Speaker 1: You don't have to wait until making your new year's
Speaker 1: resolution to take stock of your financial situation. A certain
Speaker 1: money moves could give you a head start on improving
Speaker 1: your financial health in 2023 as well as beyond that.
Speaker 1: So this week's podcast topic is the top five money
Speaker 1: moves you need to make before 2023 and the one
Speaker 1: move you should not
Speaker 1: be making. I'm don Tan from the money mine team
Speaker 1: and joining me today is Christopher Tan. He's ceo of
Speaker 1: providence chris My question to you is before the clock
Speaker 1: strikes 12 a.m. On the first of january 2023. What's
Speaker 1: top of the list of moves the average person can
Speaker 1: make with their money and why?
Speaker 2: Thank you so much. Don for having me. The first
Speaker 2: thing that people might want to consider doing is that
Speaker 2: they might
Speaker 2: want to consider contributing to their SRS account if they
Speaker 2: have not done so the supplementary retirement scheme or the
Speaker 2: SRS is a voluntary scheme to encourage individuals to save
Speaker 2: for their retirement over and above their CPF. Savings contributions
Speaker 2: to SRS are eligible for tax relief. Investment returns are
Speaker 2: tax free before withdrawal and only 50% of the withdrawals
Speaker 2: from SRS taxable retirement. So if you are singaporean or
Speaker 2: pr
Speaker 2: You can actually enjoy tax relief for up to 15,300
Speaker 2: of your contribution. And if you are a foreigner listening
Speaker 2: to this, you will be up to $35,700. You have
Speaker 2: up to 31st December each year to contribute to enjoy
Speaker 2: tax relief next year. You don't have to invest your
Speaker 2: money by 31st you just have to make sure that
Speaker 2: you transfer the money into your sRS account before the
Speaker 2: end of the year to enjoy the tax relief. But
Speaker 2: don't wait until the last minute rush because the bank
Speaker 2: system may hang or you never know certain things can
Speaker 2: happen and you just forget so do it as soon
Speaker 2: as you can.
Speaker 1: Yeah the month of december always seems shorter and shorter
Speaker 1: for everyone so don't leave it to the last minute
Speaker 1: and there are obviously benefits to actually doing this chris.
Speaker 1: But is this for everybody though?
Speaker 2: It's a good question. I think there are three things
Speaker 2: that you will need to know before you decide if
Speaker 2: you should contribute. The first thing is there is a
Speaker 2: penalty if you withdraw from your sRS account before the
Speaker 2: statutory read
Speaker 2: retirement age at the time When you open your S. R. S. Account.
Speaker 2: If you open your SRS account before 1st july 2022
Speaker 2: that age is 62. If you open it on or
Speaker 2: after 1st july 2022 that age would be 63. And
Speaker 2: so if you withdraw earlier than that the penalty is 5%
Speaker 2: of whatever you withdraw and what you withdraw will be
Speaker 2: subject to income tax. So that's the first thing you
Speaker 2: need to know.
Speaker 2: The second thing you need to know is that if
Speaker 2: your income is low. The amount of tax savings you
Speaker 2: get may not be significant. And the third thing is
Speaker 2: the total tax relief you can enjoy is 80,000. So
Speaker 2: you need to know if you will already enjoy 80,000
Speaker 2: of tax relief before even the SRS contribution. If so
Speaker 2: then there is no reason for you to use the
Speaker 2: SRS also make sure that you do not have liquidity
Speaker 2: needs in the short term because remember there is a
Speaker 2: penalty for early withdrawal and finally
Speaker 2: if the amount of tax savings is not significant, well
Speaker 2: then it may not be worth your while to lose
Speaker 2: liquidity for the tax savings.
Speaker 1: So it really depends is what I hear you say
Speaker 1: chris you shouldn't be contributing maybe a large sum to
Speaker 1: srs if you have maybe some immediate or foreseeable cash needs.
Speaker 2: That's correct to take it out too early.
Speaker 2: Then you get penalized.
