You don't have to wait until making your new year's resolution to take stock of your financial situation. A certain money moves could give you a head start on improving your financial health in 2023 as well as beyond that. So this week's podcast topic is the top five money moves you need to make before 2023 and the one move you should not be making. I'm don Tan from the money mine team and joining me today is Christopher Tan. He's ceo of providence chris My question to you is before the clock
strikes 12 a.m. On the first of january 2023. What's top of the list of moves the average person can make with their money and why?
Thank you so much. Don for having me. The first thing that people might want to consider doing is that they might want to consider contributing to their SRS account if they have not done so the supplementary retirement scheme or the SRS is a voluntary scheme to encourage individuals to save for their retirement over and above their CPF. Savings contributions to SRS are eligible for tax relief. Investment returns are tax free before withdrawal and only 50% of the withdrawals
from SRS taxable retirement. So if you are singaporean or pr You can actually enjoy tax relief for up to 15,300 of your contribution. And if you are a foreigner listening to this, you will be up to $35,700. You have up to 31st December each year to contribute to enjoy tax relief next year. You don't have to invest your money by 31st you just have to make sure that you transfer the money into your sRS account before the
end of the year to enjoy the tax relief. But don't wait until the last minute rush because the bank system may hang or you never know certain things can happen and you just forget so do it as soon as you can.
Yeah the month of december always seems shorter and shorter for everyone so don't leave it to the last minute and there are obviously benefits to actually doing this chris. But is this for everybody though?
It's a good question. I think there are three things that you will need to know before you decide if you should contribute. The first thing is there is a penalty if you withdraw from your sRS account before the statutory read retirement age at the time When you open your S. R. S. Account. If you open your SRS account before 1st july 2022 that age is 62. If you open it on or
after 1st july 2022 that age would be 63. And so if you withdraw earlier than that the penalty is 5% of whatever you withdraw and what you withdraw will be subject to income tax. So that's the first thing you need to know. The second thing you need to know is that if your income is low. The amount of tax savings you get may not be significant. And the third thing is the total tax relief you can enjoy is 80,000. So you need to know if you will already enjoy 80,000
of tax relief before even the SRS contribution. If so then there is no reason for you to use the SRS also make sure that you do not have liquidity needs in the short term because remember there is a penalty for early withdrawal and finally if the amount of tax savings is not significant, well then it may not be worth your while to lose liquidity for the tax savings.
So it really depends is what I hear you say chris you shouldn't be contributing maybe a large sum to srs if you have maybe some immediate or foreseeable cash needs.
That's correct to take it out too early. Then you get penalized.
That's number one on the list onto the second money move that we should make before 2023 arrives Chris What should it be?
But the second one would be considered topping up your CPF special account or retirement account retirement account. If you have already crossed age 55. If your these two accounts S. A. And R. A. Have not reached the current full retirement some this year is 192,000. Your medicine account has not reached the basic health. Some of 66,000 you can top up your M. A. Your R. A. S. A. Accounts. If you top it up you can enjoy up to $8000 of tax relief and this $8000 that you will enjoy as tax relief
Will be shared for cash. Top ups to all these accounts so you won't enjoy 8000 for each account that you top up, you'll just be shared amongst the three accounts. You can also enjoy up to $8,000 tax relief. If you do cash top up to your parents, parents in law, grandparents, grandparents laws, spouse and siblings. If you top up to your spouse or siblings account, you can only enjoy tax relief if their total income
does not exceed 4000 that year. It means that well they must not have been working or must not earn more than that.
Yeah, it really does depend on one situation and chris we've been seeing especially during the pandemic. This rise in the number of gig economy workers or people who don't have regular work. Maybe they're not making regular CPF contributions. What about for them?
For people in the gig economy you're a self employed. Besides topping up your special account or even your medicine account which is really compulsory for the self employed I think for the self employed they can also consider doing voluntary contribution into the CPF accounts. The three accounts that they have before the year ends And they can enjoy a tax relief of up to $37,740.
