Staying ahead of inflation: Why understanding personal finance is more important than ever

A tray of 10 eggs that cost S$2.30 in January last year is now being sold at S$3.30. Inflation has taken hold in Singapore, and it’s not looking to abate anytime soon. Singapore’s headline consumer price index, or overall inflation, hit 6.7 per cent in October 2022, and analysts expect it to stay elevated well into 2023. 

Amid such inflationary circumstances, consumers have to make every dollar count, said Ms Lorna Tan, head of financial planning literacy at DBS Bank. To do so, we need to brush up on our financial literacy – an essential life skill that could have a long-term impact on our personal and financial well-being. 

THE THREE CORE COMPONENTS OF FINANCIAL HEALTH

According to Ms Tan, we can bolster our financial literacy in three main areas, which should be done sequentially: Budgeting, saving and investing.

1. Budgeting

The first step to successfully managing our finances is to keep track of our monthly expenditure and set up a budget.

“Tracking your expenditure gives you an idea of what you are spending on and highlights areas where you are over-spending,” said Ms Tan. “Thereafter, it makes it easier for you to set up a budget for different categories of spending and gain greater control over your money.”

2. Saving

With budgeting down pat, it’s then time to start thinking about saving. Ms Tan noted that savings are particularly important for rainy days: “Having sufficient savings can tide us through unexpected and difficult circumstances such as retrenchment, a medical crisis or the death of a loved one.”

Knowing how much to save is also important. According to Ms Tan, saving sufficiently to cover at least three to six months’ worth of expenses is a good guideline, with this increasing to 12 months for those with more unpredictable income streams, like gig workers. 

As the adage goes, if you take care of the pennies, the pounds will take care of themselves. Savings accounts like the DBS Multiplier Account and POSB Save-As-You-Earn Account can help contribute to your nest egg by rewarding you with higher interest rates for reaching certain benchmarks, such as achieving a regular monthly savings threshold or crediting your monthly salary into the account.

3. Investing

Once you’ve secured sufficient emergency savings, it’s time to work that spare cash harder through investing. Among the chief benefits of investing is that over time, it can help to mitigate longevity and inflation risks. According to Ms Tan, it is critical that you understand your financial situation, objectives, risk appetite and the type of investment products available before you start investing. 

“You can start small with a regular savings plan like the DBS Invest-Saver where you set aside a fixed amount each month to invest in an exchange traded fund and/or unit trusts. Using a robo-advisor like DBS digiPortfolio is also an option for fee-conscious investors who want investment advice at a reasonable fee*, along with curated investment portfolios,” she said.

In the current context of the economic slowdown, rising cost of living and increased volatility in the stock markets, some investors are inclined to adopt a “flight to safety” approach, shared Ms Tan. “Coupled with their increasing yields, low-risk cash alternatives like fixed deposits, Singapore Savings Bonds (SSBs) and Treasury bills (T-bills) have become popular options among retail investors who wish to diversify their portfolios.” 

In addition to integrating these three core concepts, it’s important for people to consistently do their own research. After all, financial literacy is a lifelong journey. Said Ms Tan: “Everyone’s life goals and circumstances are different, which calls for customised approaches and solutions.”

TAPPING ON EXPERTS TO ENHANCE FINANCIAL LITERACY

To encourage financial literacy among consumers, DBS hosts a comprehensive repository of educational content via articles, videos and seminars on the DBS Financial Planning website.

“DBS also offers similar content via social media channels like Telegram, Facebook and Instagram. Some of them are targeted at students, young adults and investors,” said Ms Tan.

Customers can take ownership of their financial planning with digital advisory tool DBS NAV Planner, she added. The digital advisor consolidates one’s financial information – with numbers pulled from sources such as Central Provident Fund, Inland Revenue Authority of Singapore, Housing and Development Board, Central Depository, as well as other banks and insurers – to provide a holistic view of one’s finances. 

“DBS NAV Planner can help track expenses and savings, and dispense personalised insights and tips with regards to investing, insurance coverage, home planning and retirement planning,” Ms Tan elaborated. 

There’s no time like the present to start tapping on available resources and expert advice to help make informed financial decisions. In the long run, having sound financial literacy will help us better manage our money, no matter the economic climate.

Learn more about how you can fight inflation with DBS and POSB. 

*DBS has removed all sales charges, platform fees and switching fees; and charges a flat management fee of 0.25 per cent to 0.75 per cent per annum. Learn more.

Terms and conditions apply. Singdollar deposits are insured up to S$75K by the Singapore Deposit Insurance Corporation. 

This article is for general information only and should not be relied upon as financial advice. Any views, opinions or recommendation expressed in this article does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability. All investments come with risks and you can lose money on your investment. This advertisement has not been reviewed by the Monetary Authority of Singapore.