You will be able to check whether you are ready to invest by testing your buffer and your debts.
Marcus is 33, an account manager, and a friend of Nadia's from polytechnic. When she mentioned she was about to open a brokerage account, he said he'd been meaning to start too. He wanted to put S$500 a month into an ETF. He also had a S$3,000 balance on his credit card that he'd been rolling over for most of a year, and about S$1,500 in his savings account.
Marcus isn't ready to invest yet. That has nothing to do with his knowledge or his nerve. It's about what would happen to the investment the first time something went wrong in the rest of his life.
Investments are supposed to be left alone for years. Life doesn't always agree. A laptop dies, a parent needs a hospital stay, a job ends sooner than planned. If you have no cash buffer when that happens, the money has to come from somewhere, and the investment account is the obvious place.
The trouble is timing. A surprise bill doesn't wait for markets to be up. If Marcus had S$4,000 in an ETF and needed S$2,000 the month after a 25% fall, his S$4,000 would be showing as S$3,000. He'd have to sell two-thirds of what he owned to raise the cash, and the loss would become real. A buffer means the bill gets paid from cash, and the investment stays where it is.
How big the buffer should be, and how to build it while paying the bills, is covered in Money Foundations: budget, debt, buffer, in lesson 6.1, A starter buffer comes before extra debt payments, and lesson 6.2, Grow the buffer to your full target in stages. This lesson only asks whether yours is in place.
Credit card interest is charged at a high rate, and the interest compounds on the unpaid balance. Check the effective interest rate printed on your own card statement, because it is the number that matters here.
Every dollar Marcus puts towards his S$3,000 balance saves him that rate on that dollar, with certainty. Every dollar he puts into an ETF earns whatever markets do, which over a year might be a gain or a loss. Shares can't promise any return at all, let alone one that beats card interest every year, and in a bad year the fund can fall while the card balance keeps growing.
So paying off expensive debt is the best investment most people can make, because the return is fixed and guaranteed. Investing while carrying it means borrowing at a high rate to buy something with an uncertain return.
Not every debt counts. A housing loan or a study loan at a low rate is a different case, and you don't need to clear it before you start investing. The test is the rate. If it's higher than you could expect to earn from shares with any confidence, clear it first. If you're unsure where yours sits, Money Foundations lesson 5.2, Pick an order for your debts and stick to it, walks through ranking them.
The third check is the one people skip. Investing works best as a habit: the same amount, every month, for years. A plan to invest S$800 a month that collapses in month four, when a wedding season or a holiday arrives, does less good than S$300 a month that never stops.
Before you commit to a number, look at your budget for the past few months. What's left after spending and the buffer top-up, in a normal month? Pick an amount below that, so a bad month doesn't break the plan. If you want to test it, move that amount into a separate account on payday for three months before you invest any of it. If the account fills up without strain, the number is real.
Readiness comes down to three answers. Is your buffer in place? Is expensive debt cleared? Can you set aside a fixed amount every month without strain? All three need to be yes before the first order.
Marcus had three noes. He set his S$500 a month towards the card first, which cleared it within a year, interest included, then spent another few months building his buffer. Nadia, with her S$15,000 buffer, no card balance and S$500 a month already being saved, could answer yes to all three.
If you answer no to one of them, that doesn't end this course for you. It tells you what to work on first, and you can come back to module 3 once it's done. Answer the three questions now, honestly, and write each answer down.
Answer three yes or no questions: is your buffer in place, is expensive debt cleared, and can you invest a set amount every month.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).