Financial spring cleaning for 2024

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.
• Adopt a long-term investment horizon and check out the Retirement Portfolio in digiPortfolio that invests in asset classes in a way that is aligned to your life phases over time, to secure your financial future.
• Maximise your nest-egg and that of your loved ones by topping up Central Provident Fund (CPF) accounts to leverage attractive interest rates and compounding.

Though inflation has eased, core inflation – which excludes accommodation and private transport - in Singapore is still at an elevated level of about 3.2%. No doubt the cost of living will continue to be a big worry for this year. Contributing factors range from the GST hike to 9% here and the ongoing wars in Ukraine and Gaza leading to supply disruptions.

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 how we spend to stretch our income.

Here are 8 tips to spring clean your finances.

1. Reducing discretionary spend

Our transportation, electricity, petrol, food, and Netflix bills have inched up. With the GST hike to 9% from 8%, goods and services will cost more. Fortunately, the government has enhanced the Assurance Package for most Singaporeans to delay the impact for them effectively by 5 years. For the low income, the impact on them will be delayed for 10 years.

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 Covid-19 pandemic has taught us that it is possible to reduce discretionary spend when the need arises.

Use the Plan & Invest tab in digibanking – a digital financial and retirement advisory tool - 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 easy to check how much you’re spending in various categories. Ensure that you have at least 3 to 6 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.

Read more: Let’s get better at money: Beyond budgeting

2. 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 Plan & Invest 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. Healthcare planning is important so do consider if you need to upgrade to a hospitalisation plan like an Integrated Shield Plan (IP) and an IP rider, as well as a critical illness cover.

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.

3. 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 at least 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 Plan & Invest tab enables customers to receive advice that leverages AI models to provide precise and right-sized investment recommendations. They only need to answer a few 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.

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.

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.

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 $100 a month.

Read more: What to know about dollar-cost averaging

4. 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 and achieve financial freedom.

Adopting a long-term investing approach as part of your overall financial plan is prudent so that you do not lose sight of your future financial security while planning for your short- and mid-term goals. This will help you to be more focused on riding the ups and downs of the equity market and accepting short-term risks to achieve potentially higher returns over a longer period of time.

Check out the Retirement Portfolio in the robo-advisory platform DBS digiPortfolio, which helps you to glide into retirement with ease, not stress. It automatically adjusts your investment mix over time, aiming to grow your investment in assets with higher growth potential (like stocks) when you are further from retirement, and reduce your risk by investing in less risky assets (like bonds) as you age.

At retirement, you can choose how you want to enjoy your payouts, that is, how much and the frequency. It has no lock-in period or penalties.

To recap, digiPortfolio is a digital platform 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 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.

5. Review home loans and cost of buying a home

When inflation rates are up, the banks’ interest rates have risen 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.

Another option is to reduce your housing loan – say with your annual bonus - especially if your housing loan allows for partial repayment with no penalty.

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.

The holistic guide covers national schemes (including CPF, MediShield Life and CareShield Life), low-cost products, and actionable rules-of-thumb for consumers to self-assess, identify, and close their money gaps. Come early 2024, it will be further developed into six short guides addressing the needs of individuals in different life stages. 

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 20% for their second residential property, and 30% for their third and subsequent residential property. This is up from the previous rates of 17% and 25% respectively.

The ABSD rates for permanent residents buying a second or a third and subsequent residential property has been increased to 30% and 35% respectively.

6. Optimise CPF accounts

Maximise your nest-egg and that of your loved ones by topping up Central Provident Fund (CPF) accounts to leverage attractive interest rates and compounding.

I would usually top up my CPF accounts and that of my loved ones in January to kickstart the compounding, rather than wait till the end of the year. This year, the CPF Basic Retirement Sum is $102,900, the Full Retirement Sum is $205,800 while the Enhanced Retirement Sum is $308,700.

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 5 years.

If you are below age 55, check out the “Your CPF” feature on the Plan & Invest tab in digibank to find out the CPF Retirement Sums for your age cohort, and get insights on how to close your gaps early.

To help middle-income Singaporeans save more for their retirement and keep pace with rising salaries, the CPF monthly salary ceiling will be raised from $6,000 to $8,000 in 4 steps by 2026. From 1st September 2023, the CPF monthly salary ceiling was raised by $300 to $6,300. Do note that it has gone up to $6,800 from 1st January 2024, and the next 2 increases would happen thereafter - to $7,400 from 1st January 2025 and to $8,000 from 1st January 2026. The Government has said that there will be no change to the CPF annual salary ceiling of $102,000.

Read more: How the CPF salary ceiling changes affect you

7. 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.

8. 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.

The Plan & Invest tab enables you to connect to SGFinDex, so your financial information will be pulled onto the platform, with your consent.

It 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 3 million customers have used the digital advisory tool.

Ready to start?

Check out digibank 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.

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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.