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How to Give Your Loved Ones the Gift of Financial Freedom

21 Nov 2017 
SOURCE: CPF Board

The New Year is a time for new beginnings, hopes, and goals. It is also a time for celebrating with our loved ones and giving them our well wishes.

 

What if we told you that you could go one step further and give them a long-lasting gift not just for the New Year, but for life?

 

We're talking about the gift of financial freedom.

 

What is financial freedom? 

Financial freedom can be defined as the state of having sufficient finances to enjoy a basic standard of living, without having to worry about expenses pertaining to your house, education, health, and retirement.

 

You can look at it as an investment portfolio that keeps growing with time. Along the way, you can dip into the investment returns to help cover your basic expenses.

 

Thinking of how to achieve it, however, can be daunting. Which brings us to our next point…

 

If you're not financially "free", can you really give it as a gift? 

Financial freedom is something you work towards and build, just like nurturing a plant. It doesn't happen overnight, but the right seeds, tools, and consistent care will yield fruits in the future.

 

Take your own retirement as an example of such a "plant". Taking active steps to sow the "seeds" in the form of investments and savings, and allowing sufficient time for these seeds to mature, will eventually yield enough for a comfortable retirement. By working towards your retirement, you are giving your future self the gift of financial freedom.

 

Similarly, there are financial instruments that allow you to give your loved ones this gift.

 

For instance, you could give them a cash gift to cover their living expenses for a period of time – that would offer a level of "financial freedom" (with a time limit of until the cash runs out!).

 

Alternatively, you could consider going a step further and investing in a portfolio designed to bring them continued returns through their retirement, ensuring their basic expenses are covered. For instance, you can use the Retirement Sum Topping Up Scheme (RSTU) to make a top-up to their CPF accounts. This way, you will boost their CPF savings and make a contribution towards your own financial freedom in the form of a tax relief.

 

What's more, a top-up actually has financial benefits for you as well. When you make a cash top-ups for your loved ones - parents, parents-in-law, grandparents, grandparents-in-law, spouse and siblings, you may also enjoy additional tax relief of up to $7,000 per calendar year.

 

(In order to qualify for tax relief for top-ups made to your spouse/sibling, their income must not exceed $4,000 in the year preceding the year of the top-up. This income threshold does not apply if they are handicapped. Do also note that personal income tax relief caps at $80,000, which will apply from the Year of Assessment 2018. Last but not least, there are no tax reliefs for top-ups beyond the prevailing FRS.)

How to Give Your Loved Ones the Gift of Financial Freedom.png 
A small gift today, big returns tomorrow 

Opening a big, beautifully-wrapped gift is exciting, but the initial excitement of something new often dies down after some time.

 

Similarly, getting a nice cash gift might feel more exciting and "real" than an electronic statement reflecting a CPF top-up. 

 

However, if you are looking for a gift with longevity, you can consider going a step further to make a CPF top-up instead of a cash gift. This is because top-ups grow with compound interest. Look at this as a "gift that keeps on giving", as the initial sum you put in actually grows with time.

 

To maximise the returns, you may want to make a top-up to your loved one's Special Accounts (SA)/ Retirement Accounts (RA), as it offers attractive interest rates.

 

Eventually, your loved ones will be able to open up the "gift" in the form of a bigger, more significant amount.

 

Financial freedom for life  

Now that you've read this far, you might be thinking: Just one small top-up wouldn't really set my loved ones up for life, would it?

 

While it's true that a single top-up might not be sufficient to buy your loved ones lifelong financial freedom, it is a good starting step that can set off a series of savvy financial decisions that will help them, and eventually getting them to their goal.

 

A top-up is a great opportunity to explain financial prudency in itself, and it opens up room for healthy discussion regarding your financial habits. Together, you can help keep each other on track towards your long-term financial goals.

 

Not only that, the initial top-up may spur you on to make consistent top-ups or similarly invest in your financial future, working towards financial freedom for life!

 

So, are you ready to give the gift of financial freedom? 

It starts with a small investment on your part, which can grow into a bigger, long-lasting gift.

 

Knowing the power of compound interest, as well as the benefits of having time on your side, you are ready to set your loved ones off to a good start this New Year with a step towards financial freedom!

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