How To Overcome 4 Of The Biggest Millennial Financial Concerns

How To Overcome 4 Of The Biggest Millennial Financial Concerns

 

 

 

If you identify as a millennial (or have had the label involuntarily thrust upon you), there’s a good chance that your biggest source of stress is your finances.

After all, you’re grappling with the high cost of living in Singapore, while at the same trying to manage various financial goals – this can be hard to navigate, especially if you’ve just stepped into the working world.

You’d be glad to know, however, that you aren’t alone. As millennials ourselves, we understand some of the concerns you may have about money. Here, we’ve gathered some of the most common financial concerns, as well as tips on how to face them head-on so that you can get an upper hand over your finances.

1. How do I reach my savings goals?

If you’re a millennial who’s ever complained about not being able to save money, you’ve probably been told (unhelpfully) to stop spending on avocado toast or overpriced coffee.

The reality is, though, that we live in one of the world’s most expensive cities. Grappling with the cost of living – even sans avocado toast – can be tough.

If you’re finding it hard to save money, or have never really started, here’s what you can do:

  • Track your spending. If you don’t know where your money is going, it’s hard to figure out how much you’re currently saving. Track all your spending – you can do this with a mobile app or by going the old-fashioned pen-and-paper route.
  • Start with an emergency fund. Don’t have anything saved at all? Start by building an emergency fund that covers around 3 to 6 months of expenses. Your emergency savings can save you from having to take out a loan or dipping into your travel fund when something unexpected happens.
  • Determine your savings goals. Whether it’s for a downpayment for a home, setting up a business or achieving early retirement, determine how much savings you’ll need to achieve your goal and decide on a figure that you can put aside every month to reach it.
  • Set up automatic transfers. Set up online bank transfers that automatically withdraw from your paychecks when you get them.
  • Increase your savings rate. Review your spending periodically to see how you can increase your savings. This could mean cutting down unnecessary expenses or working on a side gig for extra income.

Then, there’s the question of how much you should be saving. Some people suggest the 50/30/20 rule, in which you spend 50% of your take-home pay on needs (essential spending like housing, bills and groceries), 30% on wants (like dining out and entertainment) and 20% on savings and investment.

It’s a great benchmark to aspire to, but you may need to increase your savings rate if you’re juggling multiple savings goals.

Want to live a YOLO lifestyle without compromising your savings goals? AIA Smart Flexi Rewards helps you create a financial plan so you can reach your long-term goals, while rewarding you with guaranteed yearly cash benefits to support your short-term aspirations.

2. When should I start saving for retirement?

Assuming you don’t have any high-interest debts and already have an emergency fund in place, it’s best to start saving for retirement as soon as you can. The sooner you start saving, the more you can leverage the power of compounding to grow your wealth.

For example, if you save S$500 a month until the age of 65, here’s how much more your retirement fund can grow if you start saving earlier:

Age you start savingTotal money contributedTotal interest earnedTotal balance at the age of 65 (assuming annual return of 6%)
25S$240,000S$713,839S$953,839
30S$210,000S$476,802S$686,802
35S$180,000S$307,256S$487,256
40S$150,000S$188,144S$338,144

In the illustration above, putting off saving for retirement can potentially cost you hundreds of thousands of dollars!

You’ll also want to be aware of how inflation can affect your savings. Goods and services that cost S$1,000 in 1978 would cost approximately S$2,231 today, so if you leave your money in a savings account that yields lousy interest rates, the value of your savings will erode over time. This is why you should consider putting your money in a high-yield savings or investing instrument – this will allow you to beat inflation and grow your wealth exponentially.

3. How can I afford my first home?

Want to move out, but can’t afford it? You’re not alone – 66% of Singaporean millennials who currently live with their parents are looking to purchase a home, but most lack a savings plan to finance it. Among those who did not intend to move out, insufficient savings was the most common reason cited.

If you’re looking to move out but don’t know where to start, here’s what you need to know:

  • Determine what you can afford. Consider what mortgage amount you are comfortable paying every month – the bigger the home loan, the bigger your monthly mortgage will be. Use a home loan calculator online to estimate monthly mortgages for different home loan sizes, and to determine the maximum home loan size you’re eligible for.
  • Calculate your estimated upfront costs. Being aware of how much you have to pay upfront helps you set your savings goals. If you’re looking to get a HDB flat, you’ll need to pay a 10% downpayment, in addition to stamp duty fees and legal fees. Don’t forget to budget for home renovation and furniture too.
  • Start a savings plan. Once you have an estimated figure of how much you would need to save, you can start socking away cash for your first home. Setting a time frame for your purchase can help you decide how much to put aside every month. For example, if you need S$60,000 for upfront costs in 5 years, you’ll need to save roughly S$1,000 every month.

4. How can I financially prepare for starting a family?

Starting a family can be daunting, especially since it could require a complete financial overhaul. Here are some key financial considerations you’ll need to make:

  • What expenses are you incurring? Your wedding, a honeymoon, a new home, pregnancy-related expenses, and so on…starting your own family means incurring lots of huge expenses. You’ll need an estimate of how much these expenses will cost, and a financial plan for how to afford them.
  • How will your budget change? A new family means additional living costs or new expenses like childcare. You’ll need to consider how this will affect your budget, and if you need to make changes to your budget.
  • Are there gaps in your insurance coverage? You may soon have more family members depending on you for an income. Consider if there’s a need to get additional coverage – you’ll want your dependents to be financially covered if anything happens to you.
  • How will you afford your child’s education? A university education could cost tens of thousands of dollars locally, and at least S$100,000 overseas. These aren’t trivial sums of money, so you’ll have to start saving for your child’s education as soon as you can.
Whether it’s to provide a great education for your child or to leave a legacy behind for your loved ones, AIA Smart Wealth Builder puts your savings on auto-pilot while giving you the flexibility to withdraw your funds whenever you need them. You can rest assured that your savings will work hard for you, keeping pace with whatever financial goals you have along the way.

Gain an upper hand over your finances

If you feel overwhelmed by your finances, consider what you need to change about the way you manage your money. Getting everything in order may seem tough, but making manageable changes incrementally could eventually transform your finances.

How you manage money in your 20s and 30s could define your financial situation in decades to come, so don’t delay.

You deserve to reach your financial goals. Find out how AIA Smart Flexi Rewards and AIA Smart Wealth Builder can help you create flexible savings plans to maximise your returns and keep pace with your needs.

Do you have 5 minutes to spare? Take our quick survey – we’d love to hear about how you spend, save and invest!

References
  • https://www.businessinsider.sg/singaporean-millennials-say-money-is-their-top-source-of-stress-and-have-too-many-goals-to-focus-on-retirement-savings/
  • https://www.economist.com/graphic-detail/2019/03/19/the-worlds-most-expensive-cities
  • https://www.moneysense.gov.sg/articles/2018/10/how-much-of-your-salary-should-you-save
  • https://secure.mas.gov.sg/calculator/goodsandservices.aspx
  • https://www.propertyguru.com.sg/customer-service/press-releases/propertyguru-consumer-sentiment-survey-reveals-a-l
  • https://www.todayonline.com/singapore/cost-raising-children-saving-their-education
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