So, you’re on the last leg of your education journey before entering the workforce. Are you excited to begin the next phase of your life?
The folks at Digital Senior sure were, too! Now that we’re years into our own journeys, we thought we should share with you a few important things we wish we’d known in advance. One of these is the importance of planning ahead.
Without further ado, here are 6 financial goals you will need to be ready for after graduation.
1. Being free of student debt
For those of you who have applied for study loans to defray the cost of your university education, this will be your first major financial milestone after graduation.
Please don’t put off repaying your student loan for too long! A higher debt-to-income ratio could make it harder for you to secure other loans in the future when you need them. You’ll also accrue late interest on outstanding amounts, and you should never underestimate the power of compound interest.
One way to get into the habit of paying off your student loan is to set up a monthly GIRO arrangement. If you’ve chosen to undertake the FRANK by OCBC Education Loan, for example, you’ll get to choose from three flexible repayment options with up to 8 years tenure. This gives you ample buffer time to sort out your finances and job hunt first.
2. Having a good credit score
Credit cards are often the young adult’s gateway to his or her credit score.
What is a credit score, and why is having a good one important?
In a nutshell, your credit score is part of a credit report requested by banks and financial companies when you apply for a new line of credit. It helps them to decide whether they should approve your credit request and what the limit should be. Credit score risk grades range from AA to HH and the higher your credit score, the better.
Some ways to maintain a healthy credit score are to always pay your bills on time and in full, as well as reducing liabilities by applying only for credit accounts that you might need.
If you find yourself in an unfortunate situation where you have a less-than-ideal credit score due to outstanding amounts owed, you might be able to improve it gradually by taking up a balance transfer. A balance transfer lets you transfer your outstanding credit card balance(s) to a single bank’s credit, with no interest charged until the 0% interest promotional period is over.
A quick reminder: while balance transfers offer flexible repayment options, you must have the discipline and ability to foot both the monthly minimum repayment sum as well as the full amount owed by the end of the repayment term to avoid high-interest rates and late payment fees.
3. Buying a home of your own
As they say, there’s no place like home! If you dream of your future home, you’re not alone: Property Guru’s 2020 H1 Consumer Sentiment Study[i] found that 70 percent of locals are looking to buy a home in Singapore, with the majority hoping to do so within the next two years.
You’ll most likely finance your home purchase through CPF’s Public Housing Scheme, a housing loan at a concessionary rate from HDB[ii], or a bank loan from the preferred bank of your choice. Here’s a tip to bear in mind: you have the option to refinance your mortgage. This means that you can switch out your existing home loan for another with a lower interest rate, subject to rules and regulations. You can choose to reprice your mortgage loan with another loan package from the same bank as well!
Many major banks, such as OCBC Bank, have mortgage calculators on their sites for you that can help you get started. If you find yourself at a loss at where to begin, independent mortgage advisory firms such as Redbrick Mortgage Advisory offer complimentary consulting services that you can take advantage of.
4. Starting an investment portfolio
We’ve all heard about how we should make our money work for us, and the way to do this is through investments. No matter how humble or ambitious your financial goals are, you should work towards an investment portfolio as inflation will cause our savings to lose significant value over time.
Here’s an example: a food item sold at 50 cents in 1999 would have cost you 24 more cents in 2019[iii]. That is a whopping 47.62% increase in price!
Can you see how important investing is now?
There are many types of investments out there, ranging from low-risk options such as exchange-traded funds (ETFs) to stocks ad bonds. Your (future) home is an investment, too, and one way to maintain or increase its value if you’re looking to sell it off in the future would be to make essential repairs or upgrades whenever necessary. Some people do this a little at a time while others do it all at once, applying for renovation loans or personal loans with a longer repayment period to help them with their tasks.
Before you begin your investing journey, always remember that the general rule of thumb is to never invest in any financial product or instrument that you do not understand. There are plenty of resources out there to start learning, or you can take a course or two if that’s what you prefer.
5. Getting married and starting a family
The average wedding in Singapore is estimated to cost anywhere between $30,000 to $50,000[iv]. For many, this sum is equivalent to the downpayment for their HDB flat! This amount doesn’t cover hidden costs like corkage fees yet.
The amount you’ll need to bring a child into the world is no less substantial, either. You’ll have to set money aside for prenatal expenses such as check-ups and vitamins, the delivery procedure and ward stay, as well other necessities like a crib and a stroller. While you will get some governmental assistance in the form of the Medisave Maternity Package and Baby Bonus Scheme[v], your expenses will still hit a good few thousand.
As a young working-adult-to-be, these figures can make a massive dent in your finances. It’s never too early to look into cost-cutting measures or to start budgeting! Some individuals, for example, may choose to take up a personal loan to cover a fraction of the costs. OCBC Bank’s EasiCredit is one option as it has a lower income minimum income level that younger working adults can reach. It also offers flexible repayment options and an annual fee waiver for those aged 29 and below.
Another popular way to acquire funds would be to convert unused credit card limit into cash via OCBC Bank’s Cash-On-Instalments, as there is no need for additional income documents. It offers fixed instalments of 12 to 60 months, and effective interest rates starting from as low as 9.06%.
No matter what you choose to do, always remember to spend within your means.
6. Building up a nest egg for retirement
According to the inaugural Financial Wellness Index published by OCBC Bank in 2019, 73% of working adults are not on track with their retirement plans and 65% are not on track to maintain their lifestyle after retirement[vi].
That’s a really scary thought. Whether your dream is to retire early and travel the world or to simply retire comfortably, you have to start your retirement planning ASAP.
In fact, you should start right when you receive your first paycheck! After you have accumulated enough funds in the bank for rainy days, you can explore ways to grow your money. Investing will benefit you the most when you start early, as you can take on higher risks and will be able to capitalize on the power of compounding.
Of course, you’ll also grow in financial literacy and become more aware of the options available to you when you encounter different financial situations. If your dream is to launch a start-up and become an entrepreneur, for example, you’ll be fascinated to learn that a personal loan can be a feasible alternative to an SME loan; the former does not require any collateral and might have a lower cost of capital.
Are you interested to find out if your retirement goals are achievable? Try running them through CPF’s Retirement Calculator!
Adulting sure feels complicated and scary, doesn’t it?
Take a few deep breaths. For many of you, these milestones will not happen for quite some time yet and you will have adequate time to prepare. Take this time to start managing your finances actively and to learn from those around you. Even researching and growing your knowledge will go a long way. Don’t worry: we’re sure you can do it.
The folks at Digital Senior wish you all the best in your respective journeys! May your days always be filled with laughter and cheer. Take care and stay safe!
This article was produced in collaboration with OCBC Bank.
[ii] Disclaimer: This is only applicable for public housing!