Have you ever found your dreams affected due to a lack of money? Perhaps you want to spend a year travelling across the world before you are 30? Or take half-a-year off from work to pursue a passion like DJ-ing, which you eventually hope, could become a career.
Dreams come in all shapes and sizes but what most of them have in common is that they require money. Sometimes, it is not the dream per se that cost money, but rather, the money needed to take time off work to pursue it.
Here are some financial planning tips that will help you before you embark on your mission in accumulating enough money to fulfill your dreams.
1. Dreams require planning
Don’t spend all your time planning on your yearlong trip and forget about planning on your finances.
Actor Darren Lim is a good example of how planning should be done. The local actor is intending to take a yearlong sea expedition next year with his entire family. Darren has not only been doing his research on the itinerary of his trip, but has also been working hard to save up for it. He estimates that the trip will cost him about $100,000.
The idea here is to set a target for yourself. This target should include how much you need, the timeline, and how you intend to work towards it. Stick to the plan.
2. Dreams require efforts in saving
You might have worked out the cost of your dream to be $30,000. The next step you need to take is to consistently start saving HARD towards it. Set a separate bank account just for it and slice up the ATM card. You don’t need it.
$30,000 is a lot of money but there are ways to get there. For starters, your end-of-year bonus should just go straight into this saving account. Assuming you make $3,000 a month and receive a 2.5 months bonus annually. That’s $7,500 extra a year.
Setting aside 20% of your monthly salary towards this dream is not impossible. It may require effort in adjusting your monthly expenses so that the amount can be saved. $600 a month equates to $7,200 a year. Add that to your bonus and you get $14,700. 2 years is what you need to accumulate the amount.
3. Dreams require knowledge for investing
One way to attain the amount you need quicker is to invest and earn interest along the way on the amount you have already saved. It is important to take note however that not all investments are created equal.
For example, most people equate investing to putting money into the stock market. However, what they fail to realise is that the volatility of stocks make it a bad instrument to be using if you have a time horizon of 2 years or less.
The right way to approach investing is to first know your investment time horizon. If it’s 2 years or less, forget about investing in stocks and instead put your money in a saving account that gives a reasonable interest rate. A save-as-you-earn account with your local credit co-ops is also a good alternative.
If your investment horizon is 7 years or more, investing in the stock market for additional returns would be a logical choice. Inclusive of dividends, the 10-year annualised return for the STI ETFs is about 8.4%.
Read Also: Investing In Short And Long Term Dreams
4. Dreams require risk management
If you are putting your money in a riskier asset class such as stocks, you need to do some risk management.
The straightforward (and rather uneducated) way is to save money and then buy 2-3 stocks that you “think” will perform well. This isn’t ideal for many reasons. We will name two.
1) Most of us are not fund managers or stock analysts. Taking the time to analyse 50 – 100 companies and then to choose the best 2-3 companies (in our opinion) is likely to be beyond us.
2) Timing the market on when the best time is to buy the company’s stock is probably not the best idea either. We may just end up buying in on a stock just as it is starting to trend downwards.
Some easy ways to manage your risk would include buying into a portfolio of diversified stocks to spread your risk across different sectors and to do a simple dollar cost averaging when entering the stock market. Dollar cost averaging allows you to accumulate more shares when the prices are low and less shares when the prices are high.
5. Dreams take time
The best thing you can do for your dream is actually to just give it more time to grow by planning early. Planning early has a few key advantages going for it.
Firstly, by planning earlier, the amount you need to set aside for your dream each month would be lower. It would be less restrictive on your monthly budgeting and will give you breathing space for other important things in life.
By planning earlier and giving yourself a longer time horizon, you are also able to tap on higher returns asset classes and have more time to ride out the highs and lows of the market.
Kick-start your dream today
United Overseas Bank (UOB) is inviting Singaporeans to share their dreams online at uobdream.com.sg. The best part about this is that UOB will be giving out 3X$20,000 worth of units in unit trusts from UOB Income Builder. Voters who vote for the best dream also stand a chance to win $1,000 worth of units in Unit Trust. This contest ends 2 August 2015, so hurry.
Regardless of the dream that each individual has, the most important element about this competition is the emphasis that is being put forward through this competition. And that is the fact that dreams usually require sufficient money to accomplish, money that takes time, planning and discipline to accumulate.
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