Financial Planning Fundamentals 101
- Mandino Tan
- May 29
- 6 min read
Introduction
Financial planning is the process of managing your money to achieve personal life goals, such as buying a home, funding education, or retiring comfortably. The fundamentals of financial planning provide the foundation for this process, helping you understand your current financial situation, your desired financial goals, and the steps to achieve them. This guide aligns with the Certified Financial Planner (CFP) curriculum in Singapore. It provides a clear and actionable roadmap for beginners and those seeking to strengthen their financial foundation.
In this guide, we’ll cover:
Assessing Your Financial Situation
Setting Financial Goals
Creating a Budget
Managing Cash Flow
Building an Emergency Fund
Understanding Debt Management
Tools and Resources for Singaporeans
By mastering these fundamentals, you’ll be well-equipped to take control of your financial future.
1. Assessing Your Financial Situation
Why It Matters
Before you can plan for the future, you need a clear picture of your current financial health. This involves gathering data on your income, expenses, assets, and liabilities to calculate your net worth.
Steps to Assess Your Financial Situation
Track Your Income
List all sources of income, including salary, bonuses, freelance work, or side hustles.
For Singaporeans, include Central Provident Fund (CPF) contributions from your employer.
Monitor Your Expenses
Categorise expenses into fixed (e.g., rent, utilities) and variable (e.g., dining out, entertainment).
Review bank statements, credit card bills, and receipts over the past 3–6 months to identify spending patterns.
List Your Assets
Include cash, savings accounts, CPF balances, investments (stocks, bonds, REITs), property, and other valuables.
Estimate the current market value of each asset.
Identify Your Liabilities
List all debts, such as housing loans, car loans, credit card balances, or student loans.
Note the outstanding balance, interest rate, and monthly repayment for each.
Calculate Your Net Worth
Formula: Net Worth = Total Assets – Total Liabilities.
A positive net worth indicates financial stability, while a negative net worth signals the need to reduce debt or increase savings.
Example
Income: $4,500/month (salary + CPF contributions)
Expenses: $3,000/month (rent, food, transport, etc.)
Assets: $20,000 (savings), $50,000 (CPF), $30,000 (stocks) = $100,000
Liabilities: $10,000 (credit card), $50,000 (housing loan) = $60,000
Net Worth: $100,000 – $60,000 = $40,000
Tips
Use apps like Expense Tracker to automate expense tracking.
Review your CPF statement on the CPF website to understand your balances.
2. Setting Financial Goals
Why It Matters
Financial goals give direction to your planning. They help prioritise your spending, saving, and investing decisions.
Types of Financial Goals
Short-Term Goals (0–1 year)
Examples: Build an emergency fund, pay off credit card debt, save for a holiday.
Focus: Immediate needs and small milestones.
Medium-Term Goals (1–5 years)
Examples: Save for a car, fund a wedding, make a down payment for a flat.
Focus: Balance saving with other financial priorities.
Long-Term Goals (5+ years)
Examples: Include retiring comfortably, funding children’s education, and achieving financial independence.
Focus: Long-term wealth accumulation.
How to Set SMART Goals
Ensure your goals are:
Specific: Clear and well-defined (e.g., “Save $10,000 for a car down payment”).
Measurable: Quantifiable (e.g., “Save $500/month for 20 months”).
Achievable: Realistic given your income and expenses.
Relevant: Aligned with your values and priorities.
Time-Bound: Have a deadline (e.g., “By December 2026”).
Example SMART Goal
Goal: Save $12,000 for an emergency fund by June 2026.
Plan: Save $500/month for 24 months in a high-yield savings account.
Tips
Write down your goals to stay motivated.
Prioritise goals to avoid spreading your resources too thin.
3. Creating a Budget
Why It Matters
A budget is a plan for how you’ll allocate your income to expenses, savings, and investments. It ensures you live within your means and work towards your goals.
Popular Budgeting Methods
50/30/20 Rule
50% for needs (e.g., housing, utilities, groceries).
30% for wants (e.g., dining out, hobbies).
20% for savings and debt repayment (e.g., emergency fund, CPF, loans).
Zero-Based Budget
Assign every dollar of your income to a specific category, ensuring income minus expenses equals zero.
Ideal for those who want strict control over spending.
Envelope System
Allocate cash to different spending categories in envelopes (physical or digital).
Stop spending once an envelope is empty.
Steps to Create a Budget
Determine Your Income
Use your net income (after CPF and taxes).
Categorise Expenses
Divide into needs, wants, savings, and debt repayment.
Allocate Funds
Apply a budgeting method like 50/30/20.
Ensure savings and debt repayment are prioritised.
Track and Adjust
Monitor spending weekly to stay on track.
Adjust the budget as needed based on changes in income or expenses.
