Ever since the CPFB introduced a colorful pie chart of our CPF savings a few years ago, I would look forward to mine every year like a teena...
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I remember when I was a boy, I sometimes had to help wake my siblings in the mornings. Sometimes, they were the ones who had to wake me up in the mornings. We looked out for each other because we didn't want anyone to be late for school.
When a reader wrote to me in FB to say he woke up after reading my blog, I asked him to help wake his friends up as well. I am sure we want everyone around us to be prepared financially for retirement too. I am sure we want our friends and family to be financially secure.
My task as a blogger, I feel, is easier because people who are willing to listen will read blogs like mine. Targeting people who we believe need to make changes to their money habits and to sit them down to talk about it is a more delicate task. It is a sensitive topic, after all. Good intentions could be misinterpreted.
Well, let us try to make a difference, anyway. They might not see the light now but the suggestion we have planted in their minds might grow and blossom one day. They might or might not remember who planted the seed by then but that shouldn't be important to us. If they do change for the better, I am sure we would be happy for them.
Reader says... First stop, thanks again for sharing your knowledge on financial literacy. I have made progress again, lol! The best part is the progress is very tangible and someone could actually see these effects within months.
Anyway, I have a question on the topping up of our CPF. As much as I do understand that topping up the SA account is important, given the 4% risk free interest rate coupled with 0 re-investment risk, this is just too good to ignore. However, what do you think of topping up the medisave account to its mms before putting money into SA instead? Therefore, once the amount in medisave hits the ceiling , the amount that is supposed to be allocated into the medisave would go into our OA in which then one could subsequently transfer into the SA account. In this way, this will result in a higher contribution into the SA account per year. Do correct me if I'm wrong.
Something else which I would like to ask you is, what do you think is a good amount for Singaporean to set aside in the OA account assuming that they haven't bought their flat. Just to share, I used to have this habit of wasting money on the latest gadgets released. After knowing you(technically yes, since a blog post is almost like a one-to-one conversation), whenever such thoughts of spending money crosses my mind, I transfer half of this money into CPF and the remaining half into a separate savings account. Without money being accessible, no money to spend, no money to waste! Best part, money is saved! Thanks again!
Learn from the squirrels?
AK says... I am very happy to learn that you are beefing up financially. Having financial muscles early in life will set the stage for, ultimately, achieving financial freedom later on in life. ;) Should someone in his 20s top up his CPF-SA or the CPF-MA first? Well, my preference is to top up the CPF-SA first because the first $40K in the CPF-SA will earn 5% per annum. Topping up the CPF-MA has more practical considerations, of course. So, perhaps, after reaching $40K in the CPF-SA, switch to topping up the CPF-MA instead. :)
How much should we accumulate in the CPF-OA before buying a flat? I think this is rather subjective. So, please remember that this is just my opinion and I am going off tangent to share what I feel is more important. I will try to use as little of my CPF-OA money as possible in the purchase of my home. This is because it earns a risk free 2.5% to 3.5% per annum.
In the future, when I sell my home, I will have to pay interest to my CPF-OA (i.e. the accrued interest for the money in the CPF-OA I used). This was how I approached the subject on the use of my savings in the CPF-OA in the purchase of my first home donkey years ago. I like how you ended your email. Yes, don't see money, won't spend money. I told this to a spendthrift friend before too. Haha... ;)
Where did our money go?
Reader says... Indeed, and learning that each step we take is bringing us closer towards financial freedom just makes things feel so much more joyful. On the part of frugality, being frugal has made me happier as a person in total as I learnt to be contented with what I have while balancing the equation of needs and wants. Sadly, as my generation of folks (gen y) are largely exposed to new age media content, its hard not to be taken in by those fancy marketing campaigns for the latest product and service offerings that are largely wants but hardly needs. Unfortunately, the result of which is more expenses incurred on an individual, worse still, these things hardly produce much tangible benefits to warrant the expenditure.
However, the best part is, we all have choices. As opposed to spending, we could instead save this amount of money, and subsequently making them work harder for us through investments. If one has the discipline and is regularly putting aside income into savings while investing for a sensible return via both cash and the CPF-SA, financial freedom is not as far fetched as it sounds, and is in fact very achievable for a commoner like myself. On that front, I started out by reminding myself of the opportunity costs incurred for this purchase which would potentially set me back from my eventual goal. Now, I don't even have to post mental reminders to myself anymore, it has been infused into my habits.
I hope I don't sound like a drug addict who has just successfully undergone rehabilitation. =P Noted on the point you have made on the CPF-SA. Right before I started to type this email, I have already transferred a proportion of my CPF-OA into CPF-SA, resulting in a $40k amount in my CPF-SA.
And upon keying some numbers into the calculator, I finally understand why $40k is seemingly the "magic" number and why the government has provided additional incentives in the form of an additional 1% interest rate on the CPF-SA account of below $40k. Yet another blessing for Singaporeans to count! Yes! Money saved = money earned. You shared that before too. I should be the one thanking you as your sharing has changed me and I'm sure many others as well. =)
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