Good personal finance planning is similar to having a healthy lifestyle. It requires having the right knowledge to know what is best for us, a commitment to get started, the discipline to follow the plan and the patience to reap the result over the long run.
A diet means having the right balance among the things that we are consuming. Just because vegetables and fruits are good for us does not mean we consume them excessively. The same concept applies when it comes to our own personal finance planning
Here are 6 types of financial products that we believe most people can consider adding into their “financial diet.”
1. Emergency Savings
Talking about having an emergency saving fund is as unexciting as asking children to finish up their vegetables – nobody really wants to hear about it.
Yet, building up an emergency saving fund is one of the most important things that you should be doing, even before you think of investing your money elsewhere.
An emergency saving fund protects you, your family, your assets and your mental well-being in the event of any unforeseen circumstances such as the loss of job.
Without an emergency saving fund, we could end up scrambling to find the short-term money that we need. Thus, making rash decisions like selling our stocks at bad prices or taking out a personal loan at higher interest rates. These actions only exacerbate the problems that we have.
An emergency saving fund should cover 6 to 9 months of your monthly expenses. If you find it difficult to save for such an amount after working for about a year, it might be time to review your expenses.
Read Also: How You Can Start An Emergency Fund Quickly
2. Investable Cash
Investable cash refers to money that you can use to invest immediately if an opportunity arises. This is money that you can afford to lose, or not touch, without losing sleep over. It should not be money that you might need or money from your emergency fund.
Investable cash is useful because the financial market always offers opportunities to investors. For example, if the stock market drops drastically over a period of few months, having investable cash would allow one to seize the opportunity to pick up good quality stocks at low price.
3. Straits Times Index (STI) Exchange Traded Funds (ETFs)
Most people do not have the time to monitor the market on a weekly or even monthly basis. Neither do we have the time or knowledge to analyse multiple companies and stay in touch regularly with the corporate announcements or earning reports of these companies.
The STI ETF was created to mirror the performance of blue-chip stocks on the STI. The good thing about the STI is that it is self-selecting. Companies that are bigger and better will automatically replace companies that do not perform well on the STI. By buying the STI ETF, you automatically get investment exposure into a diversified pool of the top 30 stocks on the SGX.
Read Also: Why Average Singaporeans Should Buy The STI ETF As Their First Stock
4. Real Estate Investment Trusts (REITs)
Singaporeans love investing in properties and it is not difficult to see why. In space-constraint Singapore, real estate investments are seen as a revenue-generating asset that provides a natural fit against inflation in the long run. In the short-run, real estate generates passive income through dividend payout for its investors.
REITs offer the best way for retail investors to get into the property game without worrying about other factors such as liquidity, diversity and operations of the properties. Investor can select different types of REITs such as industrial, commercial, healthcare and even data centre REITs.
Similar to investment in the STI ETFs, there are obviously risks that investors would need to bear and no guarantees that the investments would pan out. However, an investor with a long-term horizon would be able to ride out short-term volatility in the market.
5. Health And Life Insurance
A healthy personal finance diet should include adequate health and life insurance coverage. Insurance acts as a worst case “what if this happens to me” type of protection that the majority of us will need.
For example, having a critical illness policy could ensure that we receive a payout from the insurer if we are diagnosed with any of the common illnesses. The payout would ensure that our financial plans remain intact even as we work our way towards recovery.
Life insurance ensures that our financial plans are taken care of for our family if anything happens to us. All these policies are worth spending a little money on to hedge ourselves against these adverse circumstances.
Read Also: Why You Should Never Overspend On Insurance
6. Your Favourite Listed Company
To be successful in stock investing, investors need to invest in companies with business models that they are familiar with. As such, identify those companies that you are already spending your money on.
If you are a regular customer of Sheng Siong, why not consider looking at their financials and being a part owner of the company? If you are spending money daily buying Old Chang Kee curry puffs every day and are fed up with the queue, why not consider buying the company instead since it is obviously doing well.
The main advantage of investing in a company that you truly love is that you will be familiar with the brand. If the company is underperforming, you, as a regular customer, would be able to know it first-hand. You might see the regular queues getting shorter, or perhaps even stop patronising the shop altogether.
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