What to do with your first pay cheque
Getting your first pay cheque is one of the most exciting and memorable things that can happen in your adult life. For the first time, you are earning your keep and handling the responsibility of managing your own money. But it can be daunting as well – how are you supposed to set aside or use the money?
Your money habits can determine how your future looks like. If you give in to material desires every month instead of saving for a rainy day and your future, you could be in trouble when a crisis hits. A pandemic, bad health or a job retrenchment can quickly leave you with no income and no emergency savings to see you through the tough times.
Thus, it is extremely important to inculcate a saving habit, no matter how small your first pay cheque is.
Here are 5 tips to guide you on how to save and invest, starting from your first pay cheque.
1. Monitor your budget
Start by tracking your expenses for a clearer idea of what you spend on so that you can review and figure out how to reduce unnecessary expenditure. You can use the DBS NAV Planner to help you find out which categories of expenses you are spending more on.
Once you have an idea of your spending patterns, you can work out a monthly budget. Say after tracking for 2 months, you see that your average spending per month is around $1,500 and your monthly salary is $2,000. Assuming you wish to save $600 per month, you can split $1,400 into different spend categories. Decide which are needs and wants. You can then find ways to reduce spending on certain categories. For instance, you can try exercising in the park or in public stadiums instead of paying an expensive private gym membership to work out.
Coming up with a monthly budget is crucial to ensure that you do not overspend. The money saved can be used to pay off any loans or help you to achieve your financial goals.
There are numerous tips to help you cultivate a healthy spending habit. One of the most important things to take note is to understand your financial priorities. While it can feel good to know that you now have some spending power, be aware that the consequence of overspending could lead to accumulating a mountain of debts.
2. Have adequate emergency cash
An emergency fund is a sum of money set aside to cover unexpected financial events that can be costly and stressful. This could be a loss of job, unexpected home repairs or a health crisis which prevents you from working temporarily. In short, it is what you keep aside for a rainy day.
The general rule of thumb is to set aside emergency funds that can cover at least 3 to 6 months of your monthly expenses.
You can start by setting aside at least 10% of your monthly salary to slowly build up your emergency fund. One easy way is to set up an automatic transfer of this set amount to a savings account used purely for savings.
You can create a separate bank account such as eMySavings Account which is a monthly savings accounts that allows you to preset a fixed amount to be transferred from your salary every month without to the need to manually transfer the money. Besides, it allows you to enjoy special savings rate.
Do note that for emergency cash, the funds should be highly-liquid which refers to the ease with which an asset can be converted into cash easily without affecting its price.
An emergency fund should be a financial priority for everyone and should come before saving and investing for retirement.
3. List your financial goals
Owning a home might be a faraway dream for now, but it’s never too early to set your mind on it and start saving. You can consider listing your financial goals, such as purchasing a car by 2025 or buying a house in 2030 and work on a plan on how to achieve these goals.
Having these short and long-term goals can help to motivate you in saving up or finding more income streams to bring you closer to your goals.
Take this opportunity to work on a yearly plan on how much to set aside for each goal by researching on more information.
For example, if you are planning to buy a car or a flat in 5 years’ time, it would be helpful to find out the cost and learn more about how home loans work. Armed with more information, you can then re-evaluate your goals and consider more investing opportunities to help you achieve your targets
4. Seek investment opportunities
For someone completely new to investing, it can be tricky to suss out what is suitable out of all the investment choices out there. The deluge of investment information can also be so confusing that it might result in inertia!
Do understand that not making any investment is a cost. Why? Do you know that inflation can chip away at the value of your savings? Thus, not making any investments or simply leaving them in a savings bank account equates to making a loss on your money.
If investing is new to you, start by reading up on investing basics. There are different types of investments, ranging from stocks to bonds and more. Always understand your risk appetite before considering which investments to make as different instruments come with different risks.
One misconception about investing is that you need a large amount of money to start. The truth is that investing can start from as low as $100 per month.
If you are keen to start investing but is uncertain about where or how to start, feel free to approach our wealth planning managers for more information.
5. Identify and close protection gaps
If you are just starting out in the working world, taking care of your insurance needs may not be a high priority. After all, you are young and likely to be in the pink of health. However, getting a basic health insurance is cheap and highly recommended.
It might seem unnecessary to get a health or hospitalisation cover, but it can be a hedge against unforeseen and high medical costs. The last thing you want to worry about during a health crisis is how big your hospital bills will be. With adequate coverage for such emergencies, insurance can help to cover your hospitalization bills and ensure that you won’t be drained of all your savings.
If you are new to insurance , you can read up on insurance articles such as 7 useful tips to buy insurance to aid you in having a clearer understanding of insurance.
Getting your first paycheck is a milestone you can use to kickstart your personal finance planning. Having a clear monthly budget and setting financial goals will go a long way in helping you achieve financial freedom.
But of course, our financial goals change as we grow, as well as your life and work situation. It would be advisable to review our finances regularly (at least annually) to retune your goals and strategy.
Ready to start?
Speak to the Wealth Planning Manager today for a financial health check and how you can better plan your finances.
Alternatively, check out NAV Planner to analyse your real-time financial health. The best part is, it’s fuss-free – we automatically work out your money flows and provide money tips.
Disclaimers and Important Notice
This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability.
All investments come with risks and you can lose money on your investment. Invest only if you understand and can monitor your investment. Diversify your investments and avoid investing a large portion of your money in a single product issuer.
Disclaimer for Investment and Life Insurance Products