Congratulations on your first job! It is the start of many new things and doing some planning before any spending will go a long way. Read on to find out how to make the most of your early working years.
Your 1st Steps
A well-thought-out approach to managing your money can better prepare you to handle different needs and changes in your life. You can begin by identifying your short-term and long-term needs, and how to go about meeting them.
RULE OF THUMB
Developing a saving habit early allows you to better prepare for your retirement. To see tangible increases in your savings account, set aside 15% - 20% of your salary each month for a start. Draw up a budget and make a plan for your savings and investments to help meet your financial goals.
NEED TO KNOW
Your CPF Accounts
The Central Provident Fund (CPF) is a comprehensive social security savings plan, which helps meet your retirement, housing and healthcare needs. Each month, you and your employer contribute to your CPF, which consists of three different accounts: Ordinary Account, Special Account and MediSave Account.
Through schemes such as Workfare and MediSave top-ups for senior citizens, the Government also helps to supplement the CPF savings of lower-wage workers.
A summary of the interest rates and uses for each account is shown below:
As a new entrant to the workforce, your contributions to your CPF accounts each month totals 37%, with 20% coming from your salary and 17% coming from your employer*. Do note that if you are a Singapore Permanent Resident, your contributions will start at a lower rate and grow to 37% after two years.
*Based on CPF contribution rate for employees 35 years old and below (for monthly salary ≥ $750). CPF contributions are payable for your monthly salary of up to $6,000.
If you work in Singapore, you are entitled to employment rights, which include minimum terms and conditions of employment, as well as rights and responsibilities of employees and employers under a contract of service.This extends to mandatory CPF contributions by your employer, as long as you earn more than $50 a month.
It is always good to be prepared for the unexpected, especially when you have just started working.
If you are at least 21 years old and have made your first CPF contribution, you will automatically be covered under the Dependants' Protection Scheme. The Dependants' Protection Scheme is an affordable term insurance that provides coverage of up to $46,000. The Dependants' Protection Scheme benefit will be paid out to you and/your family members should you become permanently unfit for work or pass away. You can use the monies from your Ordinary Account and/or Special Account or cash to pay for the annual premiums.
Your education loan is likely to be one of your first financial obligations. Just like any other loan, if you had used CPF savings for your education, you will need to repay this loan (including interest accrued) to the CPF account that you used.
Repayment of the education loan begins one year after your graduation or the termination of studies, whichever is earlier. About three months before the start of the repayment, you will receive a package with the loan repayment details. You can begin repaying your loan earlier if you have additional cash in hand.
Having started work recently, you may be keen to make investments and grow your savings as part of your financial plan. Remember that all investments come with risks, so it is good to be familiar with investment concepts and products before embarking on any investment plans. Learn more about basic investing concepts here before you start investing.
You may have thought of using your CPF savings for investment purposes. The CPF Investment Scheme allows you to do so through various investment products.
To make an investment using your CPF savings, you should:
• Be at least 18 years old;
• Not be an undischarged bankrupt; and
• Have more than $20,000 in your Ordinary Account and/or more than $40,000 in your Special Account
To help you grow your CPF savings and earn attractive risk-free interest rates, you can consider making top-ups beyond the mandatory CPF contributions. This can be through the CPF Retirement Sum Topping-Up Scheme and by making CPF voluntary contributions.
TheRetirement Sum Topping-Up Scheme allows you to
• Top up with cash or transfer your CPF savings
• Top up your own or your loved ones'* Special Accounts (below age 55) or Retirement Accounts (age 55 and above)
Topping up with cash or a CPF transfer to the Full Retirement Sum (below age 55) or Enhanced Retirement Sum (age 55 and above) gives the opportunity to enjoy a higher monthly payoutfor life. You can enjoy tax relief of up to $14,000 per year if you use cash to top up for yourself (up to $7,000) and your loved ones (up to $7,000).
You can also make voluntary contributions, through a lump sum payment or GIRO, to build up you and/or your loved ones' CPF savings. Voluntary contributions to all your CPF accounts (Ordinary, Special and MediSave Accounts) are subject to the approved limit and do not qualify for tax deduction. However, voluntary contributions to your MediSave Account alone are tax deductible.
*"Loved ones" include only your parents, parents-in-law, grandparents, grandparents-in-law, spouse and siblings.
Supplementary Retirement Scheme
The Supplementary Retirement Scheme is a voluntary scheme that allows you to save for retirement, to supplement your CPF savings. Both you and your employer can participate in this scheme and enjoy tax reliefs.
Acquiring new skills and knowledge continuously can help open up new opportunities for you in your career. SkillsFuture Singapore provides a one-stop platform with various training and certification courses.
Always good to start saving early as it helps you to better prepare for different needs that may arise in the future. Your CPF savings will provide you with monthly payouts during retirement, to take care of your basic needs. You can grow your savings early to secure your nest egg by leveraging on the various CPF schemes that are available.
This article on Your First Job was republished with permission from Central Provident Fund (CPF) Board.