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Many people make the mistake of seeing their income as a “huge lump sum” instead of proactively allocating their money for the different uses in their lives, said Mr Chia.

Owing to the lack of a proper system, the money they earn tends to disappear right before their eyes.

Here is the 4-3-2-1 money management concept he recommends:

•4: Not more than 40 per cent of your salary should be spent on liabilities. If you find yourself spending more than this percentage on housing, car and credit card loans, it is time to reduce and simplify your life so that you do not need to spend so much on servicing your debt.

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•3: Not more than 30 per cent of your salary should be spent on household expenses such as groceries, children’s maintenance, maid service, shopping and so on. Should your expenses exceed the 30 per cent limit, it is time to rein in your spending by sticking to a budget.

•2: Save at least 20 per cent of your salary to build and accumulate your wealth for the long term. Invest in various investment instruments such as fixed deposits, stocks, unit trusts, gold (this does not refer to jewellery).

•1: Save at least 10 per cent of your salary for insurance protection such as medical, critical illness, children’s education, and so on. This 10 per cent will build the pillars of stability guarding against any contingency that might arise, giving you peace of mind while you build your wealth.


Mr Lam believes that financial planning gives you a concrete and definitive plan for the future. With an overview of your financial situation, you can manage your finances more efficiently through better management of resources.

“Having a financial overview enables optimisation to ensure efficient allocation of resources. If there are too much liquid assets that are not required in the near term, they can be re-channelled to investments to generate a potentially higher return. Consequently, if there are excessive liabilities, it may be prudent to pay down and reduce the debt holdings to minimise a drag on finances due to interest payments,” said Mr Lam.

Financial planning allows a person to set goals and assess his financial situation to manage and allocate his available resources more efficiently. Setting financial goals enables the person to work towards a target amount within a specified timeframe. It also enforces the discipline to be financially prudent.

“The ranking and prioritisation of goals will become more apparent as you weigh the trade-offs and importance of each individual goal within a finite amount of budget and income to work with,” he added.

He recommends being aware of some financial items in your investment journey. For instance, knowing your net worth – which is the difference between total assets and total liabilities – will enable you to work out financial ratios to ensure you are on track.

Total assets consist of liquid assets (cash and fixed deposits), investment assets (equities and unit trusts), and personal use assets (car and house), while total liabilities refer to short-term liabilities (personal loans and credit cards) and long-term liabilities (car loans and mortgages).

When working out your financial plan, take note of your investment assets to net worth ratio, which shows the proportion of net worth that is allocated to investments to generate a higher rate of return towards retirement or other long- term goals. Mr Lam recommends that Singaporeans have a ratio of at least 50 per cent.


Ms Tan says financial planning helps us feel more confident of the future as we prepare for the most important things in life.

“Start financial planning once you start work as it is never too early to plan for your long-term goals,” she advised.

She believes that the three most important ratios are the total debt servicing ratio, which helps you gauge your household’s debt level; the liquidity ratio, which helps identify how long your cash assets will last if the unforeseen happens; and the funding gap ratio, which shows how far you are from your financial goals by identifying your current assets and comparing them with what you need to achieve your goals. Lorna Tan

It is never too late to take charge of your own financial destiny. The tips on money management offered by the following experts can be immediately put to good use so long as you are determined to embark on a more disciplined financial journey.

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