1. Set aside an emergency fund
As its name implies, this fund will be used only for emergencies. Those events that happen out of the blue, taking you unaware. Some examples would be like getting into a car accident, or a wisdom tooth extraction.
Use this emergency fund to pay for such emergencies and avoid having to take on debt or borrow from relatives and friends. If this fund runs out of money, make sure it is replenished again first before making other financial decisions.
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Not having an emergency fund is like paddling against the current |
6 months is usually a good gauge of the amount of emergency fund you should have. It provides an optimal level of coverage for most emergencies while not holding up too much of your money in zero-return cash. You can adjust the amount of funds to 1 year's worth if your salary or earnings are volatile.
2. Buy term insurance instead of whole-life insurance
Get insurance for insurance's sake. Don't go mix insurance with investments. Besides, you can invest better than what the whole-life insurance rates can give you. Term insurance is cheaper, and invest the differential into rewarding investments.
A simple way to tell whether any form of insurance is good for you is to ask how much does the insurance agent earn in commissions. Commissions are earned from you, and the more they earn, the less you keep.
3. Have a hospitalisation and surgery insurance
It is one of the most important, if not the most important form of insurance in Singapore. With medical fees being sky high in Singapore, the last thing you want is to have to delay your health because of money.
4. Don't get a car
Cars is Singapore are not cheap. The cheapest car can set you back at least $20,000 upfront and monthly payments of at least $1,000. You are far better off taking the public transport, taking occasional Uber rides, and taking your money to invest well.
Did I mention that the true cost of car ownership is much more than what you see? Putting off your purchase of a Toyota Altis 1.6 Auto can give you an extra $300,000 in 10 years' time!
5. Forget about picking stocks and simply go index
I am an advocate of index funds. They save you time, money, and effort. No need to spend your time reading annual reports, and doing research. Go for a low-cost index fund, and you save more money than having your money managed for you.
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Go for index investing and spend your time drinking tea |
Everyone wants your money, and going index is the best way to keep your money to yourself. A 3-fund portfolio between equities and bonds, with a mix of domestic and international exposure would do very well in the long run.
6. Spend time in the market and not timing the market
It is pointless to time the market, research has shown it over and over again. Simply buy in a portfolio of index funds, and buy into them at regular intervals. Dollar cost averaging is powerful, because it takes away human emotions that might potentially screw up your investments.
There are many examples of how missing just the best 10 days of any investing year would have reduced returns by 50%. Stay in the market and keep buying. Do it even when markets drop.
7. Save a lot
The more you save, the more you receive in the form of capital appreciation and dividend payments from your investments. When you save more, you get to retire and achieve financial freedom earlier. If you fail to save, you will never retire, because you will always need a job to pay for your expenses.
Summary
In summary, here are the 7 tips to achieving early financial freedom:
- Set aside an emergency fund
- Buy term insurance instead of whole-life insurance
- Have a hospitalisation and surgery insurance plan
- Don't get a car
- Forget about picking stocks and simply go index
- Spend time in the market and not timing the market
- Save a lot
All the best to you on your journey to financial freedom!
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