Here’s Why Singaporean Fresh Grads Might Regret Not Planning Their Finances Early
5 December 2017
Many a fresh grad has fantasised about what to do with their first pay check. Should you splurge on a new Chanel handbag? Take your friends out for a wild night of partying? Get a new gaming computer? Treat your family to a huge feast?
Here’s why the right answer might be none of the above: you should start planning your finances and putting aside cash for the future the minute you start working.
Sounds boring right? I mean, you’re not THAT old, so why worry about a distant future? Well, here are four ways neglecting financial planning can sink your future plans, and might actually result in a great deal of regret further down the road.
Getting married marks a massive life change for most Singaporeans. The lead-up to marriage usually requires a significant financial outlay—the engagement ring, wedding and flat down payment must all be paid.
Let’s take the typical Singapore wedding for example. If you’ve spoken to your friends who have held a typically large wedding banquet of 30 to 40 tables, they’re easily spending about $30,000 – $50,000, a massive sum for most young couples in their 20s or 30s. Even if you decide to skip the wedding banquet and hold a simple ceremony, the solemnisation alone can cost $3,000 to $5,000, and you’ve also got to take into account other costs like wedding attire and photography.
So if you’re coupled up and hoping to hear wedding bells sometime soon, you’ll need to start planning for this as soon as possible. Saving up for all the above can take years, and you also want to make sure that you don’t start off your lives as newlyweds on the wrong foot, financially speaking.
Buying a home
To add to the cost of getting married, if neither of you want to continue living with parents, being marriage-ready also means being ready to buy a home.
Whether you’re a couple hoping to move into your own love nest or a single who’d like some personal space away from your parents, buying a home is likely to be your first choice, since rental prices in Singapore can be brutal.
But before you can move into your own pad, you will need to save up for a down payment.
To buy an HDB flat, you’ll need to pay a down payment of 10% (if you’re taking an HDB loan) to 20% (if you’re taking a bank loan) of the purchase price. In the former case of taking an HDB loan, you’re able to use your CPF funds to pay for the full 10% of the down payment, so if you have enough in your CPF, you won’t have to pay any cash out of your pocket for your down payment.
But in the latter situation, you will need to pay at least 5% in cash, even if you have enough cash in your CPF account to cover the full amount. That means you need to cough up at least $20,000 in cash for a $400,000 HDB flat for which you are taking a bank loan.
What is more, even if your CPF savings are able to cover the cost of your loan instalments, you still need to put aside some money in case you unexpectedly lose your job or can’t work for a period of time, since you will have to continue paying your loan instalments come what may.
So for those who have home-owning aspirations or just want to move out as soon as possible, it’s a wise choice to start saving up well before that marriage proposal or hitting the age of 35. The earlier you get your finances sorted, the sooner you’ll be able to buy a home—and given the fact that property prices are expected to rise in the long term, sooner is better than later.
Starting a family
Has it always been your dream to have a family as big as the Kardashians? Then you’d better start saving up, because starting a family is expensive.
The cost of raising a child in Singapore has been estimated to be anywhere between $200,000 and $1 million.
While most of the costs aren’t immediate i.e. you won’t have to start footing tuition bills for your newborn, you will need to be prepared to bear the cost of medical checkups, hospital charges, and baby equipment like strollers and bottle sterilisers. You’ll also start caring about the sky-high prices of milk powder in Singapore.
It is not a good idea to have kids when you’re financially unprepared, so those wishing to raise a big brood should start saving as soon as possible.
The truth of the matter is that for many fresh grads, retirement might possibly be the last thing on their mind, especially when they’ve barely started earning a steady income. But taking that starting step to really think about what you need to do to live comfortably in retirement can have many benefits.
You might feel like the life of the party when you spend all your cash at hipster cafes, block parties, and overseas trips. But fast forward a few decades, and your friends who’ve been more prudent with their cash could be happily retired, while you’re forced to continue working. On top of that, there are short-term benefits as well, such as cultivating the discipline to manage your money well, which will also help you to achieve some of the short and medium-term goals mentioned above.
The earlier you start planning for retirement, the earlier you’ll be able to retire. When you start investing, and not just how much, has a huge influence on how much you end up with in a given year. The power of compounding interest means that the longer you leave your money invested, the more it can grow.
Put simply, if you start investing for retirement at age 25, you’ll need to put in a much smaller sum overall than someone who starts investing at age 45 to hit the same amount by retirement age. So don’t ever think you’re too young to start planning for retirement.
What else should fresh grads start planning financially for? Tell us in the comments!