Get FINED Guide

GET FINED

Terms you need to Know The Flowchart I Wanna Settle Down Soon I Wanna Manage My Credit I Wanna Live Comfortably I Wanna be Asset-Rich FINANCE HACKS LAST BUT NOT LEAST

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“

To play a game well, we need to learn the rules and strategies. To do well at the game of life, we need a certain amount of money, and importantly the strategies to earn, manage and keep our money, to help us win this game, and help others win theirs. That’s financial literacy.

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James Chia co-founder of Innervative

importance of financial education

“

You’re never going to escape personal finance and the need to learn and embrace it, especially so in a country like Singapore. Money and the management of it, is something all of us have to face at some point in our lives, and thus the sooner you start getting clued in, the better off you’ll be as you get older. It’s not about being a scrooge, or living everyday plotting to get rich, but rather making the most of what you have at this current point in time. Maximizing your finances so you don’t end up in a mess later on in life, is one of the biggest favors you could do for yourself and your family.

”

Adrian Yuen Chief Content Officer of MoneySmart.sg

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Getting your financial priorities right and putting in place a proper financial plan gives you the ability and right to enjoy life to the fullest.

”

Lynn Koh co-founder of Innervative

terms you savings budgeting Planning how much to spend, based on how much you have.

savings account

current account A bank account that allows you to deposit and withdraw your money at any time. It usually does not pay interest (or possibly a very low rate). Current accounts allow you to write cheques for payment.

fixed deposit account

A bank account that allows you to deposit and withdraw your money at any time. Savings accounts pay a (very) modest interest rate.

inflation

A bank deposit that pays higher interest rates than Savings or Current Accounts.

However, your deposit is “fixed” for a period of time, and you cannot withdraw the sum deposited. If you do so, you will have to forfeit the interest.

Inflation is basically rising prices ­— things will cost more in the future so you need more money in the future to buy things that you buy today.

THAT OLD GRANDMOTHER STORY IS TRUE! If you’ve ever heard your grandmother complain about how “Things are so expensive!

Last time, I could buy food for 30 cents, now it’s $3.50!”

That’s the effect of inflation.

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need to know CPF SPECIAL ACCOUNT ORDINARY ACCOUNT for housing, insurance, investment and education

for investment in financial products and for old age

MEDISAVE ACCOUNT for hospitalisation expenses and medical insurance

LATE BIRD SPECIAL available only after age 55

RETIREMENT ACCOUNT a special account that comprises the balance of your OA and SA

2.5%

MINIMUM SUM the amount you need to have in your RA before you can start receiving

guaranteed minimum interest on your CPF Ordinary Account

(and the interest on your Special Account is even higher) * a typical bank savings or current account offers about 0.1% interest rate per annum

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insurance because not all insurances are created equal

SAY REAL one

the younger you are, the cheaper the insurance premiums

LIFE INSURANCE

A policy that pays you an agreed sum of money if you die, are permanently disabled or critically ill (depending on the terms of your policy).

HEALTH INSURANCE

This type of policy pays for (part of) medical expenses. Singapore’s Medishield and Medishield LIFE is a form of health insurance.

GENERAL INSURANCE

Non-life related insurance policies that include car insurance / home insurance.

INVESTMENT-LINKED INSURANCE PLANS

These plans have insurance coverage and savings/investments bundled together. They cost more than health insurance.

CREDIT

it's that thing that looks like free money — but isn't

interest rates

credit score an assessment of your risk as a person applying for credit

there is no such thing as a free lunch — interest rates are basically money you owe the bank for borrowing its money

HH

the higher your score, the higher your chances getting a loan or credit line from a bank

AA

> 20% the interest rates charged by banks for your credit card bills

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assets

2

(

1 shares

(

)

Shareholders stand to gain all the company has earned after paying off all its costs — however these ”profits” will differ from year to year.

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Buying a bond means that you are lending the company money for a period of time, in return for interest.

)

Bonds provide fixed interest, so no matter how well the company does, you get the same fixed return (unlike shares).

aka: stocks or equities Buying a share makes you part-owner of a company — a shareholder.

bonds

Bonds carry lower risk than shares, as bondholders are paid before shareholders.

