What kind of financial destiny awaits fresh graduates? As a mum of two young adults, I hope they will be financially savvy and lead meaningful lives. Here's a letter that I wrote to my daughter who has just graduated.
Dear Jacelyn, As I watched you receive your Fashion Contour degree from London College of Fashion at the Royal Festival Hall, London, last month, I rejoiced at your latest milestone.
You have successfully taken on the challenges of a creative education, and sharpened your skills through school projects, design competitions and interning in London as well as New York.
As you embark on your career, I want to talk to you about the financial steps you can take. These money management tips can be put to good use as you take charge of your own financial destiny.
1. Starting out debt-free
Thanks to a mom-and-pop scholarship, needless to say (but I still want to), you are starting out with zero financial debt.
To illustrate how much debt you have avoided, I decided to work out the cost of your overseas education during your awards ceremony. A back-of-the-envelope calculation showed that the family coffers were lighter by about $240,000. The bulk of the cost was your tuition fees with the balance being accommodation and your monthly allowance.
Tuition fees for the four years amounted to about $92,000.
This is a far cry from the $2,000 that my three years at the National University of Singapore cost. Back in the mid-1980s, the tuition fee was a mere $1,000 per academic year. As a needy undergraduate student, my first year was funded by the Wee Kheng Chiang Memorial Bursary.
Being debt-free allows you to take better control of your financial destiny from day one. The clean financial slate - compared with others who have taken loans to fund their tertiary studies - means that you are not encumbered when you set up a budget and work out a financial plan.
2. Pay yourself first
I would not have been able to support your overseas education if I had not subscribed to the principle of paying myself first. Remember the trips we took together to the bank to set up a Giro account whenever I changed jobs?
This is an important habit related to budgeting, which is to adopt a disciplined approach to saving by paying into your own personal bank account first. Better still if this process is automated. For instance, I have a Giro arrangement where a portion of my income is channelled to another savings account which I do not touch. In addition, I increase this portion when my income goes up, such as when I have pay increments and I save almost all of my annual bonuses. I aim to save half or more of my pay. Create a spreadsheet and set up five- and 10-year savings plans.
With ample savings set aside for a rainy day and your future, this is a source of funds when suitable investment opportunities come by.
3. Setting a realistic budget
It is prudent when you are in a new working environment to track your expenses. Once you have a handle on things, you may not need to track every cent but should continue to have a general idea of your monthly expenses by keeping receipts and checking them against your debit/credit card bills and banking statements.
This habit keeps my budget regularly updated, and I know where the money goes and how much is left over. It also helps to guard against fraudulent online transactions. Rather than viewing your income as one lump sum, proactively allocate it for the different uses in your life.
Generally, I review my budget every six months. It is also prudent to do so when your circumstances change, such as when you receive a pay rise or a windfall.
4. Watch your spending
I applaud your efforts to curb impulse buying, whether online or at physical stores, and picking up cooking so that you can eat at home, which is easier on the purse. Do keep it up!
To accumulate your wealth, you can do a few things and they include controlling your spending, getting higher income and reaping investment gains.
Learn to enjoy simple pleasures and avoid splurging on wants. The best things in life are free such as a beautiful sunset, a moving piece of art, well-written books that you can borrow from the library and time spent with family and friends.
When you have to spend in a big way, ensure that it would be for investments that contribute to your financial goals, or for family meals and holidays to grow the precious memory bank.
5. A husband is not a financial plan
Years ago, your grandma advised me not to be financially reliant on any man. Today, I offer you the same advice.
Be responsible for your own money management and equip yourself with financial knowledge. It is better to bite the bullet now, get over any fear of financial jargon and pick up know-how like budgeting, credit management, getting a basic financial plan, sorting out your insurance needs and planning for your golden years.
Remember that women generally live longer and usually the family savings are already spent on the children's education and husband's medical bills, with nothing much left after his death.
6. Investment advice
When it comes to investment advice, trust no one. And avoid investing blindly.
Financial products can be very complex. It is worth your while to spend time understanding the product/scheme before any investment. Do not invest in anything that you do not understand.
7. Adopt a long-term view
While we have short-term obligations to fulfil, approach financial planning with a long-term perspective. It is never too early to plan for your long-term goals.
You are 24 now but the years will go by in a twinkle of an eye. Keep your retirement goals in sight at all times and look out for tools to achieve passive income flows during your golden years. These include blue-chip stocks, retail bonds, preference shares, investment properties, Singapore Savings Bonds, the Supplementary Retirement Scheme - this tool makes sense only if you are working here - and annuities.
Understand the Central Provident Fund (CPF) schemes. The CPF is an essential component of financial planning so it pays to get on top of the details in order to reap maximum benefits. When comparing long-term products, do include the CPF schemes as well.
As you are working overseas, your CPF balances will be close to nothing. Consider depositing spare cash into your Special Account - which has a 4 per cent interest rate - to build up your nest egg faster. Assuming you have nothing in your Ordinary Account, the first $60,000 in your Special Account earns an extra 1 per cent interest, so you earn 5 per cent to be compounded annually. This assumes that the rates remain unchanged.
Money is a means to an end. It may not bring happiness but it does provide more options. Embrace the adventures ahead and I wish you a purposeful and healthy life.
Your loving mum, Lorna
A version of this article appeared in the print edition of The Sunday Times on August 06, 2017, with the headline 'A letter to my daughter'. Print Edition | Subscribe
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