Okay, I’ve Saved $10,000. What do I do with it?- The Money Management Framework

Money management framework

When I first started reading up about how to get my finances in control, I had a tidy sum saved up from NS and from various part time jobs over the years. But what was it supposed to do with it?

Invest it all? Nah, didn’t seem safe to do it…

Invest some and keep some? How much to keep though?

I’m sure some of you, whether you’re working or still students or even in NS, have thought of this at least once. I know in my uni days, my friends would ask me things like “Oh, I got about $10,000 saved up, what should I do with it?” 

Well, this is where a framework would’ve been useful. A framework to let you know what to do with money that you’ve saved up. Whether you have $100, $1,000, $10,000 or $100,000, this framework will guide you to where to put your money, step by step.

The Money Management Framework

Let’s start with an overview. The framework can be split into 6 main parts:

money management flowchart


Before you do anything with your hard-earned money, it is important to have a plan to manage your expenses. Budgeting does just that. Budgeting sets limits on how much you should be spending and how much you should be taking in every month (assuming you have some form of income).

More importantly, budgeting sets the groundwork for how you spend money in the future as well and keeps you on track to achieving your financial goals.

If you’re a student, it might seem quite demoralising because you have no income (or minimal from part time gigs here and there). I’ve been recording my expenses since the end of year 1 in uni, and trust me, budgeting is a skill that translates to healthy and disciplined spending habits when you start working.

Not sure how to start budgeting? Check out a post I wrote about it some time back!

Emergency Fund and Safety Nets

Next up, you’re gonna need an emergency fund. An emergency fund is a stash of money to help you in the event of an unexpected financial problem. This can include losing your job, serious illness or medical procedures among others.

At this point, saving up one month of expenses will do. It’s not much, but it’ll get by for now. Note that this is only a portion of the amount you require for a full emergency fund, which will be part 4.

I know for students this advice doesn’t make sense. So for students, I would say, keep the amount you will need until you graduate and acquire a stable income. This would include daily expenses and big purchases that you may incur along the way.

In this segment, we also have the acquisition of our safety nets, or insurance. Insurance is a confusing topic for many, seeing as there are many different products on the market.

The most important, definitely, is Health Insurance (sometimes known as Hospitalisation Insurance). This is the one that pays out when you are hospitalised or need some form of treatment at the hospital.

It’s important to get health insurance early because health insurance comes with certain conditions known as exclusions. This means that let’s say you broke your right leg when you were 15 during a soccer match. Odds are, when you purchase health insurance, they may not cover you for procedures for your right leg. This definitely gets worse when you’re older, especially if you develop a heart condition, at which point it becomes near impossible to even get any coverage under a health insurance plan. My own father had this very issue after he had a pacemaker placed into his chest when he was 57.

For those of you just entering the workforce, I understand that it’s painful seeing parts of your salary ‘disappear’ to insurance, where you don’t get to see the tangible benefits until something bad happens. But for such things, it’s better to have it before you need it. Always better to have a plunger handy before your toilet is clogged by a massive dump.

As a student, I don’t expect you to get your health insurance yet. I know I didn’t. My advice would be to purchase it once you’ve secured a job after graduation.

Life insurance and critical illness insurance can wait till you’ve gotten your full emergency fund down and your finances are well under control.

Paying Off High Interest Debt

At this point, you’ve attained some stability in your life. Now it’s time to cut some of the dead weight. Bad debt.

High interest debt refers to debts with interest rates 10% or above. Usually the only kind of debt that falls into this category is credit card debt which charges insane interest rates on unpaid amounts (don’t fall into that trap y’all).

Clear it right now!

There are generally two common methods to help people target their debt effectively and these are the Snowball method and the Avalanche method.

snowball method
Photo by Kelly Sikkema on Unsplash
The Snowball method advocates focusing on smallest debts first, to build momentum as these small debts are cleared out of the way early on.

The Avalanche method, on the other hand, pushes for clearing debt with the highest interest rate first.

Logically, the Avalanche method generally results in lower interest payments at the end of the day, but whichever works for you better, is the better method!

