4 Money Habits to Follow For Your Financial Freedom

Money. It’s a part of life and it’s often a topic not many of us actually want to discuss. That may come down to a variety of factors, whether it’s to do with the way we were raised to interact with money or how being candid about money just isn’t de rigueur in society.

Regardless of the reasons, shining more light on how we approach money and how to better manage our financial health can only be a positive thing. That’s why instilling healthy “money habits” from a young age is so important.

As part of that journey, investing really is a big piece to solving the financial puzzle of life. Of course, investing has to be seen in the context of broader healthy money habits. That’s why POSB’s Money Habits are such a great framework to start with.

Four money habits to build on

It looks at four crucial life stages of our money journey and looks to instill the right habits in each. First off, there’s SAVE, which means regularly putting away at least 10% of your salary in cash and aiming to build up an emergency fund worth at least 6 months of your expenses.

Next, there’s PROTECT – which essentially tells us to do what it says on the tin (i.e. buy protection via insurance) because we’ll never know when we’ll need it but starting early can help us lower premiums when we’re older.

Third is the aim of how to GROW our wealth. For that, we need to invest regularly and consistently to properly reap the benefits of compounding. By aiming for a set percentage (say 10-20% of take-home pay), we can build out an investment plan that can help us achieve our financial goals.

Finally, there’s the RETIRE stage. This is where we should be generating stable and passive income flows and ensuring we have met specific targets, like the CPF Full Retirement Sum. So, now you’re aware of the four money habits, how do you actually put it into practice?

Focusing on your own goals

I always say this to anyone who say “what do I invest in”? There is no right answer to that question because every individual is different in terms of what their life goals are and what their risk tolerance is.

The one thing we all have in common is that we must invest for retirement given the below-inflation returns that “risk-free” assets, such as Treasury Bills (T-bills), give us.

In that sense, how you invest (and even how much you regularly invest) will all depend on the type of lifestyle you want to live in retirement. Are you shooting for Lean FIRE (Financial Independence, Retire Early), where you live a minimalist lifestyle and live frugally forever?

Or are you more of the Fat FIRE type, where you want to indulge more freely in things like travel, dining out, and entertainment when you’re done working full-time?

Of course, the pots of money required to meet those two goals will be vastly different and, thus, will require different investment approaches and time horizons. Whatever your goals, POSB’s Money Habits framework can help instill better habits that you can carry with you for life.

What life stage are you in?

When I think about investing, I like to focus on doing it regularly and consistently through “dollar cost averaging” or DCA. Why? Because it takes the emotional aspect of investing out of the equation and we all know we can make silly decisions with our investments if we’re emotional.

Take myself. I’m in the stage of my life where I’m looking to accumulate more assets and invest a higher percentage of my take-home salary each month. I aim to retire by the age of 55 and when I enter my 40s, I will be looking to adjust my investment allocation.

That’s because I’ve run the numbers and aim to become more conservative as I approach my desired retirement age.

However, retirement now doesn’t necessarily spell the end of all paid work. That’s especially true living in today’s society, where people are living longer.

Indeed, many individuals now choose to go down a third route; “Barista FIRE” – which refers to supplementing your retirement income with part-time paid work.

The power of habit

One of the best ways to get started, whatever life stage you’re in, is to instill good habits. There are three core habits that we must start to practice, day in and day out:

1. Starting small

2. Starting NOW

3. Staying the course

By starting small, we give ourselves less of a mental hurdle to overcome to actually begin. The hardest part about money and investing is just starting the journey so, by starting with small amounts monthly, we can get off on the right foot.

When it comes to starting now, it’s the age-old saying that the “earlier we start investing, the better”. Well, the same goes for money in general. The earlier we identify our long-term financial goals and build a plan to reach them, the easier it will become to manifest that.

Take investing. Being invested longer gives you a better chance of higher compounding returns over time. Essentially, we want to have time on our side and that only happens if we start today.

Finally, we need to be consistent. We can’t let market movements or gyrations in our portfolio blow us off our financial course. By adopting a clear financial plan, with specific milestones, we can better track our progress and work towards periodic goals.

This progress will obviously take time but by staying committed to our plan and instilling those positive habits means we can make them part of our routine in life.

Every person is different

Finally, it’s important to remember that someone in their 40s with two children will have a completely different time horizon and investing risk profile to someone in their early 20s who’s just starting their first job.

In other words, remember that each person has very specific life goals when it comes to money and you will likely be different to your friends and family in terms of your own goals.

What does bind us all together, though, is the fact that practicing good money habits is crucial to our financial health.

A good money habit goes a long way. Find out how you can start adopting better money habits today, for a more secure tomorrow, via POSB’s latest campaign: https://rebrand.ly/4mh-ttm2

Disclaimers:
The content here is for informational purposes only and should NOT be taken as legal, business, tax, or investment advice. It does NOT constitute an offer or solicitation to purchase any investment or a recommendation to buy or sell a security. In fact, the content is not directed to any investor or potential investor and may not be used to evaluate or make any investment. Do note that this is not financial advice. If you are in doubt as to the action you should take, please consult your stock broker or financial advisor.

Disclosure: This post is sponsored by POSB. All views and opinions expressed in this post are from Tim Phillips.

This advertisement has not been reviewed by the Monetary Authority of Singapore.