4 money habits to adopt from your first salary to retirement

Life’s curveballs can be unpredictable and for Ms Shen Lifen, 39, that moment arrived when the COVID-19 pandemic hit in 2020. 

At the time, Ms Shen was pursuing a postgraduate degree overseas. She had meticulously planned her finances, including relying on rental income from her tenant to cover her mortgage back home. However, Ms Shen found herself in a bind when her tenant unexpectedly terminated the lease to return home. Thankfully, her emergency cash became her lifeline, allowing her to continue meeting her mortgage payments without disrupting her studies.

For the legal professional, the experience underscored the importance of establishing a strong financial foundation early in life – a lesson she learned from her parents. “Saving gave my parents a sense of security and I wanted that for myself,” she shared.

Indeed, everyday habits can make a real difference in building financial wellness, said Ms Lorna Tan, head of financial planning literacy at DBS Bank. “Our financial situation reflects our money habits. While setting goals provides direction, it’s the consistent rituals that make lasting improvements possible. Good money habits empower informed decisions, prepare us for emergencies and help us work steadily toward sustainable financial wellness,” she explained.

Guided by insights from customer research, POSB developed the 4 Money Habits framework. Rather than a rigid checklist, it offers a set of practical, achievable steps to help one strengthen financial wellness over time. 

NO 1: SAVE AND LAY THE GROUNDWORK FOR FINANCIAL STABILITY

The first principle of the framework is rooted in the idea that long-term financial wellness begins with building a safety net. A general guideline is to set aside at least 10 per cent of your take-home pay monthly, gradually increasing this amount as your salary grows.

Aim to accrue emergency cash to cover at least three to six months of living expenses, providing a buffer for unexpected events like job loss or medical crises. Once this base is in place, the remaining income can go towards spending, protection and growth.

Mr Shawn Lew, a 25-year-old property agent, saves proactively by setting aside at least 10 per cent of his income at the start of each month, given his fluctuating earnings. He also notes the benefits of leveraging higher-interest savings accounts like DBS Multiplier, which not only offer enhanced interest but also provide greater liquidity compared to investments, allowing for quick access to funds when needed. 

NO 2: PROTECT YOUR FUTURE

Safeguarding your finances also means shielding your financial well-being from life’s uncertainties. Ms Shen, like many others, finds reassurance through comprehensive insurance coverage. “I consulted a trusted wealth planning manager to receive professional advice tailored to my needs,” she said.

Her sister, equally prudent, also reaped the benefits of careful planning. Her health insurance covered most of her medical expenses for spinal fusion surgery, alleviating a significant financial burden.

To be well-prepared, make sure you have adequate insurance coverage in six key areas: Health, life, critical illness, mortgage, long-term care and general insurance. Together, these policies help you and your loved ones avoid financial strain during times of crisis.

Generally, it’s advisable to allocate no more than 15 per cent of your take-home pay to insurance protection. In terms of coverage, aim for a mix of policies that provides up to four times your annual income in case of unexpected illness and nine times your annual income for death or permanent disability.

To stay organised, Mr Lew utilises SGFinDex via the POSB digibank app, which brings together financial information from banks, insurers and relevant government bodies in one place. “It’s very useful having a consolidated overview, since we often have policies from different providers,” he said. 

NO 3: GROW AND INVEST FOR THE FUTURE

After putting in place a robust savings and protection strategy, the next step is to make your money work harder through investments that can grow over time.

Ms Shen learned the hard way that picking stocks based on popularity isn’t always wise. “My core portfolio now includes diversified investments such as exchange-traded funds (ETFs) and unit trusts,” she said, stressing the importance of making informed decisions. 

Determining your risk profile is a crucial first step in investing. Mr Lew uses the POSB digibank app to assess his risk tolerance. The app features a simple four-question assessment that helps users evaluate their financial situation and risk tolerance, ensuring they select investment products aligned with their goals and preferences. 

For beginners, POSB offers options like Invest-Saver, which lets you invest a fixed amount regularly into ETFs and unit trusts. Alternatively, you could explore robo-advisors such as DBS digiPortfolio for personalised and cost-effective investment management.

A useful practice is to regularly invest at least 10 per cent of your take-home pay. Working towards having at least 50 per cent of your net worth in investments can also be a helpful indicator of how effectively your money is working for you.

“After experiencing a few financial downturns, I realised that successful investing isn’t about timing the market, but rather spending time in the market. Stay invested for the long term, diversify your portfolio and harness the power of compounding,” said Ms Shen. 

NO 4: PLAN FOR YOUR RETIREMENT 

Retirement planning is a continuous process that should evolve with your financial goals and life circumstances. Regularly check your Central Provident Fund (CPF) balances to ensure you’re on track to meet the Full Retirement Sum, which will help fund your basic needs in retirement.

Furthermore, it’s important to set up multiple passive income streams beyond your CPF to support your retirement lifestyle. These could include annuities, fixed-income investments, rental income, stock dividends and other sources. Stable income streams can cover necessary expenses while more flexible ones can be used for discretionary spending. 

For Ms Shen, her retirement plan focuses on fully owning her home and having enough savings to travel and support the causes she cares about. “I aim to achieve this by building multiple streams of income,” she said.

You can manage your planning with tools like the POSB digibank app, which consolidates your financial information and provides customised insights to optimise your retirement strategy. For an added boost to your savings, the app provides access to DBS’ Retirement digiPortfolio – a fuss-free way to start investing for the future. With an initial investment as low as S$1,000, the portfolio is tailored to your retirement timeline, automatically adjusting risk as you age. Managed by DBS in collaboration with J.P. Morgan Asset Management, it provides exposure to both Asian and global markets, with the flexibility for top-ups and withdrawals as your needs evolve.

BALANCING FUN AND FUNDS 

“When my brother and I were young, our parents encouraged us to save part of our pocket money by rewarding us with stickers to track our progress,” said Mr Lew. “While I no longer need stickers, the habit stuck, helping me through tough times.”

By combining POSB’s 4 Money Habits with a touch of ingenuity, you can approach financial challenges with confidence while enjoying the journey of building a resilient future.

Learn more about embracing POSB’s 4 Money Habits.