If you’re lucky and never had any high interest debt to begin with, good job! You nailed this step without even knowing it!

Full Emergency Fund

Once all that horrifying debt is cleared, we can continue to build up our foundation through our emergency fund. From the original 1 month of expenses saved up, slowly increase it to 3-6 months. If you’re more conservative, you can push it up to 9-12 months, but most of the time it won’t be necessary.

If you’re already working, at this point, you can seek further insurance coverage to cover yourself adequately beyond your health insurance such as life insurance and critical illness plans.

Paying Off Mid Interest Debt

Similar to High Interest Debt, here we continue to cut off more of the dead weight. Think of it like a hot air balloon dropping off the excess weight to float higher!

Mid Interest Debt generally refers to those under 10% but above 4-5%. Loans for higher education from banks tend to fall into this category.

Here we can similarly use the Snowball or Avalanche methods again if we have more than one debt in this category.

Investing (and Saving for other goals!)

Alright, alright alright, we’ve come a long way from the start. All your high interest debts are cleared and your emergency fund and insurance needs are covered.  I’m sure you feel much more secure about your finances already!

Now for the fun part! Now, you can invest the remaining without fear of your other financial needs being left uncovered.

Index Investing Singapore
Photo by AlphaTradeZone from Pexels

Investing allows you to build your wealth, instead of leaving it to loss value due to inflation.

If you’re not sure how or what to invest in, check out these posts on index investing and dollar cost averaging to take your first step into the stock market (which is by far my favourite and most recommended form of investing).

On the other hand, if you’re expecting to make other large purchases in the near future (1-3 years), at this point you should be slowly funneling money towards those goals. Perhaps a house down payment or your upcoming wedding or a car that you’re looking to get!

Closing Thoughts

Managing money doesn’t have to be complicated. If you’re not sure what to do, stick to a framework to help you make your decisions and to take your emotions out of your finances. I hope this framework helped you like it helped me navigate the world of personal finance as a young adult!

Photo by Emilio Takas on Unsplash

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4 thoughts on “Okay, I’ve Saved $10,000. What do I do with it?- The Money Management Framework”

  1. Hello, how do i know how much E fund i need, i not too sure. i dont smoke, i dont drink. I have some insurance, but im not sure how to move forward. It is very subjective. I cld very well have 6 months of E fund (6 x $240) which amount to $1440) will this be enough, i spend 60 sgd per week on average

    1. Hi Robert, thanks for stopping by!

      Wow, $60 per week is pretty low spending. Do be sure to include certain expenses such as insurance, transport and bills that you might only incur only once a month or even annually that may easily be overlooked.

      But if your spending after factoring all of that is still at $60 per month, then you are right that a full emergency fund for your needs would be at $1,440. Of course, if you wish to, you can also place a bit of a buffer for your emergency fund, perhaps increasing it to $2,000 or $2,500 would be good!

      1. Hi Chris,

        Thank you for sharing the important insight of money management.

        I have done the first 3 steps and ready to invest 60% of my monthly income. However, I’m expecting to buy a flat in 1 to 5 years time. (Depending on whether we could get a BTO unit this year or else we would go for a resales flats). Hence, I’m having a dilemma on how I should invest my money. Should I still continue buying crypto and index funds, or should I save partial of my income in saving account? Also, would you mind elaborate what do you mean by “slowly funneling money towards those goals”? How do we funnel the money and where should we park or invest our money while working towards the goals.

        Greatly appreciate your help! Thank you.

        1. Thanks for dropping by, Stacia!

          When I mentioned ‘funneling towards these goals’, I meant to save the money required for such near term (<5 years) purchases into high yield accounts. So this can include (1) Insurance saving plans (e.g., Singlife, Singtel Dash PET) or (2) Money management accounts (e.g., Syfe Cash+).

          These usually promote rates around 1.5% (might drop in the future), but are generally low risk investments to park your money before these purchases.

          For investments side, you can still continue to put money aside to index funds/crypto etc. but for these funds, do ensure that it's different from the funds set aside for housing needs.

          Hope this clears up your doubts!

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