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Graduating soon? Take steps towards financial security.

Wednesday, March 12, 2014

Received an email from a reader who is about to graduate and join the workforce:

Hi AK,

I am C and this is actually my first time writing to a blogger.

I've recently found your blog and you've been such an inspiration to me and my "future financial life".

Would like to sincerely thank you for setting up this blog to benefit us youngsters in Singapore. :)

I am about to graduate soon in a couple of months and I'm just wondering if you can provide some advice to me...

Upon graduation and receiving my first pay check, would you recommend me to first set up my emergency fund or invest in FDs or buy insurance or voluntarily top up my CPF or invest in a SRS account or a combination of some? 

There just seem to be many things I should do but I'm not sure which one I should focus on to get my priority right.

Thank you for your kind advice, AK.

Warmest regards

My reply:

Hi C,

I am not allowed to give advice but I am happy to share with you what I would do if I were in your shoes. :)

1. Buy a term life policy. 

Very important if we have parents or other dependents to care for. 

How much should the coverage be? 

It is up to you but I feel that $500K is probably more than adequate for most.

2. Buy a good H&S policy. 

Personally, I have NTUC Incomeshield with Assist Rider. 

We don't want to be sunk by hospital bills. 

How much you would spend here depends on whether you are comfortable with Class C, B or A wards or if you want to stay in private hospitals.

3. Buy a Critical Illness policy. 

We need this money to help pay for long term treatments if we should be diagnosed with one of these illnesses and not die. 

I am covered for $300K but, for a start, I think $100K should be comfortable.

4. Set up an emergency fund. 

Slowly build this up so that it is enough to cover at least 12 months of regular expenses (including insurance expenses). 

My preference is for 24 months. 

In case we lose our jobs or are unable to work for some reason, this is the fund we would draw upon.

Once we have done all these, we can start thinking about investing for a second stream of income.

Of course, if we can pay less taxes, we should. In planning for retirement, you want to consider topping up your CPF-SA to a maximum of $7K a year. Of course, you could also start an SRS account.

The tools are out there to help us achieve financial security. You will do quite well if you make good use of them. :)

Best wishes,

If anyone has any ideas to share, please leave comments here and I am sure C will read them. Thank you.

Related posts:
1. Why a meaningful emergency fund is important?
2. How much for hospital and surgical insurance?
3. Tea with Solace: Getting ready for investment.
4. Build a bigger retirement fund with CPF-SA.
5. SRS: A brief analysis.


SGYI said...

Hi AK,

Just curious, if buy a term policy with 500K coverage won't the premium payable be quite a lot? Or is there a low premium and high payout policy? The only one i can think of is the Aviva SAF insurance scheme which payouts 100k in the event of death and other various payouts for different disabilities. The premium is only $12+ per month.

la papillion said...

Hi AK,

Here's for C:

Hmm, I would do the following, in this order:

1. Emergency fund, 6 mths of expenses first.

2. H&S plan

3. Term plan/CI/disability income/accident plan

4. Savings for the rest

Note: Unwise to put money into SRS/CPF because you need a certain amt of cash to handle downpayment of house/marriage. Also unwise to invest if planning to buy house/married in near future. Just save and save and save.

As to how much to buy/save, that's for your financial planner to plan and discuss with you.

AK71 said...


To get the highest coverage for the lowest premium, term is best, of course.

Here is a brochure from NTUC Income: i-Term.

Doesn't seem expensive to me. They don't have a price for people 25 years of age though. I guess C will have to call them for a quotation.

Personally, if we can get a $500K coverage for 20 years for less than $50 a month, I think it is pretty reasonable.

$500K is really not very much, especially when we realise that it is worth less with each passing year. For 2 old folks, I feel that $2K a month in living expenses is reasonable. $500K will last only 20 years.

C is a lady. So, I don't think she can benefit from AVIVA SAF Insurance. ;p

AK71 said...

Hi LP,

Appreciate your point of view, as usual.

I would stay with my parents for as long as is practicable and marry a rich spouse. ;p

Of course, you are right and C should discuss what she would like to do in detail with a qualified financial planner. :)

SGYI said...

