Financial tips for 2023
By Lorna Tan
If you've only got a minute:
- It is timely to review our saving and spending habits to inculcate a thrifty habit and learn to defer gratification for bigger future financial rewards.
- Retirement may seem far away for young investors but making time your ally is the best way to reap the power of compounding.
- Maximise your nest-egg or that of your loved ones by topping up Central Provident Fund (CPF) accounts to leverage attractive interest rates and compounding.
- Tap ‘plan’ on digibank for customised investment picks based on your objectives, risk profile, and preference.
We don’t need a crystal ball to tell us that the one thing that will continue to head north in 2023 is the cost of living. Contributing factors range from the GST hikes here and US Fed hikes to surging inflation and the ongoing pandemic.
No doubt the rising prices of goods and services is a big worry for this year.
But it is not all gloom and doom. Instead of fretting over the things we can’t control let us do something about the things we can, like reviewing our budget and having a comprehensive financial plan. Higher prices mean exercising more prudence and being more strategic about our spend to stretch our income.
Here are 10 financial tips to help you kickstart your financial planning for a more secure financial future.
1. Reducing discretionary spend
Our electricity, petrol, food and Netflix bills have inched up. With the impending GST hike to 9% from 8%, goods and services will cost more in the future.
Fortunately, the government has put in place an Assurance Package for most Singaporeans to delay the impact for them effectively by five years. For the low income, the impact on them will be delayed for 10 years.
The enhanced S$8 billion Assurance Package will offer cash payouts of between S$700 and S$1,600 over five years to all adult Singaporeans. This will help offset at least 5 years' worth of additional GST expenses. Those living in one- to three-room flats will get enough to offset about 10 years' worth of extra GST expenses.
Still, it is timely to review our saving and spending habits to inculcate a thrifty habit and learn to defer gratification for bigger future financial rewards. After all, our experience of living within the constraints of social distancing due to the pandemic has taught us that it is possible to reduce discretionary spend when the need arises.
Use the digital financial and retirement advisory tool DBS NAV Planner to help you keep track of your spending in different categories and make realistic adjustments. With the “Your Net Worth” and Cashflow trackers in the tool, it’s as easy to check how much you’re spending in various categories. Ensure that you have at least three to six months of emergency cash set aside for the rainy day. In the light of higher prices, review if it is still adequate for you and your dependants.
Several saving strategies adopted during the crisis that can become long-term habits over time. This is partly because the new normal will see more people working from home for longer periods of time compared with previously. They include cooking and eating at home, group tuition, self-care, less consumption on cosmetics and apparel, buying in bulk, doing away with unnecessary subscription services, a car or domestic help, or swap out brand-name items for generic ones where possible.
2. Review home loans and cost of buying a home
When inflation rates are up, the banks’ interest rates are likely to rise too, which will impact people who take out home loans.
Homeowners should re-assess the interest rate of their existing home loans and explore loan options where they can enjoy potential interest savings. In the light of rising interest rates, a fixed rate home loan might provide one with a greater peace of mind. You can use the DBS Home Loan Savings Calculator to get clarity on your home loans and calculate potential savings by repricing with your existing financier, or by refinancing with another bank. This tool is also open to non-DBS customers, and they can glean insights on how the principal and interest components will change throughout the life of the home loan.
Another option is to reduce your housing loan especially if your housing loan allows for partial repayment with no penalty.
For new borrowers, determine how much money you can borrow. In the light of the latest property cooling measures, the Total Debt Servicing Ratio (TDSR) has been tightened to cap your total monthly debt repayments at 55% of your gross monthly income. This means new mortgages cannot cause borrowers’ total monthly loan repayments to exceed 55% of monthly income.
Factor in additional payments such as property tax, property agent commissions, condo maintenance fees, insurance, home repairs or improvements, property loan interest and so on. Include other upfront costs, such as the down payment, stamp duties, cost of furnishings and any renovations.
Singapore citizens will now pay an ABSD rate of 17% for their second residential property, and 25% for their third and subsequent residential property. This is up from the previous rates of 12% and 15% respectively.
The ABSD rates for permanent residents buying a second or a third and subsequent residential property has been increased to 25% and 30% respectively, up from 15%.