Speaker 1: That's number one on the list onto the second money
Speaker 1: move that we should make before 2023 arrives Chris What
Speaker 1: should it be?
Speaker 2: But the second one would be considered topping up your
Speaker 2: CPF special account or retirement account retirement account. If you
Speaker 2: have already crossed age 55. If your these two accounts S. A.
Speaker 2: And R. A. Have not reached the current full retirement
Speaker 2: some
Speaker 2: this year is 192,000. Your medicine account has not reached
Speaker 2: the basic health. Some of 66,000 you can top up
Speaker 2: your M. A. Your R. A. S. A. Accounts. If
Speaker 2: you top it up you can enjoy up to $8000
Speaker 2: of tax relief and this $8000 that you will enjoy
Speaker 2: as tax relief
Speaker 2: Will be shared for cash. Top ups to all these
Speaker 2: accounts so you won't enjoy 8000 for each account that
Speaker 2: you top up, you'll just be shared amongst the three accounts.
Speaker 2: You can also enjoy up to $8,000 tax relief. If
Speaker 2: you do cash top up to your parents, parents in law, grandparents,
Speaker 2: grandparents laws, spouse and siblings.
Speaker 2: If you top up to your spouse or siblings account,
Speaker 2: you can only enjoy tax relief if their total income
Speaker 2: does not exceed 4000 that year. It means that well
Speaker 2: they must not have been working or must not earn
Speaker 2: more than that.
Speaker 1: Yeah, it really does depend on one situation and chris
Speaker 1: we've been seeing especially during the pandemic. This rise in
Speaker 1: the number of gig economy workers or people who don't
Speaker 1: have regular work. Maybe they're not making regular CPF contributions.
Speaker 1: What about for them?
Speaker 2: For people in the gig economy
Speaker 2: you're a self employed. Besides topping up your special account
Speaker 2: or even your medicine account which is really compulsory for
Speaker 2: the self employed I think for the self employed they
Speaker 2: can also consider doing voluntary contribution into the CPF accounts.
Speaker 2: The three accounts that they have before the year ends
Speaker 2: And they can enjoy a tax relief of up to $37,740.
Speaker 1: So there are benefits to them as well. A quick
Speaker 1: recap of what you've just been telling us about chris
Speaker 1: if you do one main thing, it really should be
Speaker 1: to contribute to that sRS before the 31st of december.
Speaker 1: There are tax benefits on contributions to that.
Speaker 1: You can also claim tax relief, the contributions made to
Speaker 1: sRS but before the age of 60 to 100% of
Speaker 1: the withdrawn amount is taxed and you will also occur 5%
Speaker 1: penalty if you do so. And on the point about
Speaker 1: cash top ups for CPF, those are very important because
Speaker 1: we've been seeing a lot of that in the past year,
Speaker 1: quite high records of people topping
Speaker 1: their CPF accounts because also that 6% interest with zero
Speaker 1: risk as well as such a big draw And for
Speaker 1: gig economy workers as well, they can also benefit from this,
Speaker 1: they should be making these voluntary top ups if they can. Okay,
Speaker 1: let's go on to the third must make a move
Speaker 1: before 2023 chris what should we be doing
Speaker 2: the next three more? Some
Speaker 2: I'm going to share with everyone, they are not really
Speaker 2: the must do, but it will be good to take
Speaker 2: some down time in December to do them. And also
Speaker 2: practically speaking, once we get back to our busy lives
Speaker 2: in January 2023, we usually don't have the time to
Speaker 2: sit down and think about some of these things. So
Speaker 2: it would be good to start 2023 right by making
Speaker 2: some of these moves.
Speaker 2: So the third one would be do a financial health check.
Speaker 2: Well with changes in life, a rising inflation and interest
Speaker 2: rate environment. I think it's important to do a financial
Speaker 2: health check to ensure that we go into 2023 with
Speaker 2: a strong foundation. So I'm just going to share a
Speaker 2: few ratios for the listeners. You can use these ratios
Speaker 2: to check your financial health. It's like health screening.
