This article was produced in collaboration with the Ministry of Finance. All views expressed in this article are the independent opinion of DollarsAndSense.sg
“Ultimately, there’s one investment that supersedes all others: Invest in yourself.” – Warren Buffett.
Many would think of investments as a diversified portfolio of stocks, property, or even cryptocurrency. But investing in ourselves is actually a smart financial move too.
When you start working, the future looks bright and there’s regular income coming in. But what happens when there are unexpected expenditures, and you have insufficient savings?
To be good at managing finances, knowing how to save isn’t good enough. It’s equally important to know when we should spend and invest in ourselves.
#1 Spending To Improve Ourselves
When we’re young and have a full career ahead, our ability to work and generate an income is our biggest asset.
Many Singaporeans now pursue tertiary education. On average, young people may have between 13 to 16 years of formal education before entering the workforce.
In this fast-changing world, it’s important to upgrade ourselves constantly to remain relevant. Otherwise, we risk being disrupted by technology or new business models.
We can tap on schemes under SkillsFuture, which gives us the opportunity to pick up courses to strengthen our existing skillsets. SkillsFuture initiatives will help workers prepare for the future, and make them more productive and employable.
Whether it’s a full graduate degree or a short professional course, investing in ourselves and improving our employability is important, because this allows us to position ourselves well for future career opportunities.
The Government continues to invest strongly in supporting Singaporeans. Prime Minister Lee Hsien Loong in August said the Government would be making preschool and tertiary education “even more affordable, especially for lower-and middle-income families”. Additionally, the retirement and re-employment ages would be raised for those who wish to work longer.
Investing in people ensures that Singapore is able to cope with global headwinds by keeping its people resilient and able to thrive in uncertain economic times.
As a country, Singapore invests not just in our people, but also on infrastructure. Lawrence Wong, Minister for National Development and Second Minister for Finance, said that major infrastructure projects over the next decade would put our economy on an even stronger footing. These include investments into big infrastructure projects such as Changi Airport Terminal 5, transforming Tuas into a mega seaport, while also rejuvenating our heartlands.
#2 Investing For Our Future
The goal behind investing in ourselves is to create benefits that pay off in the future, making the return on investment worthwhile, while creating more value for ourselves. With the future as the goal in mind, we can also consider investments that generate sustainable and regular income.
Such investments are not just important personally, but also nationally. For example, in Singapore, the Net Investment Returns Contribution (NIRC) from the national reserves is currently the single largest source of government revenue, with an estimated contribution of $17.2 billion for FY2019, totalling about a fifth of government revenue.
This is a significant amount. If Singapore had not set aside funds to grow the national investment portfolio consistently and with discipline over the years, the funds would have to be collected from citizens in the form of extra taxes, or the country would have to cut its spending in some areas.
It was because previous generations of Singaporeans were prudent and far-sighted enough to save and invest for the long-term that today’s generation is able to enjoy substantial contributions from the national reserves.
#3 Have Multiple Revenue Stream From Our Investments
While investing in ourselves and in a solid portfolio is good, we should go a step further to ensure that we have a diversified portfolio providing multiple revenue streams. This prevents us from becoming overly reliant on just one source of income and provides stability for the future.
For example, even if we are working, we could aim to have investment income to supplement our work income. Such income can come from different sources, such as dividends from stocks, or coupon payments from bonds
Similarly, from a national standpoint, it would be healthy if a country’s revenue comes from diversified sources. For example, besides personal income tax, Singapore also receives revenue from corporate income tax, Goods & Service Tax (GST), and property-related taxes such as stamp duty. We cannot expect to keep increasing any one revenue source to fund the necessary increase in our expenditure, thus becoming over-reliant on it. Diversification is the key.
This is why the government only uses up to 50% of the NIRC to contribute to the Budget revenue – the rest is added to the reserves and re-invested. This reflects a prudent approach to fiscal spending – to spend to achieve desired outcomes, rather than spend to the last dollar available. Furthermore, as government spending needs will increase over time, it is vital to spend in a disciplined way and ensure sustained benefits.
Whether it’s from a personal finance viewpoint or a national perspective, it’s important to remember that the spending we make today (and in the future) has to be sustainable. We cannot afford to spend money today, both as individuals or as a country, without taking into account future earnings and expenditure.
Another aspect of ensuring that we achieve a financially secure future is to invest in ourselves so that we remain economically relevant, and can protect and increase our income-earning capability during our working years.
Similarly, for the government, the nation’s funds are invested so that Singaporeans can reap future dividends for spending in the future.
Continuing to invest in people and infrastructure is a far-sighted strategy to ensure the economy continues to grow, and that Singaporeans can be developed to their full potential.