Dr. Finance "Art of Personal Planning": Just Graduated?

What can you do with your paycheque? What about Financial Freedom?

Whether you are reading this from the confines of your office or the comfort of your home, one thing is clear: you have cleared the dreaded years of ‘coffee mugging’ during your JC, Polytechnic or University days, and are finally earning your own keeps. That, you’d deserve a pat on your back! :) Some graduates call this ‘financial freedom’. But truth to be told (being a graduate myself as well) – financial freedom is certainly NOT about liberating oneself from parental allowances! Read on to find out more about what does it really mean to be financially free.

For the ladies, the paycheque is a conduit to derive an artificial high from shopping for more clothes, new (branded) bags and accessories. For the men, saving for big‐ticket items like a car or a branded watch may be in the books, but with the skyrocketing COE prices, the B‐M‐W option – Bus, MRT, Walking – becomes exceedingly appealing. Well that’s the reality that you would probably have already realised. Whatever the case may be, there is no crime in pampering yourself with that extra Chanel Timeless Classic or going for a good holiday in Europe.

However, money is multi‐functional, and the real timeless classic “saving for a rainy days” still rings true.

  Photo by Austin Chan on Unsplash

Infant Steps to Wealth Accumulation

There are a myriad ways to kick‐start a good financial planning strategy for yourself, and your loved ones. No right or wrong way per se, because at the end of the day, it boils down to the end‐product of wealth accumulation and what your initial targets you’ve wanted to achieve.

1.      The first thing you should do is put aside three to six months’ of your pay as emergency fund, as I’ve always reminded my clients and prospects who have met me before. This is to ensure that in the event of some family emergency, you can take a hiatus from work without having to worry about the basic necessities for the next couple of months.

2.      Accompanying this, you should also look into pledging part of your paycheque into contingency assets (i.e. insurance). Some people do not believe in insurance. Yet, insurance is not a religion or faith, it is a simple financial instrument which guarantees some lump sum (for example $100,000…the payout varies of course) should the person meet with some unfortunate incident e.g.death/accident/critical illness. People who take up such plans do care about their families and loved ones enough to ensure that this risk of kicking the premature bucket is well‐hedged against, and to ensure they take responsibility of these risks are borne by themselves so as not to burden their loved ones.

More importantly, you may be making regular savings of up to $1,000 per month (or more). That translates to $12,000 per year, and eventually more than $120,000 after 10 years after taking into account accumulated interest/bonuses declared year-on-year. You would not want any part of this $120,000 to go into paying for hospital or other unforeseen bills. Many graduates do not recognise that they are taking over the mantle of breadwinning from their parents. They are, and will continue to be, the economic life‐force of their families in years to come. Hedging risks then, becomes more than necessary.

3.      The next step is saving and investing for your future. This is not gender‐specific. In the older days, men typically take greater initiatives in financial planning as they maintain the conservative stance of having to be the main breadwinner of the family, and being the general providence of food and shelter (well they would also focus on insurance on themselves as well, more than their wife and children).

These days however, society has evolved and women are now becoming more empowered, financial savvy and independent – you could say that I am one of these women too. Mediacorp celebrity Michelle Chong is one good example of a woman who can give any financial planner a run for his/her money. With the power of compounded interest over time, those who start young (i.e. graduates in their 20s) are prime candidates to grow and accumulate massive wealth by the time they retire. Most of them just don’t do it early enough.

Employing the services of reliable financial professionals to do the job is definitely encouraged (i.e. consulting your advisor/planner) as it frees up your precious time to do other things and develop your skills in your specialty, instead of spending hours everyday pouring over financial news and worrying over the stock market.  It is for that reason why people hire lawyers for their professional services as well.

Executing the strategy

So now, you could be wondering: "It’s time for me to start something! Tell me how!"

A word of warning before I begin: it is going to be technical (it is still somewhat a science, although I mentioned “art of planning”!), and it's going to be  very general.  The Art of Planning is still specific to the needs and wants of every individual.

Ideally, you should be spending a maximum of 40% to 50% of your monthly paycheque on fixed and variable spending (food, transport, bills, entertainment, shopping, etc.).

The remaining amount (50‐60%) can be split into short-term (ST) and long‐term (LT) savings and investments. I’m sure my clients might find this familiar as I often re-iterate this to them. UK financial planning expert Bhupinder Anand breaks it down: Short‐term goals would include debt‐consolidation (credit‐card payments, loans) and insurance. Medium‐term goals would be mortgage loans, and savings (general/specific). Long‐term goals would be investments (general/specific), retirement planning, and long‐term care. Take an example, here's a given gross income of $2,500 for the average graduate:

Gross: $2,500Take‐home (net 20% CPF): $2,000Fixed/Variable Spending: $800Short‐Term (50%): $600 (Emergency Funds/Loans/Term Insurance)Long‐Term (50%): $600 (Fund‐based Insurance/Savings/Investments/Retirement)

This would be how i actually plan for my clients, especially the fresh graduates!

Your Road‐Map

Everyone’s road‐map is unique. What is vital is not whether yours is better than someone else’s. It is whether it is there, and whether you have committed to it diligently and make strategic modifications part-way when there are changes in your life stages. It is akin to a Personal Trainer’s (PT) strategy to help his trainee lose weight. He would have planned out an exercise regime based on the needs and physical abilities of the trainee, but along the way there might be situations that would call for a slight change in strategy, such as the trainee sustaining injuries or being ill along the way, in which the PT would have to modify the workouts a little. Your life stages and situations may change along the way e.g. bought a house, getting married, and only your trusted financial planner would be able to help guide you by your side, tweak your strategy a little but still ensure your resulting goal is still achieved in the end. That is assuming your goals are still the same.

Yearly review of goals with your planner is therefore essential as it gives him/her an idea whether your road-map needs major or minor revamps. It is always important to keep your relationships close with your planner as he/she will be there for you to guide you through your life stages, and be there when claims arise.

Many words of advice

Financial pitfalls can be avoided with the Pay‐Yourself‐First method. It basically means getting your paycheque, and immediately channeling the funds to another account to save and invest, instead of saving at the end of the month with what’s left behind. Usually, your bank account would be emptied, the victim and aggressor both being yourself. Most of the times, I would advise my clients and prospects to have at least 2 bank accounts, one for spending and the other is where they should channel their salary in a save up. Transfer only a fixed amount of funds to your spending account every month. Or even better, only transfer funds from the “savings/salary” account to your spending account when the spending account runs low.

So, play hard with your money, but make your money work harder. You’ll live to enjoy it more. Do share with me any interesting thoughts or insights you may have in how you avoid immediate financial pitfalls like these.

Winifred Tan (Wini)
B.Sc (First Class Honours)
ChFC (Singapore) | AEPP | IBF Advanced Level 2CFA (Singapore) - L1 | CIPM (Int’l) Level 1
Court of the Table | Int’l Dragon Awards (Bronze) | APAC Financial Services Star Award
Top 20 GE Executive Financial Consultants | Entre-Planner