Thursday, 14 July 2016

Financial advice for a new graduate

My wife's brother just had his SMU commencement ceremony on Wed at the Suntec Convention Centre. Since he has already started work as an audit associate at one of the accounting firms in Singapore, he had the day off to attend the ceremony. But he has to go back to work on Thurs.

Just like that, we have a new graduate in the family who has just finished his university education. Although my brother-in-law is three years younger than my wife, the impact of a 2 years National Service and 4 year SMU degree has resulted in my wife working for six years before he started work. It's a lag at the start line and he will have to work hard to make up for it.

This reminds me of the time I started as a tax associate six years ago in an accounting firm in Melbourne. I had a basic understanding of personal finance & investments and it took me a long time to learn the lessons I have now. This post is about the financial advice I would give to my wife's brother sprinkled with some personal and professional development anecdotes that he can learn from.

Since this is based on our life experience, whether the advice is practical and applicable to you might vary greatly. Take away the lessons that you find useful and amuse yourself with the rest that you find irrelevant. I just hope my brother-in-law finds this post and read it!=)
1. Starting from Square One

Now that you have graduated and started work at your first job, you are officially starting from square one in the real world. It doesn't matter how hard or little you studied at university because not much of your academic experience and performance will be relevant at work.

If you have accumulated financial experience by investing your savings in the equity or bond markets during university, that is one of the few useful things you can bring with you upon starting work. Then again, you wouldn't have had much funds to invest with and plenty of time to do your research on the shares, ETFs and bonds you were planning to buy. Besides, it's much easier to learn from your mistakes when you don't have much at stake.

Since I know the family upbringing you had, I can safely say you have very little financial experience at this stage. Your parents have done well not to let you worry about financial matters by taking care of everything. It's time you step up and learn how to handle your own financial issues.

2. Find a new bank account

You are probably still using the POSB savings account that your parents set up for you two decades ago. The interest rate on that POSB savings account is ridiculously low and it's time to find a new savings account with a higher interest rate.

You have to start doing your own research on the savings accounts offered by the different banks in Singapore. It's not difficult and there is plenty of material online about the benefits and cons of the variety of savings accounts on the market.

Since you are not working at a bank and there is no restriction on the bank you have to open a savings account with, find one that offers you a higher interest just by crediting your salary into it. Your sister and I use the OCBC 360 and UOB One Accounts, which is something you can consider first if you really have no idea where to start looking.

3. Apply for a main credit card

You have a supplementary credit card for certain expenses incurred at university. I understand you were using your debit card for most expenses and that is a good financial habit to have. Your spending was generally quite low, which is why your bank account balance is larger than your sister's when she first started work.

If you open a new higher interest savings account, you will find that one way to increase the interest you earn on the balance is by spending on an associated credit card. Do not be afraid. Managing debt is a skill you will eventually have to learn and I rather you do it now than later in your life.

Read up on how a credit card operates. Basically, you charge an expense (e.g. lunch at McDonald's with your colleagues) to the credit card where you would previously have paid cash or used your debit card to pay for it. Repeat the process for other expenses you would have incurred with cash or debit card previously.

At the end of the monthly billing cycle of the credit card, you will be sent a statement with all these charges as an outstanding amount due by a certain date. Make sure you pay off the full outstanding amount by the due date.

At this stage, you only need one credit card associated with the bank that you open the higher interest savings account with. The whole point of having the credit card is to earn reward points or cash rebate from those expenses.

With more experience, you might find that there are many ways to optimise the reward points or cash rebate by having additional high interest savings accounts and credit cards. You are not there yet.

4. Budget your salary by percentage

I can see you are tired every day now. That's normal at your first job because you have not adjusted to working so many hours in an office each weekday. I'm sorry to be the bearer of bad news but it's going to get worse before it gets better.

Your first peak period as an audit associate is coming up and you will find yourself struggling to keep your head above water. Your sister and I had it better in Australia where we didn't have to work as long hours in our graduate roles. Life is not fair and you have to learn how to deal with it.

It's unlikely you will have the time and energy to track all of your expenses. That doesn't mean you don't do any budgeting with your salary. Use a percentage budget approach for now. Since you live at home and don't incur rental/mortgage and groceries expenses, this is a good time to save. Your transport costs are low as well since you mostly carpool with your mother, sister and I when going in to work.

Compared to your friends working in banks, your salary will be lower than them. Trust me, I know. Don't be disheartened because you will learn a lot in an accounting firm. But you should know that it is still a decent salary compared to the many other industries out there.

However, you have to save more aggressively to make up for the lower salary. Since you are still single and have sensible colleagues & friends that don't overspend, you should aim to save 80% of your net salary. You don't have to track all of your expenses but only need to ensure they don't exceed 20% of your net salary.

Calculate this once at the end of each month and make your lifestyle adjustments in the next month. This approach should work for you since you have a low spending lifestyle and are less inclined to inflate it like your sister and I.

5. Read up on the Central Provident Fund (CPF)

You will notice that 20% of your monthly salary is automatically deducted as contributions by you as an employee to your CPF. This is the national retirement fund scheme and you need to know what the Ordinary Account (OA), Special Account (SA) and Medical Account (MA) can be used for.

You can learn about the fancy CPF moves you can do such as topping up your SA for tax relief, transferring amounts from OA to SA etc. Before you do any of them, think about whether they make sense for you first. Your situation is unique to you and what works for others might not work for you. For now, just watch these balances grow.

6. Understand your income tax return

You should know that the personal income tax rates in Singapore are low. The Inland Revenue Authority of Singapore (IRAS) also makes it convenient for you to file your income tax returns at the end of each year.

Although your tax payable for this year is expected to be nil or very low, you should try to understand your income tax return even if IRAS has pre-filled your salary and tax reliefs data. Your sister had me to navigate the complex personal income tax returns in Australia since she fell asleep the first time I went through her first tax return with her.

Your tax return and the filing process in Singapore are much simpler but that does not excuse you from understanding its components and ensuring all the data is correctly captured. If you don't understand something, ask me.

That's about it from me for now. Notice how I didn't mention anything about investments? That's because I reckon it's too early for you to learn about it at this stage. Given your limited savings and time, there are few investment options available to you.

That's not to say you can't start reading about shares, ETFs, bonds etc. But don't get too hung up about them. You are better off developing your career by improving your job skills, professional and social networks. Work hard at increasing your salary and savings but know that your human capital has the potential to grow much faster than your financial capital in the early stages of your career.

Besides, you first have to work on the basics of personal finance before you advance to actually investing your money. The self-discipline, research skills and ability to learn from your mistakes will be critical to your success as an investor.

It might take a few years for you to establish your foundation before you start investing and that's okay. Your colleagues and friends might have started earlier because they are better prepared and thus have a few years of head start. No matter, you are young and a slow & steady approach should suit you well.

In any case, I might have another post on this blog for you then about how to invest when you are ready. By then, I hope your sister and I are more experienced and in a stronger financial position ourselves to be able to guide you so you can avoid the mistakes we have made.


  1. Very good advice. Probably your brother in law can save a lot as auditors have money but no time to spend!


    1. Thanks! Agree that my brother-in-law can save a lot since he will be so busy working on the weekdays and resting on the weekends. Just hope he adjusts well to working life!


  2. I admit, I have not been on this web page in a long time... however it was another joy to see It is such an important topic and ignored by so many, even professionals. I thank you to help making people more aware of possible issues.Houston accounting firms