Hi AK,

Thanks for the info and the brochure as well. Appreciate it :)

EY said...

Hi AK,

My suggestions:

1. Find a job that is low risk in nature and has good medical benefits, including H&S. That will take care of the great bulk of insurance needs. Savings from insurance to be channelled to investments. This can be considered 'risk' money which we could afford to lose since it would have been an insurance expense anyway.

2. Planning ahead, buy a house which cost less than $200k so the mortgage could be repaid within 5 years or so. First step to financial freedom is to be debt free. A 3-room HDB flat has the same floor space as a 2-bedder condo unit.

3. Rich guys don't usually make good husbands, save for AK who is probably an exception that proves the rule since he chooses not to be anyone's husband. :P Instead of hoping to marry a rich guy, a woman would be better off thinking how she can make herself and her husband rich. Seriously, consider marrying someone a few years older. Make sure he is financially prudent so he would have decent savings and sufficient CPF for downpayment for the flat.

BP said...

Is top up to cpf SA a 1 to 1 tax deduction on earned income value like SRS? if I'm already contributing to SRS, can I still do cpf SA topup and get tax deduction?

BP said...

I would also like to mention about critical illness plans. it does seem that critical illness plans are claimable for late stage only. but treatment /surgery for early stages also costs a bomb

Derek said...

Just to add on insurance...

Personal accident (PA) is probably the most under-rated insurance. I'm not sure if most know but a simple cut that require stitches, a sprain ankle while walking are all claimable. Some insurers even throw in TCM (norm now), Dengue Fever and H5N1. PA plans are cheap and with very little underwriting. Do be careful of PA plans that cover only lose of limb(s) and life due to accident.

Know the difference between disability income and total permanent disability. It is also best to buy a disability income as a stand alone policy.

Singapore Man of Leisure said...

I didn't do it when I was young.

Envied those irresponsible young that I met during my travels and stays at hostels.

Take 12 months off to backpack and see the world.

Yah. Before earn money spend money first. Very irresponsible indeed!

Amazed at how these young adventurers were able to find work to pay for their travels in foreign lands.

Wished I were more irresponsible when young :(

AK71 said...

Hi Endrene,

I suppose your take on the matter is of great interest to C since you are both ladies. ;p

I would suggest not buying a property at all and stay with parents for as long as possible. Anyway, it will be sometime before C gets to age 35 and is eligible to buy a HDB flat unless she gets married, of course.

Yes, C, please make sure that you find yourself a financially prudent spouse. Not rich now but can be rich later. ;)

Aiyoh, I think this is getting to sound like some Aunt Agony column... -.-"

AK71 said...

Hi BP,

Yes, you can contribute up to $7K every year to your CPF-SA and it is tax deductible as long as you have not already hit the cap for the year. :)

AK71 said...

Hi BP,

Not all CI plans are the same. Must read the details. :)

Solace said...

Hi AK,

I very much enjoy your recent blog posts. Very relevant Q and A sessions for common and uncommon financial questions.

Equally informative and good education content for many :)

AK71 said...

Hi Derek,

Thanks for the additional information on insurance. :)

Personally, I stop buying accident insurance because I figured that if the accident is bad enough, I would be in hospital and my H&S plan would have it covered. If it is really bad and I leave this world, I have enough coverage from my life and term insurance. If it is not too bad, well, I think I should have enough resources to deal with it.

Having said this, I believe that people who are in jobs which are high risk should get themselves covered.

As for disability insurance which is to replace earned income in case the insured is unable to work, I believe this is rather pricey. However, it is prudent to have, for sure.

I would build my investment portfolio to a point where the dividends it generates is able to replace my earned income. This would make disability insurance redundant. :)

AK71 said...


Always the Devil's Advocate! LOL!

This is why I am now making up for lost time! ;p

AK71 said...

Hi Solace,

Not by design, I assure you.

The emails came in and I replied. Then, I thought to share the emails since I don't know everything and sharing could see others leaving high quality comments which will benefit everyone. :)

SGYI said...

Hi EY,

I like your suggestion. Rich guys don't usually make good husbands. Haha. Somehow it makes sense.