Example Budget (Monthly Income: $4,500)
Needs (50%): $2,250 (rent: $1,200, groceries: $400, transport: $150, utilities: $100, insurance: $400)
Wants (30%): $1,350 (dining out: $400, entertainment: $300, shopping: $650)
Savings/Debt (20%): $900 (emergency fund: $300, CPF top-up: $300, credit card repayment: $300)
Tools
Use budgeting apps like Seedly or Money Lover.
Set up separate bank accounts for needs, wants, and savings.
4. Managing Cash Flow
Why It Matters
Cash flow management ensures your income covers expenses while leaving a surplus for savings and investments. Positive cash flow is essential for financial stability.
Steps to Manage Cash Flow
Increase Income
Explore side hustles, freelance work, or upskilling for a higher-paying job.
Reduce Expenses
Cut non-essential spending (e.g., subscription services, frequent dining out).
Negotiate bills or switch to cost-effective providers.
Automate Finances
Set up automatic transfers to savings accounts and CPF contributions.
Schedule bill payments to avoid late fees.
Monitor Cash Flow
Use a spreadsheet or app to track your income and expenses on a monthly basis.
Aim for a positive cash flow (income > expenses).
Example
Income: $4,500
Expenses: $3,500
Cash Flow: $4,500 – $3,500 = $1,000 (allocate to savings or debt repayment)
Tips
Review cash flow monthly to identify trends.
Use Seedly’s cash flow tracking features for real-time insights.
5. Building an Emergency Fund
Why It Matters
An emergency fund serves as a financial safety net for unexpected expenses, such as medical bills or job loss, thereby preventing reliance on debt.
How Much to Save
General Rule: 3–6 months of living expenses.
Singapore Context: Aim for 6 months if you’re a sole breadwinner or in a volatile industry.
Where to Keep Your Emergency Fund
High-Yield Savings Accounts: Offer better interest rates (e.g., DBS Multiplier, UOB One).
Fixed Deposits: For a portion of the fund, if you can lock in funds for 6–12 months.
CPF Ordinary Account: Not ideal for emergencies due to withdrawal restrictions, but it contributes to overall security.
Steps to Build an Emergency Fund
Set a Target: Calculate 3–6 months of expenses (e.g., $3,000/month x 6 = $18,000).
Start Small: Save $50–$100 per month if funds are tight.
Automate Savings: Transfer a fixed amount to a dedicated savings account on a monthly basis.
Increase Contributions: Allocate bonuses or windfalls to the fund.
Example
Monthly Expenses: $3,000
Target: $18,000 (6 months)
Plan: Save $500/month for 36 months
Tips
Avoid using the emergency fund for non-emergencies.
Replenish the fund after withdrawals.
6. Understanding Debt Management
Why It Matters
Debt can derail your financial plan if not appropriately managed. Effective debt management reduces interest costs, freeing up funds for savings and investments.
Types of Debt in Singapore
Housing Loans: Typically low-interest, long-term loans (e.g., HDB or bank loans).
Car Loans: Higher interest rates, shorter terms.
Credit Card Debt: High-interest, revolving debt.
Student Loans: Often low or no interest during the study period.
Personal Loans: Vary widely in interest rates and terms.
Strategies for Debt Management
Prioritise High-Interest Debt
Use the avalanche method: Pay off debts with the highest interest rates first (e.g., credit cards with an interest rate of 24% per annum).
Alternatively, use the snowball method: Pay off the smallest debts first for quick wins.
Consolidate Debt
Combine multiple debts into a single loan with a lower interest rate.
Avoid Over-Leveraging
Keep debt repayments below 35% of your income (Total Debt Servicing Ratio, TDSR).
Negotiate with Creditors
Request lower interest rates or extended repayment terms if struggling.
Example
Debts: Credit card ($5,000 at 24% p.a.), car loan ($20,000 at 2.5% p.a.)
Strategy: Pay $500/month to the credit card, minimum on a car loan, then redirect funds to the car loan after the credit card is cleared.
Tips
Avoid new debt while repaying existing loans.
Use Seedly’s debt management guides (Debt Management Tips).
7. Tools and Resources for Singaporeans
Local Resources
CPF Website: Check your CPF balances and contribution rates (myCPF).
Seedly: Offers budgeting tools, expense trackers, and community advice (Seedly Blog).
MoneySmart: Compare financial products, such as savings accounts and loans (MoneySmart).
Practical Tools
Budgeting Apps: Seedly, Money Lover, Wallet.
Spreadsheets: Create custom trackers using Google Sheets or Excel.
Banking Apps: DBS digiBank, OCBC Mobile Banking for real-time account monitoring.
Conclusion
Mastering financial planning fundamentals is the first step towards financial security. By assessing your financial situation, setting SMART goals, creating a budget, managing cash flow, building an emergency fund, and handling debt wisely, you can lay a strong foundation for your financial future. In Singapore, tools like CPF and resources from Seedly make this process accessible and actionable. Start small, stay consistent, and review your plan regularly to adapt to life changes. For complex needs, consider consulting a certified financial planner.
Take the first step today—your financial future begins now!
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