Happy New Year! It's 2017 and really, what can go wrong? Okay, that sounds a little too optimistic, but after the year that was 2016, just about anything 2017 gives us will be better in comparison. That said, it's not going to be an easy year for Singaporeans, what with the way the economy is going. So, if you have any aspirations of making money this year, it's time to make some personal finance new year resolutions now.
Oh, who am I kidding…
Let's face it, you've probably broken so many new year resolutions that you've stopped making them. I know I have. The toughest resolutions are those that require consistent effort on your part – it's too easy to stop visiting the gym once your work starts to pile up. With personal finance, it's even more crucial to ensure that you're consistent. What's more, time is money – the earlier you make your personal finance resolutions, the more you stand to earn from them.
Fortunately, there are three things you can do (and as early in the year as possible!) to have a better 2017… and beyond.
1. Start Your Investment Journey
While it seems counter-intuitive, the best time to invest is during a recession, because the only way you can go is up. With smaller lot sizes on the SGX, it's really much easier for investors to start their investment journey than before. But if you're really new to investing in general, and are intimidated by the vast number of investment options in the market today, here's a good way to start:
A Regular Savings Plan, despite the name, is not a savings plan but rather a simple investment product that encourages you to invest a fixed amount of money every month. Because your investment is fixed every month, you don't need to worry about the whether the market is good or bad. Because of a concept called dollar-cost averaging, you are looking at long-term gains (about 5 to 6 years in general).
Don't know what to invest in? Many Regular Savings Plans offer the opportunity to invest in exchange traded funds – these are passive investments linked to a stock market index, such as the Straits Times Index. Put simply, investing in an STI ETF is like investing in Singapore – as the country does better, you can expect to make money.
Regular Savings Plans are long-term investment products, but you can expect to earn a nominal amount in dividends every year.
2. Plan Early for Retirement
As Singaporeans, we already know that our CPF savings will help to provide for our basic needs in retirement. But here are two ways we can improve our 2017, while also increasing our CPF savings.
The CPF Retirement Sum Topping-Up Scheme (RSTU) allows you to claim up to $14,000 in tax relief ($7,000 for top-up to self and additional $7,000 for top-up to loved ones^) for the upcoming Year of Assessment. You can claim this tax relief by either topping up your and/or your loved ones' Special Accounts (if they are below the age of 55) or Retirement Accounts (if they are aged 55 and above). Tax relief is dollar-for-dollar, so if you're earning a taxable income of more than $40,000, such tax reliefs could potentially save you hundreds of dollars in taxes. For RSTU cash top-ups to the Retirement Account, a cap based on the current Full Retirement Sum applies in determining the amount of cash top-ups to your own or recipient's Retirement Account for tax relief. Top-ups beyond this cap will not be eligible for tax relief.
The RSTU also allows you to top up from your own CPF savings, though of course you will not earn any tax relief for doing so.
The other method to grow your CPF savings is via a Voluntary Contribution (VC) to your Medisave Account (MA) or all 3 CPF accounts (Ordinary, Medisave and Special Accounts).If you wish to find out more about VC, read here, or if you are self-employed, read more about it here.
Do note that the overall personal income tax relief cap of $80,000 applies for cash top-ups to CPF accounts.
Furthermore, because CPF is computed monthly and compounded and credited annually, it literally pays to top up your CPF account and that of your loved ones earlier in the year.
3. Get a Better Savings Account
How much are you earning in interest from your savings account? If you have a generic savings account with one of the local banks, you're probably earning no more than 0.05% a year in interest. So, if you kept $10,000 in your account all year last year, you would've earned a grand total of $5.00. Congratulations.
It's 2017, and you shouldn't be settling for a generic savings account anymore. These days, you can earn up to 4.25% a year in interest from specialised savings accounts. That means, if you keep $10,000 in your account, you'll be able to earn up to $425 in interest. All you need to do is meet certain eligibility requirements, like crediting your salary into the savings account, and spending on the bank's credit cards.
^Loved ones refer to spouse, siblings, parents, parents-in-law, grandparents and grandparents-in-law.
Peter Lin is the poster boy for reinventing one's self. He's been a broadcast journalist, a technical writer, a banking customer service officer and a Catholic friar. His life experiences have made him the most cynical idealist you'll ever meet, which is why he's also the co-founder of a local pop culture website. He believes ignorance is not bliss, and that money is the root of all evil only if you allow it to be.