E.T.F

aka: exchange-traded funds or trackers

(

Fund buys assets ( The on behalf of investors

ETFs are typically “passively” managed, which means the fund manager does not adjust the Fund portfolio after they have bought the assets

5 R.E.I.Ts

aka: real estate investment trusts

Unit Trusts are typically “actively” managed, which means the Fund Manager will adjust the Unit Trust portfolio according to their market view.

(

Managed by a Fund Manager, the Trust buys financial assets on investors’ behalf

(

A Special Purpose Vehicle that invests in real estate assets on investors’ behalf

(

(

4 unit trusts

REITs usually invest in specific types of real estate — such as commercial real estate in offices and malls, or industrial real estate in factories and warehouses.

REITs distribute rental income collected from tenants in their property assets to unit holders.

MORE: forex (foreign exchange), property, commodities ( gold, oil)

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so you wanna

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get fined?

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i wanna settle down soon! warning! marriage

It’s not a good idea take a loan to pay for your wedding!

Work out your wedding budget with your partner and start putting aside the cash for your special day.

S$26++

cA$H IS KING

The amount it costs to have a solemnized marriage in Singapore ++ Photoshoot, ceremony, reception, clothes, honeymoon

You can use a credit card to pay for your wedding expenses (and reap the perks) but always make sure you have the cash to pay off the entire bill.

YOUR FIRST HOME (and its housing loan)

CHEAT COde You can always take a loan up from HDB first, and switch to a bank loan after a few years

DOWNPAYMENTS

20% (and

The amount required for the downpayment of your home, based on the purchase price

5% of it has to be in cash)

For a $500,000 HDB flat: you will need to pay $100,000 with at least $25,000 in cash (the remaining $75,000 can come from CPF or HDB housing grants)

the thing about housing LOANS

80%

Banks offer housing loan worth 80% of your home — at lower interest rates

90%

HDB offers housing loan worth 90% of your home — but at higher interest rates

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YOU DON’T HAVE TO BUY THE DREAM HOME NOW, INSTEAD BUY THE HOME YOU CAN AFFORD

checklist PLAN for a comfortable wedding budget that you two can achieve in a reasonable amount of time

SAVE enough cash to pay for your entire wedding, with some left over for the honeymoon

USE your credit card wisely and rack up all the points and perks you can get from your wedding expenses WORK OUT the size of the housing loan you should get based on your current combined salaries — not your future dream salaries CHECK OUT housing grants that can help you offset some of your home downpayment costs

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i wanna manage my credit!

CREDIT REPORT Check out your personal credit report from the Credit Bureau of Singapore

loan INTEREST RATES

1)

fixed rates

Fixed interest rates are actually only fixed for a certain period, after which the interest rate will follow the floating rates

DON’T LET and debt

YOUR loans OWN YOU

2)

floating rates

Floating rates can fluctuate from year to year

How much can you borrow?

ALL OTHER DEBT money to spend 30% 40% MORTGAGE DEBT 30% YOUR SALARY

60%

Total Debt Servicing Ratio

The maximum percentage of your salary that can be used to service all your loans (home loans, credit card debt, car loans and more)

30%

Mortgage Servicing Ratio The maximum percentage of your salary that can be used to service your housing loan

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CREDIT CARDS (are not free money) COMMON credit card perks

1 2 3

cashback / rebates air miles

credit cards basically allow you to borrow money from the bank to pay for your nice dinner/new bag/new phone

CHOOSING THE RIGHT CARD Apply for the credit card that best suits your spending habits (be it online shopping, petrol, dining and entertainment) that come with the best perks for you!

If you love to travel, consider applying for an air miles credit card so you can earn miles (to pay for air tickets) as you spend.

reward points

they see me rollin’, they hatin’

minimum payment Just because credit card companies allow you to make minimum payments on your credit card bill doesn’t mean you should!

aka: compounding interest the interest on your credit card charges will keep rolling every month — into a giant snowball of debt

checklist Keep track of your loans and credit card debts — use a spreadsheet or an app (whichever works best for you) Always pay off your credit card bill in full, don’t fall into the trap of minimum payments!

Set controls on your credit cards: lower your credit limit if you are wary of overspending.

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i wanna live comfortably!

WHAT IS ‘COMFORTABLE’ TO YOU?

A comfortable lifestyle does not have to cost a fortune A budgeting process is always useful in helping you to figure out what your monthly expenses for your lifestyle will be.

budgeting: the “pot” approach BASICS POT

EMERGENCY POT

This is your ‘liquid’ pot for daily expenses: food, transport, housing, utilities, money for your parents, etc.

