When young people started working and earning a salary that means they have grown into adults. You will begin to possess more purchasing power and more expense. In an early adulthood, many people may have overspent and not saved money.
In addition, people in modern society are preferred to be single while married couples also don’t want to have children. They tend to spend more money, particularly for themselves thus, they do not focus less on the financial plan for retirement.
However, retirement life is unpredictable, we can’t be sure what will happen in the future we should have reserve money to spend in retirement. This is the reason that we need to know the plan of financial Management.
List of Contents
3 Things You Should Know before Retirement Planning
1. Income and Expense
You need to know the amount of your income and how much you spend on a daily basis such as food, traveling expense, accommodation, etc. You may have to keep a record of your income and expenses or make an estimate. A better plan comes from a clear amount of your monthly income and expenses.
2. Liabilities
You need to know how much of your liabilities such as car payments, housing payments, taxes, etc. When you know how much debt you have to pay each month, you can plan to balance between your income and expenses as well as emergency.
3. Saving Goal
Many working people tend to have different goals in terms of saving, so saving money should be considered a good start for any goal.
Choose a Suitable Financial Management Plan
1. 50/30/20 Budget Rule
The 50/30/20 plan is the most popular plan. Published by US Senator Elizabeth Warren in her book “All Your Worth: The Ultimate Lifetime Money Plan,” the rules for managing money in 50%, 30%, and 20% are demonstrated as follows:
- The first 50% is Needs, which is income after tax allocated for everyday expenses such as food, travel, and accommodation, etc.
- The next 30% is Wants, which are supplies, entertainment, recreation, tourism, etc.
- The final 20% is Savings, which may be divided into cash savings for retirement, emergencies, and investments in various assets or health insurance, etc.
2. Other plans for debtors
The Central Provident Fund (CPF) Board of Singapore has released the “40/30/20/10 Rules” which is a plan suitable for debtors to guide Singaporeans to allocate their finances through its Facebook page as follows:
- Spend less than 40% on loans
- Less than 30% should go into your expenses
- Save at least 20% for financial goals such as retirement
- Save at least 10% on insurance for protection
However, you can adjust it to a “40/40/20 Rules” as well, with the proportion of money divided each month as follows:
- The first 40% is spent on liabilities and needs spending such as accommodation, car installment, cost of utilities, etc.
- The next 40% is spent on other daily expenses such as supplies, entertainment, recreation, tourism, etc.
- The last 10% is saving for retirement and investing.
Conclusion
In summary, this is the financial management plan for full-time workers who have different incomes, expenses, liabilities, and other factors. You can adapt these plans to fulfill your goal the goal is retirement, investing, or emergency.
FAQs
Account planning, controlling, decision-making, and risk management should be considered before planning financial management.
Financial management can lead to more stability and security, less stress and anxiety, more chances to save and invest, better decision-making, and a higher credit score.
Full-time employees can reach their financial goals by using a variety of financial management strategies, such as making a budget, keeping track of costs, paying off debt, saving regularly, making smart investments, and monitoring their credit scores.
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Read more: Retirement Planning
Source: Investopedia