3. Assess protection needs
The start of the year is a good time to have a thorough audit to assess your insurance plans and cover. The DBS NAV Planner can help you identify and close any insurance gaps at your fingertips, taking into account your existing insurance plans and number of dependants.
Any additional regular premiums should be affordable and sustainable. Furthermore, do ensure that your travel insurance includes cover for Covid-19 if the need arises.
If you are turning 30 this year, you will automatically be covered by long-term care insurance CareShield Life, regardless of pre-existing medical conditions and disability. Be aware that the annual premiums will be deducted from your CPF MediSave Account till age 67.
If you have budget constraints and/or prefer to build insurance coverage a bit at a time, you may consider “micro-insurance”. It can be useful especially as a starting point for those who are first-time buyers or the underinsured, as the plan is low cost, requires a relatively shorter commitment, and can be thought of as additional coverage to supplement one’s overall coverage. Such “micro-insurance” coverage can help these people meet their immediate needs and get more familiar with the product before opting for a more comprehensive plan, while building up his/her affordability.
However, do bear in mind that the small cover and duration may not be enough, especially if you have dependents and are vulnerable to higher risks (such as those with pre-existing medical conditions).
4. Review your investment portfolio
When constructing a portfolio, asset allocation and diversification are key as it is very unlikely that a single asset class will deliver the highest return all the time. So, combining different asset classes in a portfolio can diversify the risks and improve returns over the longer term.
Furthermore, review and rebalance your plan as personal circumstances change. It is a good idea to review your portfolio once a year and consider rebalancing whenever you go through major life events, such as getting married or having a baby. Rebalancing means that selling some stocks and buying some bonds, or vice versa, so that your portfolio’s asset allocation is aligned to your risk profile and matches the level of returns you’re trying to achieve.
All investors want to make more precise and better-informed decisions with their money. The digital advisory “Make Your Money Work Harder” feature within DBS NAV Planner enable customers to receive advice that leverages AI models to provide precise and right-sized investment recommendations. They only need to answer five key questions to assess their investment profile, all done in accordance with regulatory safeguards.
This helps customers remove guesswork along with investment biases, which in turn, widens the pool of investment solutions suited to them. It can help customers uncover blind spots too.
5. Adopt the Barbell investment strategy
DBS believes a barbell portfolio strategy can help investors build a resilient investment portfolio to achieve a balance between risk and reward by investing in assets at both ends of the risk spectrum. This means being overweight on high-growth stocks on one end of the portfolio, while having stable, income-generating investments on the other end.
The growth component of the portfolio can include companies that will benefit from US technology, digitisation, millennial wave and the rise of China's middle class. Such firms are primed to benefit from strong performance in the long-term. The income component can include real estate investment trusts, dividend equities and BBB/BB-rated corporate bonds.
By employing a Barbell Strategy, investors can take advantage of capturing strong gains in sectors that are expected to outperform the market while balancing that risk out with dividend yielding stocks or high yield bonds. The portfolio’s two-pronged strategy has become especially relevant today as uncertainties persist.
6. Invest for the long-term
Retirement may seem far away for young investors but making time your ally is the best way to reap the power of compounding. Long-term investors tend to be more focused on riding the ups and downs of the equity market and accepting short-term risk to achieve potentially higher returns over a longer period of time.
Such investors can consider investing in firms that benefit from secular growth trends. One way to do this by investing I.D.E.A. companies.
DBS CIO has coined I.D.E.A. which stands for Innovators, Disruptors, Enablers, Adaptors. It is a stock selection framework that seeks to sieve out companies that challenge the status quo, embrace a digital world, transform and thrive.
Innovators: Companies that are creating new products and services to displace incumbents
Disruptors: Companies that are doing things differently, thus challenging the status quo
Enablers: Companies that are empowering innovation and disruption
Adapters: Companies (including incumbents that are not in technology related fields) that are successfully adapting and transforming their business models to ride new business trends
By using this framework, investors can get a stake in companies that are well-positioned to ride the digital disruption wave, re-invent themselves, and successfully scale multiple financial S-curves.
7. Jumpstart your investing journey
If you have never invested or are relatively new to investing, consider starting small and building your investments over time. This will also help you build investing discipline by setting aside money regularly for investments.