Make sure you have enough money to tide you through in case of unforeseen situations like an accident, illness or unemployment.

We recommend two things to do: (1) build up an emergency fund of 3 to 6 months’ worth of expenses

(2) get an insurance policy that covers major healthcare costs

future POT

This pot could be for your retirement, or money you want to set aside for your family and children.

As this “pot” is set aside for the longterm, it can be a good source of funds for investing, where you can take higher risks in expectations of higher returns — in the long run of course.

PLAY POT

Pamper yourself according to what you can afford.

Set certain goals for what this “pot” will pay for, such as a well-deserved holiday, and slowly set aside the money. It will give you something to look forward to and a little reward for your hard work!

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always start with the end goal in mind Work out how much money you need to live that lifestyle, and what you would need to do to get your money to that level.

checklist KNOW YOURSELF and the “comfortable� lifestyle you want to lead Use a POT approach to budget and set aside money for their intended purposes

SEARCH. Know the different purchase options for things that you want to spend on.

INVEST in yourselves and set aside money to invest for the future Be DISCIPLINED and keep tabs on your progress.

As circumstances change, your plan should change too.

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i wanna be asset-rich WHAT ARE YOU INVESTING FOR? Retirement? Children’s education?

Achieve your investment objectives (and returns) by investing in the right instruments and taking the right risks

risk

risk appetite

It is important to remember that all investments carry risk, including the loss of the principal sum that you invested.

rule of 72 Divide 72 by the interest rate to calculate the number of years it takes to double your money

invest $1000 at an annual interest rate of 3% 72 ÷ 3 = 24 Your investment will double to $2000 in 24 years.

Can you deal with short-term losses?

Will you stay awake at night worrying about your investments?

If so, you might be better off investing in lower-risk assets.

DIVERSIFY Don’t put all your eggs in the same basket! Diversify your investments to lower your portfolio risk.

WARNING! It’s not a good idea to borrow money to make investments!

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Ready to invest?

transaction costs Each transaction you make will also cost you money. These transaction costs will be deducted from your investment returns. Such costs include the trading commissions that is paid to the brokers.

To start investing, you will need a brokerage account.

You can open one with standalone brokers (eg: Phillip Securities or bank-affiliated brokers (eg: DBS Vickers).

Most brokerages offer online platforms where you can buy or sell shares conveniently

InvestmentS should be done with money that you can afford to lose.

checklist Start with the big picture - What are the general economic trends? Which industries are doing well?

Study the companies in the industry — which ones GRANTS are doing well, their profits, losses and growth

Size your investment(s) according to your portfolio and risk tolerance Review your investments’ performance regularly, but don’t keep checking the share prices every minute!

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FINANCE HACKS shopping get exclusive online shopping promotion codes and deals by following style influencers on social media

lifestyle If you’re a foodie, check out credit cards with the best dining discounts or rebates!

Pick up the tab during your next group meal using your credit card to earn some points and who knows, your next meal may be free!

buddy up! have a financial buddy, so you can help each other to keep track of your finances

credit

no one really needs a collection of credit cards — if and when you apply for a credit card, make sure you fully understand the interest rate conditions (and perks!)

wedding feel free to chalk up plenty of credit card perks while using your credit card to pay for your wedding! (but always make sure you have the cash to pay it all off)

travel be on the lookout for alternative (and cheaper) accomodation options such as budget hostels, AirBnB or couchsurfing

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Innervative is a financial education company whose mission is to make Financial Education simple and fun through games. Innervative marries practical content knowledge with the best of professional game development.

MoneySmart.sg is Singapore’s top personal finance portal that helps people make better financial decisions through a combination of relevant and simplified content and powerful personal finance tools.

This is not a comprehensive official guide to financial education.

For more information on your favourite financial topics, check out: http://www.hdb.gov.sg http://www.cpf.gov.sg http://www.investopedia.com http://www.moneysmart.sg http://www.innervative.co/#!blog/c36r

The Get FINED guide represents the views of the Get FINED team after the advice of our financial expert partners, Innervative and Moneysmart.sg

www.getfined.com Š Get FINED 2015 All rights reserved.

getfinedsg @getfinedsg

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you just

goT fined