Important lessons on personal finance are not typically taught in school. More often than not, it is when we go through life, and sometimes through trial and error, that we pick these up. There are even times when we are not aware of the essentials and continue to practice bad financial habits, leading to unfavourable financial situations later in life.
As a student, the best time to start learning about personal finance is now. Not only will it improve your current situation, but it will also give you the proper tools when you become a working adult and beyond.
Here are four tips on how you can manage your personal finances as a student:
1. Increase your cash inflow whenever possible
Cash inflow is the total amount of money coming in. Increasing it is perhaps one of the most fundamental aspects of financial planning, given that if you have a decent amount of money coming in, you will have a greater capability to save and do more with your savings, thus leading to even higher cash inflows. No matter whether you are a student or a working adult, if you are able to increase your cash inflow, you will face fewer financial issues.
As a student, you should undoubtedly allocate time for your studies. But if you have spare time, there are plenty of ways to earn that extra income. For example, you can work part-time, learn more about investments, or even start a small business. In fact, with a greater push towards digitalisation in Singapore, there are many ways to make money online, in the comfort of your home.
Having said all that, if you intend to focus solely on your studies and just depend on your allowance, that is perfectly fine. Just make sure to set aside a comfortable amount for savings.
2. Be deliberate in what you are spending your money on
Although we may not be fully able to control how much we bring in, what we spend our money on is entirely within our control. It is thus important to recognise the three pots of what our money is used for: “needs”, “wants”, and “savings”. Each serves a different purpose, and you generally want to have more “savings”.
To tie these three pots together, you should set a budgeting rule, where you specify a percentage of your income or allowance for each pot. One common budgeting rule is the 50/30/20 rule, in which 50% of your income/allowance goes to “needs”, 30% goes to “wants”, and 20% goes to “savings”. However, this is not a hard and fast rule, and you should tweak the allocation based on your circumstances.
Budgeting can sometimes be seen as a chore (until it becomes part of your routine), but it is a good discipline to cultivate, especially if you start a family and have many expenses coming in.
3. Prepare for emergencies
No one knows what the future holds, but we can very well prepare for the unexpected.
The first thing you can do is hold emergency funds, which can be used when you find yourself in a sticky situation where there is no money coming in. As such, these funds should be placed in highly liquid instruments (e.g., bank savings accounts) and typically left untouched.
Next, it may be time to learn about the various types of insurance in the market, particularly health insurance. Health insurance, or medical insurance, ensures that if an accident or illness were to happen, bills at the hospital can be well covered. This will make sure that you need not dig into your hard-earned savings or rely on your parents to foot the bill — they still need to save for their retirement.
4. Do something with your excess savings
In Singapore, or in any developed country, it is normal to experience a rising cost of living. Thus, we must expect things to be more expensive in the future.
What does this really mean to you? If you were to leave excess money in the bank, the value of it would be reduced over time, as the interest given won’t be able to beat inflation.
There are different types of investments, ranging from low-risk to high-risk. Of course, the suitability of these investments depends on your goals and risk appetite. Not everyone can stomach double-digit drops in their investments. So instead of scrolling through the next Tiktok video or deciding what netflix series to watch, why not start learning about investment or even start a side hustle.
In summary, these are some of the basics of personal finance you can apply as a student. As this entire topic can be daunting, do take small steps to learn about it.
Brought to our students by SmartWealth Singapore. Learn more about the different types of insurance in Singapore today!
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