Boosting Financial Health with Budget Handouts

Boosting Financial Health with Budget Handouts

NAV TL;DR

If you don't have time to read through the whole article, you can check out our short version below.

Several COVID-19 relief measures have been rolled out for Singaporeans in the SG Budget 2020. Here are ways to further boost your financial wellness with the Budget handouts:

  • Review your cash inflows and outflows. Consider paying off unsecured or high interest debts to lower your expenses.
  • Identify gaps in insurance coverage. Use the handouts on insurance premiums while ensuring that you have sufficient cash reserves for emergencies.
  • Enhance your skillsets with the recent S$500 SkillsFuture Credit Top-up to remain desirable in the market.
  • Invest your handouts on shares or on topping up your CPF Special Account (SA) and Retirement Account (RA) for attractive interest rates.
  • Use the handouts to defray the costs of setting up a will, CPF Nomination, or Lasting Power of Attorney.

Budget 2020 is a generous budget that offers a slew of measures to counter the effects of the Covid-19 outbreak and the long-term needs of Singapore. The support from the government is especially pronounced in its initiatives to help defray the daily expenses of the needy. Not to be missed out are the various packages that will help transform businesses and Singapore to be more resilient now and in the future.

Some of us were hoping that the Budget would contain a personal tax rebate to reduce our tax burden this year. Instead, Deputy Prime Minister Heng Swee Keat introduced direct measures comprising cash handouts for the lower and middle-income households. For instance, the comprehensive Care and Support Package includes a one-time cash payout of up to S$300 to all Singaporeans aged 21 and above, depending on their income.

For those who qualify, the Service & Conservancy Charges will be extended, and the amount of U-save rebates will be doubled through a one-time GST Voucher to offset their utility bills. Grocery vouchers worth S$100 will also be provided to those in need in 2020 and the year after. There is also a S$100 top-up for Passion cardholders, aged 50 and older in 2020.

This is the right move as these cash handouts will likely provide direct and higher financial assistance to the needy, more than a personal income tax rebate can. Tax rebates may not fully benefit them as they have little or no tax liability.

The government has prudently accumulated reserves over the decades which allows for an expansionary Budget this time. Likewise, we must always be financially prepared to navigate the waves of uncertainty to achieve our life goals and secure a financially stress-free future.

Here are 7 ways to boost your financial wellness with the Budget goodies.

Set aside emergency cash

One must-have component in a financial plan is an emergency cash reserve which can help us through rough patches. We recommend that it should be able cover at least three to six months of our expenses but if you have dependants or if you are working freelance, it should be a larger cash fund of at least 12 months.

Knowing that you have your short-term expenses covered will provide a better peace of mind and enable you to focus on getting back on your feet again. It also means that you can leave your investments intact and not make any unwise knee-jerk reactions like liquidating your portfolio in order to get short-term cash.

If you have not set aside an adequate cash reserve, the Budget cash handouts will help to kickstart the process.

Pay down your debts

Having debts can be a good thing particularly if you are leveraging to get potentially higher returns and you can afford to pay the monthly instalments. But if you have chalked up unsecured debts, say in credit card billings, and are unable to meet the monthly payments, then you are on a slippery slope and things can get worse.

Consider using the handouts and savings from the Budget to partially pay off your unsecured debts, especially those that come with high interest rates. Next, direct your attention to a realistic repayment plan to further pare down your bad debts. Review how you can increase your cash inflows while lowering your expenses.

Evaluate Protection Gaps

The COVID-19 outbreak has heightened our awareness on the need to have adequate insurance cover against a multitude of risks. Some of the common risks are hospitalisation, critical illnesses, disability, loss of income and travel.

Some of us may not even know what insurance policies we own or the level of cover we have. It is timely to review our insurance plans and identify gaps in our coverage. For example, figuring out the expenses you will likely incur till your dependants are self-sufficient will give you some clarity on the amount you need to insure for death and terminal illness. Speak to a professional wealth planning manager who can help you in this.

The Budget handouts can help toward paying insurance premiums to cover your gaps but do ensure you can afford the premiums moving forward.

Investing for the long-term

If you have attained positive cashflows after setting aside your emergency fund, consider investing regularly for the long-term. Savings from Budget 2020 can go into a diversified investment portfolio.

You can avoid timing the market by practising the dollar-cost averaging strategy of investing a certain amount at regular intervals over a long period of time By doing so, you buy more shares when prices are low and few when prices are high. So over time, you will have a lower average share price.

Upgrade skillsets

Our income is an important asset because it will enable us to set aside emergency reserves, beyond which our positive cashflows can be invested to work harder for our future. As such, performing our jobs well by being competent and professional will enable us to receive good and stable income from what we do.

As the S$500 SkillsFuture Credit Top-up will expire in December 2025, do remember to evaluate what are the suitable job improvement courses you can attend to enhance your skillsets, before it runs out. Older Singaporeans aged 40 to 60 stand to get another S$500 with the same expiration date. And if you have not used the previous credit top-up of S$500, it's not too late as it has no expiry date.

Optimise CPF savings

One way of accumulating our retirement savings is to top up our CPF Special Account (SA) and Retirement Account (RA). As both accounts offer attractive interest rates of at least 4 per cent per annum, it is worth our while understanding how the various CPF schemes can work to our advantage.

If you have no immediate need for your Budget handouts and savings, using them to top up your SA (if you are below 55) and RA (if you are 55 and above) will go a long way as the amount will compound over time and grow.

The Matched Retirement Savings Scheme, announced in Budget 2020, will help CPF members with less CPF savings. Under the scheme, the government will match every dollar of cash top-up made to a person's CPF RA, up to an annual cap of $600. Members who have set aside a Basic Retirement Sum (S$90,500 in 2020) will receive lifelong monthly payouts from age 65.

Consider estate planning

If you have not spoken about what happens upon your death or mental incapacity to your family members, you may want to consider broaching this conversation. It is never too early to prepare your loved ones to step in and assist if such situations arise.

Having your distribution wishes communicated via a will and Central Provident Fund (CPF) Nomination will help to reduce the emotional burden of your loved ones. Another useful tool is the Lasting Power of Attorney that helps you appoint trusted parties to look after your assets and welfare if you are mentally unable to look after yourself.

There are costs involved in setting up these tools which the Budget cash handouts can help defray.

Budget 2020 series

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