buying ingredients for a home-cooked meal where you get to connect with friends and family. Fundamentally, balance is about learning what true value means, and how the saving and spending of money can help you to achieve it.
Learn more about the financial assistance schemes available to undergraduates at SMU.
