An Opinionated Framework on Personal Finance
Developing New Skills — Writing and Personal Finance
It’s been some time since I picked up a new hobby or develop new skills. And who says that the New Year is the only time to start new resolutions.
As I try to stay relevant, and be continuously sharpening whatever edges I have, I intent to deepen my skills and knowledge around Personal Finance. This is something that I find new interest in apart from my usual passion on software engineering and technology, and leadership and management philosophies and theories. While building up my knowledge and skills, I intent to also write (and share) my thought process and learnings throughout this journey.
Personal finance and investing is a critical knowledge and skill that I’ve been more acutely aware of as I grow older and have dependents that I worry and need to plan for. Unfortunately, it’s also a topic that is often not taught adequately at all levels of formal education in Singapore. I highly suspect this is the case across the globe too as the downstream manifestations are visible globally — unable to retire from work, living from paycheck to paycheck, etc.
Using a Simple Framework to Think about Personal Finance
To start off this series of posts, I think it’s useful to understand a simple and opinionated framework I have when thinking about Personal Finance. It’s not unique and should not be controversial as much has been researched and discussed, but framed in different ways.
I would advocate that we cover all 5 segments. We start with the inner most circle of the framework i.e. Emergency Funds, before working our way outwards and investing capital into the adjacent larger circle. It is paramount that we work our way outwards!
Emergency Funds are the simplest to understand —funds that you need reserved for unexpected events such as loss of job/income, divorce, and other events that can have major impact on your finances. Majority of the literature around personal finance advocates the following as part of planning for Emergency Funds:
1. Size for 3 to 6 months of living expenses. I recommend 6 months.
2. Be easily accessible — funds should be within reach in days i.e. not locked up in a 1-year fixed deposit!
3. Park funds in really safe instruments that has close to 100% guarantee on the principal
Selecting your Choice of Financial Instrument for Emergency Funds
With the above considerations in mind, some of the obvious places to park your Emergency Funds are your regular savings accounts at a measly interest rate of 0.05% per year. I should not be explaining why stashing 6 months worth of living expenses under your bed is probably not a good idea…
One can do better with some of the high-yield and multi-use savings accounts such as DBS Multiplier, OCBC 360 and UOB One, amongst others. You could get around 0.55% per year, a whopping 10x from a regular savings account. However, this requires that you could follow the many terms and conditions of using such accounts such as concurrently crediting your salary into the account, transacting a certain amount using the bank’s credit card and subscribing to a regular insurance or investment product from the bank. Miss a milestone and you could be getting a fraction of the interest for that month.
Last but not least, what I prefer is to park my Emergency Funds with cash management solutions such as liquidity and money markets funds. These financial instruments typically do not guaranteed your principal sums, and are not insured by Singapore Deposit Insurance Corporation (SDIC) unlike savings accounts from banks. However, I deem the risk level to be low enough in exchange for the interest rate they offer. One of the simpler ways to access such funds, offering interest of around 1.5% per year (at the time of writing), is through some of the robo-advisor platforms in Singapore.
My strategy is to diversify my Emergency Funds with different robo-advisors. The reasons for doing so are because I’m paranoid, there are sign-up bonuses and it’s close to painless even when using multiple platforms. Below are links to the actual product pages for more info (provided my referral codes if your family/friends are not in these yet).
1. StashAway Simple SGD (referral code: lohcra3)
2. Syfe Cash+ (referral code: SRPR4CECP)
3. Endowus Cash Smart Secure (referral code: ODSCX)
I hope this post has provided some useful reference for your own decision-making. Until the next post, go forth and prosper!
