Personal Finance Management - 3 Key Lessons I Learnt in 2020

In the past, I neither follow a budget nor own an expenses tracker. I tend to spend without thinking. If you know me well enough, you would also know that I spent a lot on travelling. However, due to the pandemic, I did not travel this year. On top of that, I learnt one important lesson - nothing is permanent. Hence, it got me thinking if I could have planned better for my future. I am happy to share that I managed to save a good sum of money this year.

Here are some financial lessons that I learnt this year:

1. Emergency Fund is more important than ever!

Due to the pandemic, the economy is pretty uncertain. I know of peers who had a pay cut or worst still, they were retrenched. Due to this sad news, I finally realised the importance of having an emergency fund. A 6-month worth of the emergency fund is crucial in such time so that you can worry less.

At the beginning of the year, I barely had 1-month worth of emergency saving. I am glad to say that I managed to save up 4 to 5-month worth of the emergency fund this year because since I did not get to travel. You can save a lot if you don't travel extensively. I am very proud of myself to be able to achieve this saving goal within a year.

Generally, it’s good to save up 6-month worth of emergency fund. Personally, I think that it’s better to save up at least 1 year of the emergency fund. You have less to worry about especially when you recovering from a major illness. You won’t be able to work for a prolonged period of time. Hence, it is good to have at least 6-month worth of emergency fund at hand.

2. Insurance is important!

It's important to get yourself covered and know what you are purchasing. Due to the pandemic, I started to learn more about the insurance plans that I purchased. I want to know if my coverage is sufficient because the healthcare cost is relatively high in Singapore.

Moreover, as I get older, I realised the importance of some of the insurance plans. Imagine hurting yourself when carrying a box of items, and you need to go for several rounds of acupuncture to relieve the strain! A slight sprain in the wrist would cost you around $200 for TCM treatment alone. If you have a personal accident plan, you may be able to claim this amount back. Thus, you can worry less about your finances.

3. Priorities your goals

What are your goals in life? s it to travel around the world, buy a house, start a business, own all the limited edition sneakers? It is good to write them all down so you can see the goals and decide if any of the goals are redundant. Then, you can rank them in order of importance and urgency.

For example, my three goals in life are to have my own space, travel around the world and start a small business. At this phase of my life, my priority is to buy a house soon, follow by travelling around the world. I am working on my small business while saving up for the 2 aforementioned goals.

This is a good exercise to know what you want, then you can do some research to find out the rough estimate of how much you need to save. This will give you a clearer picture if your goal can be achieved within a certain timeframe. From there, you can break down your goals into a monthly savings plan, and keep track of your progress.

I hope that this post inspires you to start your own financial journey. If you do not know where to start, feel free to check out this comic series that I created with Esther Perh. This is a shameless plug - I am the designer behind this comic! Give us your support. This comic includes various financial tips, from budgeting to paying off your loans. Honestly, it contained a lot of great tips! I learnt a lot of financial tips while creating this series. I believe you will find value from it too.