5 Financial Tips From A Former Hedge Fund Investor To Get Ahead

1. Define Your Fixed and Discretionary Expenditures

The first step of being financially healthy is knowing what you need and what you want, and comparing it to how much we can afford. The most important principle to uphold is that your expenses should not exceed your income. Otherwise, you would need to borrow money to finance your consumption, which could be a dangerous exercise.

Borrowing money to spend today means less money for you to use in the future. Unless you are extremely certain that your income will grow dramatically in the near term, you should be spending less than what you make.

The best starting point is to define what is a necessity expense and what is a ‘treat yourself’ expense on a regular basis each month. The first category, which we shall refer to as fixed expenditures, includes things like rent, home mortgage payments, mobile bills, utility bills, petrol expenses and grocery costs. These are spending areas that you can’t avoid or easily reduce. The latter category, which we shall refer to as discretionary expenditures, includes things like restaurant bills, drinks at the bar, movie tickets and travel expenditures. While you don’t necessarily need them to fully function as an adult, you still want to have these things in your life.

By defining exactly how much your fixed monthly expenditure is, you can set a baseline expectation for how much you could possibly save on a regular basis. Then, by calculating the difference between your monthly income and fixed expenditure, you can calculate how much is available for you to spend on the discretionary categories. Ideally, the sum of your expenditures should be lower than your income to allow room for savings.

2. Set A Weekly Saving Target, and Plan Your Spendings Accordingly

That leads to a second topic of saving. While this could be somewhat stressful, it’s important for you to set a goal for how much you want to save over the course of the year.

Let’s assume that you would like to save S$10,000 by the end of the year. While that’s a lofty and certainly an applaudable goal, it’s not easy to actually have the discipline to achieve it because humans have a tendency to prefer instant gratification over long-term happiness. Would you really forgo that restaurant dinner today when you have another 350 days to save? This pattern repeats itself until you realise you have run out of time in the year to achieve your savings goal.

Instead of allowing yourself to fall into this trip of instant gratification, you can regiment your behaviour by setting up a more short-term goal. Ideally, you could set a weekly saving target (i.e. you would have to save about S$193 per week to save S$10,000 in a year). By setting a weekly goal instead of an annual or monthly, you can assess the financial consequences of your daily spending more closely and get closer to reaching your goal over the long run.

Related: Where To Park Your Savings When Banks Lower Interest Rates

3. Track Your Finances

While the last two tips are great ideas, merely planning to carry them out may not be enough. First of all, it’s rather difficult to keep track of things mentally over the course of a week (let alone a year!). Secondly, without a track record, it’s hard to force yourself to continue managing your budget because we tend to get complacent or get too tempted to buy something we shouldn’t.

An easy way to do this is to build an excel spread sheet or keep a notebook that tracks all of your daily spending. You should write all of your known fixed expenditures in it in advance, and keep receipts of everything you buy on a daily basis. Such process allows you to not only plan and monitor your budgets, but it also helps you commit to the project emotionally. You are much more likely to complete something you’ve spent a lot of time on than something you merely thought about for a few days.

Related: New Year, New You: How to Set Up Your Budget Correctly for the Year

4. Use Your Debt Smartly, Pay Down Your Debt

One thing we should mention as a part of your fixed expenditure is debt repayment. Household debt in Singapore grew 1% in the last quarter of 2023. Debt vehicles like personal loans and credit cards have been especially popular in the recent years. While these financial instruments can be great tools to make necessary purchases, they needed to be used smartly and with care.

When planning out your monthly and annual budget, you should include both monthly repayments (which includes interest and principal) as well as full principal repayment on your loans into your fixed expenditures. These are spendings that simply should not be ignored, as interests on unpaid balances can balloon to an unbearable amount before you realise.

You should also remember that credit card debt should be repaid in full at the end of your monthly billing cycles. Credit card debt is different from other types of consumer loans in that it does not charge you interest unless you carry a balance over from the previous month. By paying off the balance full, you can enjoy the convenience and rewards that credit cards provide without incurring interest expenses that quickly eat into your monthly budget.

Related: What are the Repercussions of a Late Payment on Your Credit Card?

5. Invest For the Future and/or Start An Emergency Fund

The whole point of financial planning is to save enough money for your future money goals. These include things like buying your first home, or retiring. As with businesses, we need to not only strive to improve our financial position, we should also be taking precautions to make sure that we are prepared in case of tough times.

By padding out your savings, you give yourself the chance to do things you typically could not afford on your monthly salary. For instance, you could use your savings to attend an MBA program and increase your income. Or, you could use it to take up a course and learn a new skill like programming to switch your career. You can even invest in stocks, bonds or ETF funds to gain additional yield on your cash. Having an emergency fund ready to go also means that you are able to weather storms like a motor accident or health scare without having to worry about your finances.

If you are a looking for a good investment platform to take your financial goals to new heights, check out our results page of the best online brokerages and trading platforms in Singapore.