As a fresh graduate embarking on your new milestone of entering the workforce, your newfound responsibilities bring about many concerns which are bound to weigh on your mind.
It is essential to practise good financial planning habits from the beginning, so you can navigate key future decisions – such as starting a family or buying a house – with much more confidence.
Insurance is seen as a daunting task for many fresh graduates as they struggle to grasp the different types of insurance plans they should purchase. As you are just entering the workforce, your greatest personal financial asset is your youth and ability to work. Hence, facing any health issues will be one of your biggest risks in pursuing a long and successful career.
Nonetheless, this issue can be easily mitigated by purchasing the right insurance plan. However, before committing to a new insurance policy, you should always take a step back and review what you already have. This can be split into three broad categories: (1) What your parents bought for you; (2) What your company offers; and (3) MediShield Life.
Firstly, for many of us, our parents would have bought insurance policies when we were young. Hence, it is always good to check out what these policies are so that you do not purchase something you are already covered for. Secondly, some companies may provide group insurance coverage as part of staff benefits so be sure to find out more from your HR before committing to any new insurance plans. Finally, all Singaporeans, regardless of age or any pre-existing conditions, are covered by MediShield Life. This provides basic insurance coverage for any health problems. However, you can also increase the extent of your coverage by upgrading to the Standard Integrated Shield Plan or other Integrated Shield Plans.
If you still wish to obtain additional coverage, consider buying other types of health insurance policies where premiums tend to be more expensive as your grow older. This includes critical illness plans or disability income insurance.
2. Central Provident Fund
One thing unique about Singapore and something that all Singaporeans are sure to recognise is our Central Provident Fund (CPF). All Singaporean Citizens and Permanent Residents are subjected to the mandatory savings scheme by our government which is aimed at securing retirement funds for each and everyone of us. Since its former days, the role of CPF has now expanded for Singaporeans to utilise these funds for housing, healthcare and education expenses.
As a working adult, the 3 accounts you need to pay attention to in your CPF are the Ordinary Account (OA), Special Account (SA) and Medisave. 20% of your monthly salary will be contributed by you to your CPF while your employer will contribute an additional 17% of your monthly salary. This would mean that for an average fresh graduate earning $4,000 per month, your take home salary would be $3,200 while $1,480 will be credited to your CPF. Of this 37% that goes into your CPF, 23% will go to your OA, 6% to your SA and 8% to Medisave. This allocation will only be adjusted after the age of 35 where priorities will shift to focus more on SA and Medisave.
Another key feature of the CPF is that the interest rates you earn from it is well above those you can attain in bank savings accounts. For the OA, you will receive 2.5% while for the SA and Medisave, you will obtain an interest rate of 4%. Furthermore, the first $60,000 in your CPF account also earns you an additional 1%.
However, it is crucial to note that your CPF has an Ordinary Wage (OW) ceiling of S$6,000. This would mean that for an individual drawing above S$6,000, his CPF contribution would be computed based on an OW of S$6,000 and CPF contribution is not required on the excess amount. For Additional Wages (AW) such as annual bonus and leave pay, the amount of CPF contributions payable is capped at a yearly ceiling of: 17 months x S$6,000 – Total OW subject to CPF for the year.
Do check out the CPF Additional Wage Ceiling Calculator here.
Beyond understanding how your CPF account works, you can also reduce your tax payable by providing a top up to your SA. This works by giving you a dollar-for-dollar tax relief, capped at $7,000. This not only brings about tax savings, but will also boost your retirement funds at the same time. For every $7,000 contributed to your SA today, you will be able to receive a significant amount of interest over a period of 30 years.
Furthermore, to fully maximise the favourable interest rates offered in your CPF account, you should top up your account until the CPF annual limit of S$37,740.
3. Credit Cards
If you are wondering which credit cards you should apply for to best suit your lifestyle, perform thorough research before applying for yours so it saves you the hassle of having to cancel them later. Alternatively, you can use apps like CardsPal to review credit card deals and understand which cards tp use for your purchases.
4. Savings Account
Ever wondered which savings account gives you the best interest rate? Or tired of the meagre interest rate you have been receiving in the bank account your parents set up for you? Check out our post on the best savings accounts for fresh graduates here!
Finally, always maintain a close watch on all your finances. With Autumn, you can easily personalise a single view dashboard across your savings, loans, investments and more, for full clarity. As an independent and bank agnostic platform, Autumn delivers personalised and data driven insights to motivate you to take positive steps to achieving your best future.
Download the app on the App Store or Google Play Store, to help you simplify financial planning into small steps.