Being Financially Prepared For The Next Stages of Life

As we transition through different stages in life starting from a student, to a fresh graduate new to the workforce and all the way to a seasoned worker, we noticed that our spending patterns change significantly. Our priorities change very much as well after we reached a certain matured age.

Set your goals

We understand how competitive the market is in this century and especially buying your dream home or personal car could be a challenge in this tiny island. However if we set our heart into it, we will be able to gradually reach our goals. Set a goal in life, whether it could be for the sake of independent living or when you share a common dream to settle down and form a family of your own.

Maximise your income

A simple way to start off would be having a budget plans. Budgeting is crucial as it helps you to limit your spending, manage and track your expenses, and save more money. Additionally, setting a budget can help you to make better financial decisions and in the long term be prepared for emergencies. It also prevents you from getting into debts and stay focused on your long-term financial goals. The example below is one of the many ways one can budget,
but you can still adjust the portions according to your financial situation.

1. Allocate a higher portion of your income (eg. 40%) to pay up another outstanding loans or loans that you are planning to take up. Loans such as car loans and housing loans have longer tenures and accumulative interests over time.

2. Keep your expenses low (eg. 30%). Expenses here refer to your everyday spending on necessities such as utility bills, household goods, and transportation fees. You can further cut down on these expenses if you practice prudency on a daily basis.

3. You can take baby steps by starting a small fund (eg. 20%) for investments or even savings plans to meet your long-term goals in a shorter span of time. Some of these goals would include saving for your child’s education, setting up a business, or for retirement.

4. The remaining 10% of your income should be sufficient to cover insurance payments for yourself and your loved ones, which will be exceptionally useful in times of emergency.

Understand the MSR and TDSR rules

Mortgage servicing ratio (MSR) refers to the portion of a borrower’s gross monthly income that goes towards repaying all property loans, including the loan being applied for. MSR is capped at 30% of a borrower's gross monthly income.

It applies only to housing loans for the purchase of an HDB flat, or an executive condominium where the minimum occupation period of the executive condominium has not expired.

Total debt servicing ratio (TDSR) refers to the portion of a borrower’s gross monthly income that goes towards repaying the monthly debt obligations, including the loan being applied for.
A borrower's TDSR should be less than or equal to 55%.

Failing to meet the MSR and TDSR may result in several negative effects such as:

1. Higher risk of your loan applications being rejected is high

2. You will not be able to borrow as much

3. Harder to stretch the loan tenure

4. Increased refinancing risk

Budgeting is an important life skill that not only helps you to budget your income but prevent you from falling into debts. Borrowing beyond your means can leave you struggling financially as you go further into debt. Consider all the other existing loans that you have and understand your financial standing before applying for additional loans. It is also important to do ample research and clear any doubts with the loan sales adviser before you agree to take up the loans.

Lastly, maintaining a good credit reputation is important as lenders will typically assess your credit report before extending out a loan to you. This will be crucial especially if you are in the need to purchase big ticket items like a house or a car.

Also, be sure follow and like CBS Facebook page @creditbureausingapore for more useful content and tips to maintain a good credit reputation!

Contributed by Credit Bureau Singapore

Published 23 September 2022.