The Motley Fool

Here’s How to Build and Protect Your Wealth

Singaporeans often complain about the rising cost of living and how wages and salaries have stagnated in recent years. Though the government has the Central Provident Fund (CPF) system in place to ensure Singaporeans can enjoy a decent retirement, it looks increasingly as though the funds within the CPF may not last us through our golden years. The problem is compounded by the fact that Singapore faces a rapidly ageing population, and people are also living longer lives, thus increasing the need for a larger retirement sum.

Being aware of the need to live a prudent lifestyle is important, but I would like to reiterate that it takes more than just savings alone to generate wealth and preserve it. This is why I follow my three “I” philosophy, which provides a good framework and structure for me to grow my savings, protect my family, and build my nest egg. Readers should consider adopting it for themselves in order to maximise their financial well-being.

No. 1: Income

The first and probably most essential pillar of personal finance is income, and this refers to savings from salary, commission, wages, and bonuses. A very basic mantra is for us to spend less than we earn in order to be able to save the rest. This is not always easy, as there are numerous temptations in the world that can make us want to open our wallets. Credit cards allow us to easily spend more than what we earn, and this debt can quickly snowball if we’re not careful.

So, monitor and track your spending. Though this may seem like a tedious task, there are many apps available that serve this function, and it’s often just a simple matter of keying in an expense as soon as you make it. With more savings, investors can slowly grow their cash stash and also create a buffer in case of emergencies. The recommendation is to have at least six months of expenses stashed away for a rainy day.

No. 2: Insurance

Many people may not realise this, but insurance should actually be a key component of you financial planning as it helps to preserve wealth in the case of any unfortunate incidents or emergencies. Insurance is protection, and I believe everyone should minimally obtain at least hospitalisation and surgical (H&S) insurance, accident insurance (for falls, sprains, and broken bones), and term insurance (against critical illnesses, dread diseases, total and permanent disability, and death).

Leaving a legacy for your loved ones is all the more important for those with children or dependents, and insurance can assist with that. Even singles need to ensure they have adequate insurance to cover anything unfortunate that may occur.

No. 3: Investments

Once insurance has been taken care of, the next step is to grow your money through prudent and careful investing. When you’re younger, investments should be focused on growth since younger people have more time for compounding. The goal should be to look for investments that lean more toward growth but that are also priced sensibly.

As you age and your portfolio gets larger, the focus starts to shift towards a mix of growth and income. This passive income will slowly start to supplement your earned income and boost the savings rate. When you reache your retirement years, your portfolio should be big enough to provide a steady stream of passive income, and at that point, the focus should be on preservation of principal and sustainable yield.

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