26 Jan 2024

Guide for young adults: Planning for milestones

If you’ve only got a minute:

Your first paycheck marks the start of adulthood, bringing with it the responsibility of managing your own finances and the journey towards financial independence.
It is crucial to plan and budget for major life events, such as wedding preparations, home ownership, parenthood and retirement.
Invest early to grow wealth, diversify assets, and plan for retirement using CPF, SRS, and other schemes.

As you embark on your journey towards independence, it's crucial to lay a strong financial foundation. From your first paycheck to preparing for retirement, each milestone holds key financial considerations that shape your financial well-being. Planning ahead for milestones ensure a smooth transition into adulthood, setting the stage for long-term success.

First paycheck

Receiving your first paycheck is thrilling as it marks the beginning of your financial journey. The transition from receiving an allowance from your parents to managing your own finances can be both liberating and challenging. While it may be tempting to indulge and tick off some items on your wish list (car or first luxury item), it's crucial to approach your income with a sense of responsibility and foresight.

Firstly, you might want to address any outstanding student loan and formulate a plan to pay them off in a timely manner.

Assess and take charge of your insurance and health plans by reviewing any existing coverage you may have through your parents and determine whether it meets your current needs. Consider taking over the responsibility of paying for your own insurance premiums too.

Be sure to check if your employer offers corporate insurance benefits. If so, familiarise yourself with the coverage details. If it’s insufficient and non-portable, explore obtaining a separate hospitalisation plan to ensure comprehensive protection. Taking proactive steps to manage your insurance will help you avoid large medical expenses if sickness or hospitalisation occurs.

Prioritise savings over spending by adopting the “Pay Yourself First” approach. Allocate a portion of your income (10% of your salary or more) towards savings and gradually build up an emergency fund consisting of at least 3 to 6 months of expenses. Not only are you cultivating a good saving habit, this safety net can also provide peace of mind in unexpected situations where you need cash urgently.

Think about establishing a budget that aligns with your financial goals and priorities. Categorise your expenses, including essentials (needs) like rent, utilities, and groceries, as well as any discretionary spending on non-essential items (wants). By doing so, you can ensure that you're living within your means and saving for short-, mid and long-term goals.

The Plan & Invest tab on DBS digibank can help you track your saving and spending patterns so you can gain better control over your finances.

wedding ring

Wedding

Planning for a wedding can be both thrilling and financially demanding, especially if it coincides with big-ticket purchases like your first home.

A wedding typically costs around $30,000 to $50,000 and can easily go up to $100,000 (or more), depending on the scale of the event. The choice of venue, guest count, catering packages, wedding attire and the level of customisation all contribute to the overall expense.

For example, opting for a popular or upscale venue, inviting a larger number of guests, and choosing premium catering services can notably increase costs. Other examples include the hiring of photographers/videographers and/or wedding planner, bridal package (wedding outfits), entertainment choices (emcee, live band, photobooth) and décor (wedding flowers, car decoration).

Since a wedding involves significant expenses, you may consider getting a credit card that offers rebates (or miles) to get more bang for your buck.

Set a realistic budget, and identify what’s important to have at the wedding, and how much you can comfortably spend to prevent unnecessary financial strain. More importantly, avoid resorting to a personal loan - by spending within your means and sticking to your budget - as it can lead to debt and unnecessary stress. After all, wedding is for a day while a marriage is for a lifetime.

Start saving as early as possible to have more time to accumulate funds for your big day. Consider having a separate wedding savings account to better track your savings progress. Take advantage of the compounding interest from higher interest savings account (DBS Multiplier) to grow your savings faster.

Lovers in kitchen

First Home

Your first home is likely to be one of the most significant purchases in your lifetime, and a major milestone often linked to marriage or simply wanting a place of your own.

Before buying a home, consider your budget, type of property, and location preferences. Other factors that impact home prices are amenities and the remaining lease, to name a few. Start by assessing your affordability by considering various expenses such as the down payment, option fees, stamp duties, legal fees, potential renovation costs, and monthly mortgage repayments.

From here, you can decide what type of flat you can afford and how much you should start saving.

If you're still unsure about which types of properties (HDB, Executive Condominium, Condo/Landed) you can afford, the DBS MyHome planning tool can help you work out the sums and find a home that meets your budget and preferences.

You may also want to assess the future development plans in the area (resale value) and explore various loan and financing options such as available government schemes or grants for financial assistance if you’ve set your mind on buying a BTO, HDB resale or executive condominium (EC).