Speaker 2: So first ratio would be liquidity ratio. Otherwise we call
Speaker 2: it your emergency fund. How you do that is add
Speaker 2: up all your cash or near cash that you have
Speaker 2: near cash meaning things like your Singapore savings bonds. And
Speaker 2: recently you know very popular. Everybody likes to buy t bills.
Speaker 2: These are your near cash, your cash of course will
Speaker 2: be your savings account, your fixed deposits. So you add
Speaker 2: all these cash or near cash and then you divide
Speaker 2: by your monthly expenses.
Speaker 2: You must have at least 3 to 6 months worth
Speaker 2: of cash or near cash just in case you lose
Speaker 2: all sources of income. We all know that you might
Speaker 2: go into a recession. You can be retrenched or ask
Speaker 2: to go if you have 3 to 6 months of
Speaker 2: cash or near cash as emergency fund. Then you have
Speaker 2: less to worry about. So that's the first one,
Speaker 2: The second ratio will be saving ratio. You must be
Speaker 2: saving at least 15% of your gross income. Of course
Speaker 2: if you are younger and without liabilities please save more.
Speaker 2: The third and last ratio I'm going to share with
Speaker 2: all of us will be the debt service ratio. Or
Speaker 2: some people call it total debt service ratio. Tds are,
Speaker 2: how do you calculate this? You add up all your
Speaker 2: monthly debt repayment and you divided by your gross income.
Speaker 2: You should not be using more than 40% of your
Speaker 2: gross income to pay all this debt.
Speaker 2: If you are using more than 40, it just means
Speaker 2: that well you are overly leveraged. Try and do these
Speaker 2: three ratios and make sure that your foundation is strong
Speaker 2: before going into 2023.
Speaker 1: So a liquidity ratio. The savings ratio as well as
Speaker 1: the total debt to savings ratio. Right. So these are
Speaker 1: important chris you said the financial health check is like
Speaker 1: your physical health check. A lot of people don't even
Speaker 1: do their physical health check or they might even be
Speaker 1: reminded to do it
Speaker 1: just because we're talking about it now. Right. So you
Speaker 1: do all of this and suddenly you see your blood
Speaker 1: pressure is high. So in this case you see. My
Speaker 1: goodness the ratio does not look very good. What do
Speaker 1: you do?
Speaker 2: Just like health screening usually if the result in very
Speaker 2: good the doctors usually they will tell you go for
Speaker 2: lifestyle changes before even taking medicine.
Speaker 2: So if you do this and then your financial health
Speaker 2: check doesn't turn out very well. I'll say the same
Speaker 2: thing make some lifestyle changes and these lifestyle changes that
Speaker 2: are manifested through a budget. So that's the fourth money
Speaker 2: moves that you might want to do before the year
Speaker 2: ends and that is budgeting. How do you do? Budgeting
Speaker 2: is really very simple. The actual planning of a budget
Speaker 2: is not difficult, it is the implementation start first with
Speaker 2: estimating your total monthly income.
Speaker 2: Then the second step would be set an amount that
Speaker 2: you target to save. You should at least say 15%
Speaker 2: of your gross income after you have done that, then
Speaker 2: you move onto the third step which is whatever is
Speaker 2: left behind. You can then use it for your expenses.
Speaker 2: And I'll generally say that your expenses, there are two
Speaker 2: types fixed or variable expenses, fixed expenses are expenses that
Speaker 2: will not change in the next 12 months, like your
Speaker 2: mortgage repaid
Speaker 2: payment insurance premiums, your tax payments, these are fixed expenses.
Speaker 2: Now after you do this budgeting and you might not
Speaker 2: be left with much but whatever that's left behind, then
Speaker 2: these things are for you to use for your variable expenses.
Speaker 2: Try very hard to lower your variable expenses by
Speaker 2: looking for cheaper alternatives or avoid incurring the expense altogether
Speaker 2: if possible. But my key here is start first by
Speaker 2: setting an amount that you want to save because if
Speaker 2: you don't do that you minus all the expenses first
Speaker 2: you end up not having enough to save or you
Speaker 2: save less than what you should.
Speaker 1: Yeah, having a budget can't overemphasize the importance of that
Speaker 1: because if you don't have an idea of what the
Speaker 1: goal is, how can you begin that journey right about
Speaker 1: how to use your money wisely and so on chris.
Speaker 1: I hear you on that one. So that was number four. Budgeting.
Speaker 1: What about the final one chris which is number five
Speaker 1: on the top list of money moves that are going
Speaker 1: to matter. They're going to make a difference before we
Speaker 1: reach 2023
Speaker 2: it will be good. The fifth thing is that we
Speaker 2: should sit down and think about our insurance so do
Speaker 2: an insurance review the primary purpose of insurance as I've
Speaker 2: always said it is for protection and not savings and
Speaker 2: as the primary purpose in our journey of trying to
Speaker 2: accumulate money to reach our financial goals. Sometimes we are
Speaker 2: faced with life risk, unfortunate demise, disability or medical condition
Speaker 2: and these kind of things can disrupt our journey towards
Speaker 2: reaching that financial goals. The purpose of insurance is to
Speaker 2: make sure that if things like that happen
Speaker 2: either our family or ourselves, we still have a chance
Speaker 2: to be there. So maybe start by asking yourself in
Speaker 2: the event of your unfortunate death, disability or a medical crisis,
Speaker 2: how much income do you need to have for your family?
Speaker 2: How much income do you need to replace? So that
Speaker 2: life at home can be as normal as.
Speaker 2: And then ask yourself whether your current insurance coverage is
Speaker 2: adequate to provide that. The second question you probably want
Speaker 2: to ask yourself with regard to insurance is if you
Speaker 2: fall sick and you need to incur huge medical expenses,
Speaker 2: do you have enough insurance to claim against? If you
Speaker 2: are going to be warded in the hospital, what kind
Speaker 2: of what do you prefer to stay in?
Speaker 2: If you're happy with B. Two and C. And you
Speaker 2: are happy that you have no options to choose the
Speaker 2: doctors that you want to choose B. Two and C.
Speaker 2: Is good enough then medical life is good enough. But
Speaker 2: if you want to have that option of a better healthcare,
Speaker 2: better ward, you can't
Speaker 2: Choose your specialist. Then you have no choice but to
Speaker 2: upgrade it to an integrated plan and by the appropriate
Speaker 2: integrated plan, take a look at your insurance portfolio right now,
Speaker 2: make sure that you are well insured before you go
Speaker 2: into 2023.
Speaker 2: Some of these things you don't do once we start
Speaker 2: going back to work january normally we don't have time
Speaker 2: to think about these things anymore.
Speaker 1: Yes, I mean if the pandemic years have taught us anything,
Speaker 1: it is to prepare for the unknown. As you say,
Speaker 1: chris think of insurance is protection not as savings because
Speaker 1: there are life risks and those life risk
Speaker 1: other things that are going to disrupt us on that
Speaker 1: journey towards financial health when we think about financial health
Speaker 1: insurance is not top of the list. That's right. You
Speaker 1: got to think about it. As you say when your
Speaker 1: life changes, you have to ensure that you have appropriate coverage.
Speaker 1: Your career might change right? And when you earn more
Speaker 1: money University you might be spending more. Yeah
Speaker 2: I have a new baby, you know
Speaker 1: Things like that. Yeah exactly exactly when you get married
Speaker 1: and so on all of these things are part of
Speaker 1: that journey. So Chris you've outlined the five must make
Speaker 1: money moves before 2023. There's a lot of good news
Speaker 1: in there. There's going to be a lot of soul searching.
Speaker 1: I think among listeners about the recommendations and the decisions
Speaker 1: that they potentially can make.
Speaker 1: So now drum roll, what is the one thing we
Speaker 1: should not be doing with our money before 2023? Give
Speaker 1: us a bitter pill Chris
Speaker 2: so I was thinking about this for a long time
Speaker 2: and I was thinking like what is the one thing
Speaker 2: you should not do before the year? And for me
Speaker 2: the one thing is do not rush out to spend
Speaker 2: just to save on that G. S.
