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Want To Know How You Are Doing Financially? Rate Yourself On These 5 Factors

Singapore is a country that loves to use tests to measure the level of ability of Singaporeans. From formal education to driving cars to riding e-scooters, there’s always a test that Singaporeans have to sit for. Interestingly, one area where Singaporeans do not have to sit for a test is personal finance. We wonder why no organisation has thought of offering a standardized test to measure how well Singaporeans are doing financially.

As we were thinking about it, we were inspired to build a short personal finance test to help Singaporeans measure the how well you are doing financially. The test consists of 5 factors that are meant to rate yourself to determine how well you are doing financially.

So, are you ready for to take the test?

  1. Saving Habits

Whenever you go to the doctor’s for a consultation, the first thing he/she will do is to take your vital stats, i.e. your temperature and blood pressure. In personal finance, the equivalent of your vital stats is your saving habits. That’s because without the right saving habits, you won’t have enough savings for you to tick other checkboxes such as protection (insurance), growth (investing) and retirement planning.

Thus, the first step to assess your savviness in personal finance is to rate your personal saving habits. There are two areas to assess for personal saving habit: Frequency and amount.

How Often Do You Save?

The first question you should ask is, “How often do you save?”. As a general rule of thumb, you should make saving a second nature act. The simplest way is for you to save every month whenever you receive your monthly income. If you are unable to save every month, then the next best option is to do it every 2-3 months. Beyond that, you definitely need to work on your saving habit.

How Much Do You Save?

The next question you should ask is, “How much do you save?”. It is not just the frequency of savings that is important, so too is the amount that you save.

Let’s say you make it a point to save every month. However, you are only saving 10% of your monthly income each time. Compared to someone who is saving once every 2-3 months but the saving amount is 40% of his/her monthly income, you will find that your overall saving amount still lag behind.

As a good saving habit, you should definitely save at least 50% of your monthly income with a monthly saving frequency.

Rating Saving Frequency   Rating Saving Amount
Good Every month Good > 50% of monthly income
Average Every 2-3 months Average 30-50% of monthly income
Poor Every >3 months Poor < 30% of monthly income

Finding it hard to cultivate the right saving habit? Try out these saving tools to help you kickstart the right habit of saving.

  1. Protection From Financial Emergencies

After savings, the next layer of any financial plan is protection. Protection is meant to cover your finances in the event of emergencies or any unfortunate event. In order to protect yourself from financial emergencies, you will need to have the right insurance plans in place so that you have extensive coverage.

How Much Protection Do You Have?

The challenge that most people face when it comes to this segment of the financial plan is the question of “How much?”. How much insurance do you really need? Based on your current coverage, do you have enough protection against the financial emergencies?

The easiest way to gauge your personal finance score for the protection segment is to peg it against your annual income. In order to give yourself a good rating on the protection segment, you will need to have at the coverage of at least 10x of your annual income.

Is Your Protection Coverage Scope Adequate?

Besides the coverage amount, the coverage scope is also important. You can determine your coverage scope based on the type of coverage you own. In order to have a good coverage scope, you need to have these 3 types of insurance: Health, Life and Critical Illness insurance. Each of these insurance offers protection for a different type of risk that needs to be taken care of.

Rating Coverage From Insurance   Rating Coverage Type
Good ≥ 10x of your annual income Good All 3 of Health, Life and Critical Illness insurance
Average 5-10x of your annual income Average Any 2 of Health, Life and Critical Illness insurance
Poor < 5x of your annual income Poor ≤ 1 of Health, Life and Critical Illness insurance

For more details on how much protection you need, check out our article on how much you should be spending on insurance here.

Think that you might need more coverage? Check out Moneyline’s insurance comparsion tool to help you find the best deal in the market.

  1. Investing

Besides saving and protecting your wealth, growing your wealth is also an important aspect of one’s financial plan. After all, if you don’t grow your wealth, you won’t be able to achieve your financial goals. This makes growing your wealth vital in determining how well you are doing financially. Apart from active income that you are making from your day job, earning passive income from investing is a key method of growing your wealth.

Are You Growing Your Wealth Consistently?

To determine whether you are doing a good job of growing your wealth, you need to evaluate your own wealth accumulation journey. Have you started your wealth accumulation journey by starting to invest for passive income? If you haven’t, it is definitely recommended for you to start today while you are still young. Starting to invest early lets you take advantage of the compounding effect of time.

If you have already started to invest, then you need to ask yourself whether you are growing your wealth consistently. Investing consistently over a long period of time takes effort and discipline. While it is not uncommon to hear of people losing that discipline halfway in their wealth accumulation journey, don’t let that person be you. Make sure you are consistent in your own wealth accumulation journey.

If you find that you are lacking the discipline or simply have no time to put in the effort, then be smart about it. You can leverage on financial tools to help you invest without much effort. Check out some of those options here.

Rating Wealth Accumulation Savviness
Good Started investing and have been investing regularly
Average Started investing, but not investing regularly
Poor Have not yet started any investing
  1. Readiness Of Retirement Planning

For most people, a good retirement lifestyle is the end game of building the right financial portfolio. But in order to build up your financial portfolio for a good retirement lifestyle, it takes time and effort. Given the importance of having a good retirement lifestyle for many of us, retirement planning is one area that needs to be assessed in order to tell how you are doing financially.

Have You Started Planning And Acted On Your PLan for retirement?

Have you already started planning for retirement? If that’s a resounding yes, here comes the second question: Have you acted on your plan for retirement? Some of us might have already started “planning” for retirement. But the problem is that we haven’t acted on our plan yet. This can be pretty dangerous because it makes you feel like you have already started your journey towards retirement when you are actually just on the verge of starting.

How To Determine Whether You Have Acted?

The act of kickstarting a retirement plan is one simple way you can gauge whether you have acted on your retirement plan. A retirement plan is a plan that pays you a fixed amount of cash payout every month post-retirement. So, if you have already bought a retirement plan, then you are ‘confirm plus chop’ acting on your plan for retirement. If you haven’t, chances are you have still not acted on your plan for retirement. As long as you haven’t acted on it, it is still a thought in the process.

Rating Readiness Of Retirement Planning
Good Having a sound grand plan for retirement + Bought a retirement plan
Average Having a sound grand plan for retirement but haven’t acted on it yet
Poor Have not even thought about retirement

Click here to check out some of the best retirement plans to kickstart your retirement planning today.

  1. Regular Reviews Of Financial Portfolio

In life, change is the only constant. Indeed, that is a very apt description of life. Because of the constant change in your life, be it your aspiration, life stage or financial situation, it is important for you to review your financial portfolio at regular intervals in your life. Not just that, having your financial portfolio reviewed regularly is also a sign of how serious you take your personal finance.

How Often Should You Review Your Financial Portfolio?

The best practice for financial portfolio review is definitely once every 6-12 months. 6-12 months is a good checkpoint because many things can happen in 6-12 months that will affect your personal finance and future financial planning. Plus, your financial goals might also change in 6-12 months as the situation around your life changes.

If you are currently reviewing your financial portfolio every 12-24 months, things aren’t looking too bad for you. However, there is definitely room for improvement. Leaving such a huge gap between each of your review can leave yourself to more risks in mis-steps in your financial planning.

Rating Financial Plan Review Frequency
Good Review every 6-12 months
Average Review every 12-24 months
Poor Review every >24 months (or none at all)

Still haven’t taken that step to review your personal financial planning yet? Reach out to us to book an appointment for a review today.

 

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