So there are benefits to them as well. A quick recap of what you've just been telling us about chris if you do one main thing, it really should be to contribute to that sRS before the 31st of december. There are tax benefits on contributions to that. You can also claim tax relief, the contributions made to sRS but before the age of 60 to 100% of the withdrawn amount is taxed and you will also occur 5%
penalty if you do so. And on the point about cash top ups for CPF, those are very important because we've been seeing a lot of that in the past year, quite high records of people topping their CPF accounts because also that 6% interest with zero risk as well as such a big draw And for gig economy workers as well, they can also benefit from this, they should be making these voluntary top ups if they can. Okay, let's go on to the third must make a move before 2023 chris what should we be doing
the next three more? Some I'm going to share with everyone, they are not really the must do, but it will be good to take some down time in December to do them. And also practically speaking, once we get back to our busy lives in January 2023, we usually don't have the time to sit down and think about some of these things. So it would be good to start 2023 right by making some of these moves. So the third one would be do a financial health check.
Well with changes in life, a rising inflation and interest rate environment. I think it's important to do a financial health check to ensure that we go into 2023 with a strong foundation. So I'm just going to share a few ratios for the listeners. You can use these ratios to check your financial health. It's like health screening. So first ratio would be liquidity ratio. Otherwise we call it your emergency fund. How you do that is add up all your cash or near cash that you have
near cash meaning things like your Singapore savings bonds. And recently you know very popular. Everybody likes to buy t bills. These are your near cash, your cash of course will be your savings account, your fixed deposits. So you add all these cash or near cash and then you divide by your monthly expenses. You must have at least 3 to 6 months worth of cash or near cash just in case you lose all sources of income. We all know that you might
go into a recession. You can be retrenched or ask to go if you have 3 to 6 months of cash or near cash as emergency fund. Then you have less to worry about. So that's the first one, The second ratio will be saving ratio. You must be saving at least 15% of your gross income. Of course if you are younger and without liabilities please save more. The third and last ratio I'm going to share with all of us will be the debt service ratio. Or some people call it total debt service ratio. Tds are,
how do you calculate this? You add up all your monthly debt repayment and you divided by your gross income. You should not be using more than 40% of your gross income to pay all this debt. If you are using more than 40, it just means that well you are overly leveraged. Try and do these three ratios and make sure that your foundation is strong before going into 2023.
So a liquidity ratio. The savings ratio as well as the total debt to savings ratio. Right. So these are important chris you said the financial health check is like your physical health check. A lot of people don't even do their physical health check or they might even be reminded to do it just because we're talking about it now. Right. So you do all of this and suddenly you see your blood pressure is high. So in this case you see. My goodness the ratio does not look very good. What do you do?
Just like health screening usually if the result in very good the doctors usually they will tell you go for lifestyle changes before even taking medicine. So if you do this and then your financial health check doesn't turn out very well. I'll say the same thing make some lifestyle changes and these lifestyle changes that are manifested through a budget. So that's the fourth money moves that you might want to do before the year ends and that is budgeting. How do you do? Budgeting
is really very simple. The actual planning of a budget is not difficult, it is the implementation start first with estimating your total monthly income. Then the second step would be set an amount that you target to save. You should at least say 15% of your gross income after you have done that, then you move onto the third step which is whatever is left behind. You can then use it for your expenses.
And I'll generally say that your expenses, there are two types fixed or variable expenses, fixed expenses are expenses that will not change in the next 12 months, like your mortgage repaid payment insurance premiums, your tax payments, these are fixed expenses. Now after you do this budgeting and you might not be left with much but whatever that's left behind, then these things are for you to use for your variable expenses.
Try very hard to lower your variable expenses by looking for cheaper alternatives or avoid incurring the expense altogether if possible. But my key here is start first by setting an amount that you want to save because if you don't do that you minus all the expenses first you end up not having enough to save or you save less than what you should.
Yeah, having a budget can't overemphasize the importance of that because if you don't have an idea of what the goal is, how can you begin that journey right about how to use your money wisely and so on chris. I hear you on that one. So that was number four. Budgeting. What about the final one chris which is number five on the top list of money moves that are going to matter. They're going to make a difference before we reach 2023
it will be good. The fifth thing is that we should sit down and think about our insurance so do an insurance review the primary purpose of insurance as I've always said it is for protection and not savings and as the primary purpose in our journey of trying to accumulate money to reach our financial goals. Sometimes we are faced with life risk, unfortunate demise, disability or medical condition and these kind of things can disrupt our journey towards
reaching that financial goals. The purpose of insurance is to make sure that if things like that happen either our family or ourselves, we still have a chance to be there. So maybe start by asking yourself in the event of your unfortunate death, disability or a medical crisis, how much income do you need to have for your family? How much income do you need to replace? So that life at home can be as normal as. And then ask yourself whether your current insurance coverage is
adequate to provide that. The second question you probably want to ask yourself with regard to insurance is if you fall sick and you need to incur huge medical expenses, do you have enough insurance to claim against? If you are going to be warded in the hospital, what kind of what do you prefer to stay in? If you're happy with B. Two and C. And you are happy that you have no options to choose the doctors that you want to choose B. Two and C.