Speaker 2: Increase next year. You know G. S. T. Is going
Speaker 2: to go up by 1%. Please do not go out
Speaker 2: there and do binge shopping just to save that 1%.
Speaker 2: You end up being penny wise and pound foolish really
Speaker 2: because you probably buy things that you don't need. But
Speaker 2: if you have already something in mind that you need
Speaker 2: to buy then okay buy it before the year ends
Speaker 2: but don't come
Speaker 2: with a shopping list and say
Speaker 1: okay I'm just going to shop
Speaker 2: and save that 1%. Think about it. You know to
Speaker 2: save $100. You'd be spending $10,000 but you may not
Speaker 2: need to spend that $10,000 if you don't really need
Speaker 2: those things. So that's the one thing don't go out
Speaker 2: and do,
Speaker 1: you're telling it like it is chris is very important.
Speaker 1: It's not always died. I must buy. Right? Yes you
Speaker 1: are
Speaker 2: right.
Speaker 1: Well you know I mean the thing is about that
Speaker 1: it's true in the past when we know there's a
Speaker 1: GST hike that's coming up, we tend to front load
Speaker 1: all of those big purchases right? Or even like for
Speaker 1: a watch, for jewelry, maybe for a car. We have
Speaker 1: seen these spikes in retail sales at that time of
Speaker 1: year because it's also december, people are tending to spend
Speaker 1: more as well. But the variable expenses can be controlled.
Speaker 1: So if you're thinking of buying a watch that is
Speaker 1: a variable expense. So if I can
Speaker 1: finally recap your top five plus the one bitter pill
Speaker 1: because I think that some people will be touching the
Speaker 1: chest and go oh no, I can't have that one
Speaker 1: thing that I wanted to have, but it's also a
Speaker 1: pleasure postponed, You might be able to postpone it down
Speaker 1: the road.
Speaker 2: So
Speaker 1: number one contribute to your srs, you can get tax
Speaker 1: benefits from that top up your CPF special or retirement account.
Speaker 1: There are regulations that are governing those tax deductions that
Speaker 1: will actually justify that move,
Speaker 1: do a financial health check, everybody life changes. So your
Speaker 1: financial goals might need to change as well. So it's
Speaker 1: never too early. Never too late to do that. Financial
Speaker 1: health check. Even if you've never done it before because
Speaker 1: why you've got to assess what your goals are, how
Speaker 1: they've changed and what financial decisions you have to make
Speaker 1: maybe in order to reach or to achieve those goals.
Speaker 1: You've advised us pay attention to your
Speaker 1: budgeting. Again, not everyone has a budget. You know, I
Speaker 1: know many do, but we neglect that. Sometimes there are
Speaker 1: ways of being able to plan that budget as well
Speaker 1: to align your money with the goals because you can
Speaker 1: save money when you actually have a budget chris there's
Speaker 1: even a statistic to say that if you don't budget,
Speaker 1: you will tend to spend more money. Ultimately, people who
Speaker 1: don't budget will tend to save less money than others.
Speaker 1: And also number five conduct a meaningful insurance review of
Speaker 1: your position, especially if you've had life changes and so
Speaker 1: on career change. Even if you're earning more money, you
Speaker 1: should be knowing what your insurance covers and that is
Speaker 1: all about protection, not about savings. And the one thing
Speaker 1: not to do. Di di you actually don't have to
Speaker 1: make that big purchase before the GSD height kicks in
Speaker 1: any way has been calibrated. It's actually been tapered right.
Speaker 1: It's going to come
Speaker 1: to hike so the pain is not necessarily going to
Speaker 1: be there. So those are the top five money moves
Speaker 1: to make before 2023. You've heard it here and the
Speaker 1: one move you should not be making as we close
Speaker 1: out 2022. My guest today who has broken it all
Speaker 1: down for us has been Christopher tan ceo of providence
Speaker 1: chris Thank you very much and listeners, thank you for
Speaker 1: listening in. I'm Don Tan. You've been listening to the
Speaker 1: Moneyline podcast.