Heading into the month of July, many of you will be completing the ‘last leg’ of your education journey (let’s not forget the government’s push for lifelong learning though). For some of you, it might be the first time you are managing your personal finances. You might find yourself clueless about the DOs and DON’Ts.
Thus, we compiled a list of four personal finance tips and tricks that every fresh graduate should know to help you manage your personal finance.
1. Settle Your Tuition Fee Loan Quick (If Possible)
If you have just graduated from one of the local universities in Singapore, chances are that you would have taken the government funded education loan administered by DBS, UOB or OCBC. As a government funded loan, the loan is interest free during your course of study. However, upon your graduation, interest will kick in at the average prime rate of the three local banks. Fresh graduates like yourself will have to start the loan repayment with a minimum monthly repayment amount of $100.
But if you think that repaying $100 every month will help you clear your education debt, you are absolutely wrong. At the current average prime rate (4.75 percent), you will be accumulating $1,197 of interest for a tuition fee debt of $25,200 (90 percent of total tuition fee). By paying $100 per month, you are barely shaving off the principal amount of $25,200 that you owe to the bank.
TIP: If your family can afford to clear your tuition fee loan for you, treat it as a loan between you and your parents. Rather than paying interest to the bank, keep the interest within the family to fund the next family holiday. But if you decide to clear your tuition fee loan on your own once you start working, then it is wise to clear as much as your salary allows you to.
2. Insure Yourself While You Are Still Young
You might be thinking “I’m still so young and I don’t have a family yet. Why do I need insurance?”. You are probably not alone in thinking this way. Many of us would have had that thought. After all, why buy something you won’t need until you are 40 years old and above? Why don’t I just insure myself when I turn 40?
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TIP: But did you know? If you buy an insurance plan early, you do not have to undergo any medical screening. This means that you are automatically accepted as a “standard life” for insurance. Once you are being insured, you do not have to worry about being excluded from any forms of illness. Furthermore, the premium you have to pay as a “standard life” is much lower than a “sub-standard life”.
3. Don’t Underestimate The Power Of Savings
Building your own war chest of savings is an important aspect of being an adult. Gone are the days where you can just reach out to your parents for more pocket money.
One thing that most fresh graduates tend to do, which you should avoid, is to spend your salary at freewill and save whatever you have that is leftover. At the end of the day, you will find that you are unable to save any money in this manner.
Instead of saving the leftover change you have every month, you should always start your month by deciding on how much you want to save. For example, if you earn $3,000 a month, you should first allocate 30 percent of your salary to your savings. After which, you can decide where and how the other 70 percent is spent (i.e. clubbing, daily expenses, family gathering).
4. Leverage On The Law Of Compounding By Investing
Compound interest is going to be your new best friend as you enter adulthood. It is the biggest factor that will decide whether you are able to achieve financial freedom while you are still young or whether you will work till you are 65. After building up your war chest of savings, you cannot just leave it there to be idle. Instead, invest in different financial instruments like stocks, bonds and commodities and let the effect of compound interest manifest.
TIP: If you find yourself unfamiliar with the idea of investing, pick up some basic books on investing like ‘The Intelligent Investor’ and ‘One Up On Wall Street’. Another way you could shorten your learning curve is to join us in our Factor Based Investing Introductory Course where we will teach you how you can grow your money consistently using a proven system backed by scientific research.