Young Working Adults: 5 Crucial Personal Finance Rules to Follow

So, you’ve signed on the dotted line for your first job, meaning you’ve got a stable monthly income! And that’s a privileged position to be in, considering the slowing economy growth in the face of the Covid pandemic.

But before rallying your friends for celebratory drinks, it’s important to first take stock of how you plan to allocate your monthly salary. While a job means more financial stability, it doesn’t guarantee financial freedom. These are five easy tips to help you along.

 

1. Start a savings account

If you’ve been suitably exposed to personal finance content, you’d likely have encountered anecdotes or success stories about individuals making their first $100,000 before the age of 30.

Achieving such goals doesn’t involve simply sheer luck or hard work, but discipline.

As a starting point, set up a proper savings account before starting your first job. Upgrade yourself from your basic POSB Savings account, with its of 0.05% per annum interest rate.

These are some of the best savings accounts to consider, and the requirements you’ll need to fulfill to reap the maximum interest rates:

Data Bank of China
(BOC) SmartSaver
Maybank
Save Up
OCBC 360 Standard Chartered JumpStart
(only for those aged 18 to 26 years old)
Maximum interest rate per annum 3.55% p.a. 3.00% p.a. (on first $50,000) 2.15% p.a. (on first $70,000) 1.00% p.a. (max $20,000)
Initial deposit $1,500 $500 $1,000 $0
Min. monthly balance $1,500 $1,000 $3,000 $0
Base interest 0.25% 0.1875% (first $3,000) 0.05% 1% (on first $20,000)
Salary crediting 0.8% ($2,000 to $5,999)
1.2% (for $6,000 onwards)
Optional 0.6% (first $35,000)
1.2% (next $35,000)
Not required
How It works Three bills: 0.35% bonus interest on three bills
(at least $30 each, paid via GIRO, BOC iBanking or BOC Mobile Banking Bill Payment)

Card spending: 0.8% (for $500 to $1,499 spend); 1.6% (for $1,500 spend or more)

Others: 0.6% bonus (for account balances above $60,000), so long as you’ve fulfilled one of the requirements for salary crediting, bills or credit spending.
1.2% (for $6,000 onwards)

Choose to use up to three of its nine services (0.3% for one service; 0.8% for two services; 2.75% for three services).

Saving: 0.2% (first $35,000) 0.4% (next $35,000).
For this, your daily bank balance must increase by $500 a month.

Wealth: 0.6% (first $35,000); 1.2% (next $35,000)

Others: 0.8% (on first $70,000, with min. daily balance of $200,000)
1.2% (next $35,000)

Place a maximum of $20,000 in this account. You’ll also get 1% p.a. cashback on debit card transactions, subject to terms and conditions.

Accurate as of July 2020

 

Card spending: 0.8% (for $500 to $1,499 spend); 1.6% (for $1,500 spend or more)

Others: 0.6% bonus (for account balances above $60,000), so long as you’ve fulfilled one of the requirements for salary crediting, bills or credit spending.
1.2% (for $6,000 onwards)Choose to use up to three of its nine services (0.3% for one service; 0.8% for two services; 2.75% for three services).Saving: 0.2% (first $35,000) 0.4% (next $35,000).
For this, your daily bank balance must increase by $500 a month.

Wealth: 0.6% (first $35,000); 1.2% (next $35,000)

Others: 0.8% (on first $70,000, with min. daily balance of $200,000)
1.2% (next $35,000)Place a maximum of $20,000 in this account. You’ll also get 1% p.a. cashback on debit card transactions, subject to terms and conditions.

Accurate as of July 2020

Essentially, banks reward you for saving and spending to different degrees, so figure out the best mix for you.

 

2. Get insured

We spend our early 20s shaking off our, ahem, insurance plans-yielding financial consultant friends…only to later realise how important insurance actually is.

That’s adulting for you — and starting early’s a good idea.

These are three key types of insurance plans to know:

  • Whole life insurance

    In which you or your family receives a payout after a period of time, under unfortunate circumstances, or upon your demise.

  • Term life insurance

    Coverage on your life, but without a payout at the end of a specified period of time. Your coverage ends the moment you cancel or surrender your policy.

  • Health insurance

    In case of hospitalisation, you’ll want access to more affordable treatments.

Don’t commit to the first plan you see, though. An insurance plan is a long-term commitment, and surrendering your policy often means losing a hefty sum.

Do your research, and speak with various insurance agents to get a well-rounded idea of what might suit you best.

 

3. Resist impulse-buying (and track your expenses!)

It can be easy to lose track of your daily expenditure, particularly if you have the tendency to spend with little thought.

Relook your expenses to determine whether you’re able to cut back on your spending. Is that daily $6 iced latte really worth several minutes’ enjoyment? It’s the little things that add up; an atas coffee habit could easily set you back $180 a month.

Using an expense tracker app like Planner Bee also helps — you’ll get an overview of your spending habits, and identify patterns you hadn’t spotted, such as how regularly you make frivolous purchases.

Keying in your daily expenses and watching those small purchases add up can be a rude awakening, but that’s exactly what we all need to avoid an excess of ‘treat yourself’ days.

 

4. Passively invest

Beyond putting your money in a savings account, consider growing your money further by planting a sum in robo advisors, Singapore Savings Bonds (SSBs), or Exchange-Traded Funds (ETFs).

Investing should of course come after you’ve saved a comfortable amount, or a minimum of six months’ salary.

So, what’s passive investing? Unlike active investing, the former is a low commitment means of growing your money over the long term.

Robo advisors are popular because they automatically help you invest in a variety of index funds, which often means more stable returns. They also involve less financial commitment. For instance, a robo advisor such as Syfe doesn’t require a minimum starting sum, so you could put in as little as $100 a month, or a one-time lump sum of $500.

5. Set small financial goals

We’ve all got financial milestones we hope to achieve, whether it’s saving up for a two-week holiday around Europe, or something more practical like setting aside enough for your HDB BTO downpayment.

If you’re feeling stuck, start by listing immediate wants, or financial-based goals you hope to achieve.

These could either be amount-based milestones, or goal-based milestones.

Next, put a price to them (an estimate is fine, but round it up for inflation purposes) before rearranging your list in order of priority.

Here are two examples of financial milestones:

  • The amount-based milestone

    Save first $15,000 To achieve this, you’ll first need to estimate how many months you might take to save $10,000.

    Let’s assume you get a take-home salary of $2,500 after the mandatory 20% CPF deduction. Your expenses — transport, daily meals and subscriptions to Spotify and Netflix — amount to $1,000.

    With the remaining $1,500, you could choose to set aside the entire sum for ten months, therein unlocking your first amount-based milestone of $15,000 in savings.

    After achieving this goal, you could then grow your savings by putting a portion of it into conservative investment options, whether a robo advisor or Singapore Savings Bonds (SSBs).

  • The goal-based milestone

    Save $3,000 for two-week Europe trip (including flights)Working off the above example — based on a take-home salary of $2,500, and $1,000 in monthly expenses — let’s say you’re now planning a two-week holiday to Europe in six months’ time, which you estimate will cost you $3,000.

    Of the remaining $1,500 from your salary, you could choose to set aside $500 for six months.

    A bigger goal-based milestone, such as saving $25,000 for a wedding, would involve more long-term planning, so do your due diligence by working on your milestones early.

    Figure out your personal finances with one of Planner Bee’s helpful calculators, which cover everything from emergency funds, insurance, investments, mortgage, and retirement.

Leave a Reply

Your email address will not be published. Required fields are marked *