1. START EARLY
It is never too early to start and the big advantage millennials have is time. Mr Ben Fok, chief executive of Grandtag Financial Consultancy (Singapore), says: “Millennials, being young, should take advantage of time and start early in financial planning, which can include retirement planning.
“With about 40 years to save for retirement, it might seem far away but whatever they save or invest will grow and accumulate over time. Being a millennial, you are in the best position to plan for your future during the prime of your life.”
Mr Lam notes that with longer life expectancies and increasing costs of living, it is prudent to start at the earliest opportunity.
2. CULTIVATE PROPER MONEY MANAGEMENT HABITS
Start planning by taking an honest look at your finances and draw up a simple, personal, “money in, money out” balance sheet so you know where your cash goes.
“From there, you can make adjustments to cut back on luxuries, reduce debt, start saving or set aside designated amounts for savings and protection,” advises Mr Lam.
“Make use of free digital financial planners, such as the DBS/POSB Your Financial GPS that is available via DBS/POSB iBanking and mobile banking, to track expenses automatically and set and track budgets/savings goals any time, anywhere.”
3. SET FINANCIAL GOALS
Mr Tan suggests asking yourself when you would have to achieve financial freedom and what is your preferred lifestyle.
“Work out how much money you will need when you retire to provide for your desired lifestyle. As a rule of thumb, you should aim to draw an amount of at least two-thirds of your monthly income. The amount will vary from person to person, depending on the lifestyle each person wants,” he adds.
Having a huge goal can be intimidating, and when that goal is for retirement, there can be a strong temptation to procrastinate.
“Set up different accounts for different goals and top them up round-robin rather than sequentially,” adds Mr Lam.
4. SET ASIDE EMERGENCY FUNDS
Be prepared for an unexpected financial crisis by setting aside at least six to 12 months of your monthly expenses as liquid cash savings. Once you have taken care of this for emergency purposes, then you can start thinking about investing.
5. AVOID BAD DEBTS
If you have a study loan, you should have a plan to pay off the outstanding amount by setting aside a part of your income, says Mr Fok.
Avoid incurring credit card debt as the interest is very high. Note that it is easy to get into credit card debt if you continue to spend and not pay down what you owe.
You will likely pay an effective interest rate of more than 20 per cent a year, so develop a habit of paying your bills in full every month. Paying just the minimum monthly repayment will take a long time to reduce the debt as most of the payment comprises interest.
6. THINK HEALTH INSURANCE
Consider buying life insurance plans to hedge against premature death, illness and hospitalisation. It is better to buy such plans when you are still healthy and insurable. Once your health changes, you will be unable to buy or there might be exclusions or the cover may cost more. When buying insurance, consider whether you can afford the premium payments.
7. CONSIDER COMPOUNDING
Savvy millennials can use the long time horizon to their advantage by exploiting a concept known as compounding. This allows gains to be continually reinvested over time.
Mr Alfred Chia, chief executive at SingCapital, says a small compound interest coupled with a long enough time period can do wonders.
If a millennial starts saving $2,400 a year from age 25 to 40 (15 years’ saving period) at an annual return of 5 per cent, and continues to stay invested at the same return till he reaches 60, his savings would be $158,181.33.
Another millennial who starts saving the same amount annually at a later age – from 40 to 60, or 20 years of saving – will accumulate only $90,012.51, despite saving for a longer period, he says.
Once savings and insurance needs are met, any excess funds not required in the short term should ideally be invested for a higher rate of return, says Mr Fok.
“There are many options, including equities, exchange-traded funds (ETFs) and unit trusts. If you do not have investment knowledge, then you can consider managed funds such as unit trusts. But if you have an investment background, then passive investments like ETFs will be suitable,” he adds.
Mr Lam suggests investing designated amounts in a disciplined way. “Empower yourself by doing some research to learn about basic investment and protection products and concepts… so you can make informed and confident decisions. Stay steadily invested for the long term and avoid panic when the markets rumble,” he says.
9. PLAN MULTIPLE INCOME FLOWS
Mr Tan suggests regularly evaluating your investment portfolio and determining how much guaranteed and non-guaranteed incomes it can provide.
“Ask yourself what happens to your stream of income if there is a market downside and how your portfolio can benefit from a rising market. Your financial portfolio should be flexible to give you control over your investment,” he says.