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3 Money Management Habits For Millennials

Millennials, defined as those who are born between 1982 and 2004, already make up around 1.2 million of the working population in Singapore. This generation is also said to put more emphasis on work-life balance and is constantly dreaming of early retirement.

Yet, many millennials in Singapore still do not have a reliable financial plan that can help them achieve these goals.

With this in mind, I would like to point out three money management habits that all millennials should employ.

Target to save 15% of income

Retiring in Singapore has become an extremely expensive affair, with rising healthcare costs and longer life expectancies. This means that millennials will have to save much more than their predecessors for retirement.

Thankfully, one thing that millennials have in abundance is time. On average, millennials have about 25 years to grow their retirement fund. This is a substantial amount of time. Even if we are saving just 15% of our money during this time, it is more than likely to grow to a substantial amount by the time we are ready to retire.

Pay off any debts

Debt interests compound over time. If you have outstanding debts, especially credit card debts or student loans, it is wise to pay them off as soon as possible. Creating a habit of taking credit lines that charge excessive interest can have a snowballing effect that will be difficult to recover from.

A good way to ensure that you spend within your limits is to create a monthly budget and adhere to it strictly. There are also free mobile apps online that can help you map out your expenses each month.

Start investing early

Luckily, many millennials in Singapore have got the first two money management habits that I have described locked in. They are free from burdensome debt and consistently save a portion of their paychecks each month.

However, the third and most crucial aspect of planning for retirement is investing your savings. Unfortunately, many millennials have not started to invest their money properly.

Investing is a crucial component in preparation for retirement. Starting your investment journey early is especially important due to the long-term effects of compounding. For instance, at the current interest rate of around 1%, your $1,000 saved in the bank will grow to just $1,348 at the end of 30 years.

On the contrary, the Straits Times Index (SGX: ^STI) has an average annual return of 7.8% per annum. By investing in the index, an investor’s money is made to work much harder.

The Foolish bottom line

Starting a retirement plan should not be something that is done just a few years before retirement itself.

Instead, we should start planning as soon as we can. By starting early, we can take advantage of the time that is on our side to grow our wealth and build a sizeable war chest for our retirement.

The three money management habits should be the starting block of any millennial’s retirement plan.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.