Is good enough then medical life is good enough. But if you want to have that option of a better healthcare, better ward, you can't Choose your specialist. Then you have no choice but to upgrade it to an integrated plan and by the appropriate integrated plan, take a look at your insurance portfolio right now, make sure that you are well insured before you go into 2023.
Some of these things you don't do once we start going back to work january normally we don't have time to think about these things anymore.
Yes, I mean if the pandemic years have taught us anything, it is to prepare for the unknown. As you say, chris think of insurance is protection not as savings because there are life risks and those life risk other things that are going to disrupt us on that journey towards financial health when we think about financial health insurance is not top of the list. That's right. You got to think about it. As you say when your life changes, you have to ensure that you have appropriate coverage.
Your career might change right? And when you earn more money University you might be spending more. Yeah
I have a new baby, you know
Things like that. Yeah exactly exactly when you get married and so on all of these things are part of that journey. So Chris you've outlined the five must make money moves before 2023. There's a lot of good news in there. There's going to be a lot of soul searching. I think among listeners about the recommendations and the decisions that they potentially can make. So now drum roll, what is the one thing we should not be doing with our money before 2023? Give us a bitter pill Chris
so I was thinking about this for a long time and I was thinking like what is the one thing you should not do before the year? And for me the one thing is do not rush out to spend just to save on that G. S. Increase next year. You know G. S. T. Is going to go up by 1%. Please do not go out there and do binge shopping just to save that 1%. You end up being penny wise and pound foolish really
because you probably buy things that you don't need. But if you have already something in mind that you need to buy then okay buy it before the year ends but don't come with a shopping list and say
okay I'm just going to shop
and save that 1%. Think about it. You know to save $100. You'd be spending $10,000 but you may not need to spend that $10,000 if you don't really need those things. So that's the one thing don't go out and do,
you're telling it like it is chris is very important. It's not always died. I must buy. Right? Yes you are
right.
Well you know I mean the thing is about that it's true in the past when we know there's a GST hike that's coming up, we tend to front load all of those big purchases right? Or even like for a watch, for jewelry, maybe for a car. We have seen these spikes in retail sales at that time of year because it's also december, people are tending to spend more as well. But the variable expenses can be controlled. So if you're thinking of buying a watch that is
a variable expense. So if I can finally recap your top five plus the one bitter pill because I think that some people will be touching the chest and go oh no, I can't have that one thing that I wanted to have, but it's also a pleasure postponed, You might be able to postpone it down the road.
So
number one contribute to your srs, you can get tax benefits from that top up your CPF special or retirement account. There are regulations that are governing those tax deductions that will actually justify that move, do a financial health check, everybody life changes. So your financial goals might need to change as well. So it's never too early. Never too late to do that. Financial
health check. Even if you've never done it before because why you've got to assess what your goals are, how they've changed and what financial decisions you have to make maybe in order to reach or to achieve those goals. You've advised us pay attention to your budgeting. Again, not everyone has a budget. You know, I
know many do, but we neglect that. Sometimes there are ways of being able to plan that budget as well to align your money with the goals because you can save money when you actually have a budget chris there's even a statistic to say that if you don't budget, you will tend to spend more money. Ultimately, people who don't budget will tend to save less money than others. And also number five conduct a meaningful insurance review of your position, especially if you've had life changes and so
on career change. Even if you're earning more money, you should be knowing what your insurance covers and that is all about protection, not about savings. And the one thing not to do. Di di you actually don't have to make that big purchase before the GSD height kicks in any way has been calibrated. It's actually been tapered right. It's going to come to hike so the pain is not necessarily going to be there. So those are the top five money moves
to make before 2023. You've heard it here and the one move you should not be making as we close out 2022. My guest today who has broken it all down for us has been Christopher tan ceo of providence chris Thank you very much and listeners, thank you for listening in. I'm Don Tan. You've been listening to the Moneyline podcast.