Buying your first home is a big step, but it doesn't have to be stressful. Make use of online resources like DBS MyHome planning tool or get an In-Principle Approval (IPA) to better understand your borrowing capacity to find a property that aligns with your financial situation and goals.

Lovers in kitchen

First child

Having a child is a lifelong commitment. From the time you discover you're expecting until your bundle of joy arrives and beyond, there are costs at every step.

Begin by addressing 2 key expenses: maternity costs and delivery fees.

From routine check-ups, screenings and tests to antenatal supplements that are crucial for a healthy pregnancy, each step requires careful budgeting and it doesn’t stop here.

Delivery costs can vary based on several factors, including the type of delivery, the hospital or clinic chosen, and any additional medical services or complications that may arise during the childbirth process. Do note that private hospitals typically cost more. How long you stay in the hospital depends on whether you have a normal (2 days) or Caesarean delivery (3 to 5 days). You can expect to pay at least $6,000 for a 2-day stay at a Class A ward in government hospitals (KK Women’s and Children’s Hospital).

Examples of MediSave Claimable Under the MediSave Maternity Package

Delivery Procedure	No. of Days of Hospitalisation	MediSave Withdrawal Limit under the MediSave Maternity Package (covers delivery and pre-delivery medical expenses)
Example 1: Vaginal delivery (normal)	3	($550 x 2 days + $400 x 1 day) + $750 for procedure i.e. vaginal delivery) + $900 Total claimable: Up to $3,150
Example 2: Caesarean delivery (normal)	4	($550 x 2 days + $400 x 2 days) + ($2,150 for procedure, i.e. caesarean delivery) + $900 Total claimable: Up to $4,950

Source: Health Hub

The good news is that you can defray some of these costs with the Medisave Maternity Package.

The MediSave withdrawal limits are:

Up to $900 for pre-delivery expenses such as pre-natal consultations, ultrasound scans, tests and medications
From $750 and $2,600 for delivery expenses, depending on the type of delivery procedure
$550 per day for the first two days of admission and $400 per day from the third day onwards

Some other important benefits include the Medisave Grant for Newborns (to help cover healthcare expenses) and The Baby Bonus Scheme (to help you manage the costs of raising a child).

Some other costs include postnatal services, such as hiring a confinement nanny or a full-time helper. Ongoing costs for diapers, clothes, crib, stroller, car seat, and infant care should also be anticipated.

By sorting out these money matters in advance with a well organised budget, it sets the stage for parenthood.

Next, ensure that your family and child are well protected with the appropriate insurance coverage.

Since you now have dependents, you may consider life or term insurance that will provide payouts should you pass on. Beyond replacing lost income and daily expenses, it addresses key needs such as funding education, settling outstanding debts such as home loans, and covering funeral expenses.

Investing in your child's future

Tertiary education can be expensive, especially when inflation is taken into consideration. Start planning for your child’s future by setting aside funds for childcare and education. One way is to park these savings in an endowment (savings) insurance policy. Endowment plans allow you to save in a disciplined manner while providing some guaranteed returns.

Lets assume that your child is now 6 years old and you want to prepare for her university education in 18 years’ time. You can consider an endowment fund such as SavvySpring (II) to supplement that savings goal so that when it matures 12 years later, it aligns with her university education.

Lovers in kitchen

Securing your future

Next, focus on growing your wealth by investing as well as to ensure that your money doesn’t lose its purchasing value over time due to inflation. Investing is an effective way to build or preserve your wealth. Some common investment products include structured deposits, exchange traded funds (ETFs), Real Estate Investment Trusts (Reits), bonds, unit trusts, equities/stocks as well as gold.

It is recommended to build a diversified portfolio of different asset classes as this helps to spread the risk. By not putting all your eggs in one basket (such as investing in one or two stocks), you can reduce the impact of poor performance in any one area during unforeseen events or market downturns.

Start investing with a fixed sum (as little as $100) every month with a Regular Savings Plan like DBS Invest-Saver. This approach (dollar-cost averaging) provides an affordable and reliable way to grow your wealth over time.

In addition, take advantage of the Central Provident Fund’s (CPF) attractive interest rates by maximising contributions to the CPF Special Account (SA) and Retirement Account (RA) - both designed to support retirement needs.

Besides using CPF to save, consider the Supplementary Retirement Scheme (SRS) to supplement your nest egg. SRS contributions are eligible for tax relief and can be invested for potentially higher returns.

Remember, the earlier you start investing, the more time your money can grow through compounding.

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Disclaimers and Important Notice
This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability.