High inflation isn’t going away soon. How can you better protect your money?

Singapore’s core inflation reached 4.4 per cent in June – the highest it’s been since the global financial crisis in 2008. Core inflation excludes accommodation and private transport. The Monetary Authority of Singapore noted in a July statement that “inflationary pressures will remain elevated in the months ahead”.

In this column, Mr Winston Lim, UOB’s head of deposits and wealth management, answers some of your key questions about financial planning amid rising inflation. The 47-year-old has over two decades of experience in financial services. He previously headed the personal financial services and private wealth management team in UOB China.

Q: I’m worried about my finances as I have a family of four. Everything – from electricity to food – is more expensive now. How can I better plan my finances amid inflation and recession worries, and an impending GST hike (over the next two years)?

A: Inflation has reached levels not seen in Singapore in more than a decade, so you are right to pay closer attention to your finances. It can be helpful to go back to basics. Set a monthly budget and track your expenses so you know you are spending within your means.

We believe in a Risk-First Approach to managing one’s wealth. This means you should assess risks from the start and make it a priority to protect the assets you have worked hard to accumulate. Make sure your family is protected with enough insurance coverage, from health to life insurance, and even covering your home contents. The last thing you want is to be hit with a major expense you are not prepared for.

Once your family is adequately covered, you would then have peace of mind to build your wealth. Invest consistently and stay invested. Not doing so could result in you falling behind on your long-term goals such as retirement and your children’s education. The law of compounding means you would then have to work doubly hard to catch up in the future.

Q: With rising interest rates and the ongoing market volatility, am I better off just putting my money in a savings account?

A: You should always ensure you have enough savings to tide you through unexpected circumstances. After you have set aside enough to cover three to six months’ expenses, you should start investing. In today’s high-inflation environment, it is even more important to grow your money to keep pace with rising prices.

It is natural to feel pessimistic when you see negative headlines. You might have seen that US stock markets entered a bear market recently, meaning they have fallen by more than 20 per cent from previous highs.

But statistics show bear markets usually last nine to 10 months on average. On the other hand, bull markets, which is when markets rise by more than 20 per cent from previous lows, usually last an average of two and a half years, meaning those who stay invested tend to get rewarded in the long run.

Always keep your investment time horizon and risk appetite in mind, because valuation levels that are attractive for long-term investors may not be appropriate for short-term investors.