If I find a woman whom you describe it'll be a blessing indeed.

Derek said...

Hi AK,

You are right that H&S will cover serious injury but that is provided you are hospitalized. Minor accidents are pretty common especially for active and careless folks like me. LoL.
I fractured my finger recently; went to a private A&E and a cool $250 lighter - still need to go for subsequent x-rays, consultation, physio and TCM. A PA plan ain't expensive mine cost $13/mth.

Now that you mention, you are right that once you have a stable passive income, you can do away with Disability Income but it's not ex also, I'm paying $17/month.

Unknown said...

Hi AK,

Solid advice to your reader. Agree with buying term insurance. Rationale here is that insurance is just downside protection when you're young and by the time your 60, you should have ample savings for any medical bills, etc.

I would also ask the kid to work hard and focus on his job because that will be his main source of income...


Unknown said...

Hi C,

You would need to see where you are financially first. i.e. How much savings do you have? How much debt (study loan perhaps?)do you have?
How much is your monthly expenses? (try to get an average from a year's expenses, if possible, to include the uncommon expenses that comes once in a while)

The suite of insurance plans adds up to roughly $100/mth, so if you are unable to find employment, you will have to fork out the premium from your savings...

Term insurance for C's age would typically cost only $10-$15/mth for $100k coverage. If you are supporting your parents through retirement, I suggest getting at least a 25yr term insurance.. (SG longevity is 85+ and increasing.)

Personally, I would recommend the following, in order of priority:

1. Emergency fund, 6 mths of expenses first.

2. H&S plan

3. Term plan/CI/disability income/accident plan

4. Invest in low cost index ETF (e.g. STI ETF, S&P 500 ETF)

5. Savings for the rest.

AK71 said...

Hi Derek,

OK, I am not very active and I am reasonably careful. So, no PA plan for me. ;p

As for your disability plan, the cost does seem reasonable. How much is the coverage for $17 a month?

Unknown said...

Hi AK,

SAF group term only applies to
• SAF regulars (Regulars) and full-time National Servicemen (NSF)
• Defence Executive Officers (DXO)
• Public Officers working in MINDEF
• SAF Operational Ready National Servicemen (NSmen)
• DSTA employees
• Military domain expert personnel and SAF volunteer

It can also be extended to spouse and children (at least 14 days old) of the above insured members.

"Yes, C, please make sure that you find yourself a financially prudent spouse." - AK advertising himself? keke

AK71 said...

Hi JW,

Definitely, unless born with a silver spoon, we have to work hard and work smart to secure a strong stream of earned income. Investing should only be the second stream of income. :)

AK71 said...

Hi Matthew,

Your perspective on the matter is very prudent, especially on how C should consider her own financial situation (e.g. whether she has a study loan to repay.)

Thanks for the recommendation. :)

Derek said...

Hi AK,

That would be $1500/mth till age 60 with a 180 days waiting period.

AK71 said...

Hi Derek,

Oh, that explains why it is so cheap. I was quoted a much higher premium for a plan to replace my earned income in case of disability. Haha.. Understand now.

I have never thought of a disability plan that replaces only part of my earned income. Certainly an idea worth considering for some. :)

Derek said...

Hi AK,

Haha, that's probably because you earn an awful lot. :P

AK71 said...

Hi Derek,

Not at all. -.-"

I think you probably got a better deal. ;)

pengjie said...

Hi AK,

I have been working for 2.5 years since graduated from uni.
I have the above points covered as mentioned by your reply.
However, I am puzzled on how to set aside some saving for investment.
basically, i saved S$1k every month from my $3.3k gross salary, bring home salary $2.3K. I would have $12K in a year in my savings account. This saving account include the annual insurance premium which I need to pay for my life insurance and Hospitalisation which amount to $4k~. Which left me about $8k saving in a year. How do I allocate it for my emergency fund in case of retrenchment and at the same time can do some investment.



AK71 said...

Hi PJ,

I would make sure I have a meaningful emergency fund before thinking about investing.

You might be interested in this blog:
How much should we have in our emergency fund?

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