For example, consider investing in a Regular Savings Plan (RSP) which lets you invest a fixed sum consistently. You can choose to invest in equities, exchange traded funds (ETFs) or unit trusts (UTs), helping you accumulate units of funds steadily and progressively. DBS’ Invest-Saver, for example, lets you buy ETFs and unit trusts from as little as S$100 a month.
By adopting the dollar-cost averaging strategy - where you invest a fixed sum regularly into the same choice of investment over a period - you accumulate more units when prices are low and less units when prices are high. Over time, the average cost of your investment could potentially be lower versus a lump sum investment. The advantage of using an RSP is that it avoids the pitfalls of timing the market and the low entry investment sum makes investing accessible to newbie investors.
Alternatively, consider robo-advisors, which are digital platforms that provide automated, algorithm-driven investing services in the form of pre-defined portfolios with pre-selected instruments based on risk rating. With our hybrid human-robo DBS digiPortfolio, novice investors can rest easy as it takes the guesswork out of stock-picking to have your funds professionally managed by our wealth management experts. For seasoned investors it can be a low-cost way to complement your other investments as part of a long-term strategy as both our Asia and Global portfolios are well-diversified.
It’s a relatively simpler way to invest and eliminates the need for investors to spend time monitoring the markets by leaving this to the experts.
8. Optimise CPF accounts
Maximise your nest-egg or that of your loved ones by topping up Central Provident Fund (CPF) accounts to leverage attractive interest rates and compounding.
Do note that you can enjoy a higher tax relief of up to $8,000 when you top up to your own Special/Retirement Account and MediSave Account; and an additional tax relief of up to $8,000 when you top up your loved ones’ Special/Retirement Account and MediSave Account.
The Matched Retirement Savings Scheme was implemented in 2021 to help senior Singaporeans with Retirement Account savings less than the Basic Retirement Sum, to save more for retirement. Under the scheme, the Government will match every dollar of cash top-ups made to eligible members under the CPF Retirement Sum Topping-Up scheme up to an annual cap of $600, for five years.
9. Contribute to Supplementary Retirement Scheme (SRS) and invest
Use SRS to defer taxes that would be paid in higher-income tax brackets in your peak earning years. By doing so, you can pay taxes in lower tax brackets during your retirement years when income is lower or nil.
Parking your savings in SRS not only makes you eligible for some tax relief but you can also stretch your dollar by investing your money. After all, leaving it idle only earns you a paltry 0.05% per annum.
You can use SRS funds to buy a wide range of investments, including insurance plans such as single-premium endowment policies, unit trusts or shares. An SRS contribution made on or before Dec 31 will qualify for tax relief in the following Year of Assessment. The prevailing cap is $15,300 a year for Singaporeans and permanent residents, and $35,700 for foreigners. The minimum age to open an SRS account is 18.
If you do not have an SRS account, consider setting one up and contributing $1. Doing so will enable you to lock in the penalty-free withdrawal age at age 63, as the statutory retirement age will increase in the near future. The penalty-free withdrawal period starts when you make your first withdrawal at or after the statutory retirement age that was prevailing when you made your first SRS contribution.
10. Have a complete view of your finances
The start of a new year is an opportune time to review your financial health and objectives via a financial plan. The best way to do this is to have a comprehensive view of your finances so that you can make informed and better financial decisions.
With the Singapore Financial Data Exchange (SGFinDex), consumers can easily consolidate their different bank accounts and financial information from Central Provident Fund Board, HDB, Inland Revenue Authority of Singapore, Central Depository and insurance firms in one place, for greater clarity of their financial situation.
DBS NAV Planner - a digital financial and retirement advisory tool – enables you to connect to SGFinDex, so your financial information will be pulled onto the NAV Planner platform, with your consent.
DBS NAV Planner will then make use of your data and offer comprehensive insights on your finances, and help you identify and close insurance and investment gaps, as well as map your future. It has an investment simulator as well as cashflow projection capabilities so you can visualise how your savings can grow with investments into the future.
So far, more than 2.8 million customers have used the DBS NAV Planner.
Ready to start?
Speak to the Wealth Planning Manager today for a financial health check and how you can better plan your finances.
Alternatively, check out NAV Planner to analyse your real-time financial health. The best part is, it’s fuss-free – we automatically work out your money flows and provide money tips.
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.