Financial Planning for Fresh Graduates

Hear from Mr Tan Kin Lian, who has 30 years of experience as the former CEO of NTUC Income, on how to plan your finances upon graduation and when you begin your first job here.

1.    How much should I save from my regular earnings?

You should save 15 to 25 per cent of your earnings, in addition to your CPF. You could start this savings habit with your first pay cheque.

This personal savings can be used for emergencies and for your retirement. If you draw down on your savings, you do not have to pay any interest. If you have to borrow from a bank for your urgent cash needs, you have to pay up to 24 per cent interest.

2.    How should I invest my savings?

Initially, you should keep your savings in liquid form. It is all right to keep in a bank to earn 0.5 per cent interest. When you have accumulated sufficient savings, you can invest in an exchange traded fund, for example, STI ETF, to enjoy diversification and professional management, or in a low cost unit trust (look for one with annual charge of less than one per cent).

3.    Do I need to buy life insurance?

You only need to worry about medical insurance at the start. You do not have to worry about life insurance until you are married.

When you have started a family, you can buy term insurance for five to 10 years of your income. Do not pay more than one per cent of your income in this insurance premium. If you find it troublesome to get term insurance, you can buy personal accident insurance for this amount. At a young age, the biggest risk is due to accident which can be covered under this policy. You can then change to a term insurance when it is readily available.

4.    Should I buy other types of life insurance policy?

Do not worry about other types of life insurance, especially if it is recommended by an insurance agent. The insurance agent earns a high commission by selling the policy to you, so you would expect the agent (who may or may not be your friend) to tell you that it is necessary. But really, it is not.

The commission is paid out of your premiums, so you are likely to get a poor yield for a lifetime of savings if you buy a high-cost life insurance policy. It is more important that you have savings that can be withdrawn easily to meet unexpected cash needs.

5.    What is the risk of losing a job due to redundancy?

In today’s work environment, the chance of losing a job due to retrenchment, redundancy or forced resignation (i.e. unbearable working conditions) could be as high as two per cent per annum, or 50 per cent during a working career. One in two workers may face this unpleasant situation in the future.

Many workers, who have lost their jobs involuntarily, have found it difficult to get another job that pays as well and could remain unemployed for several years. It is important to have savings that can be drawn out to meet your living expenses, when you are forced out of a job against your desire.

6.    What steps can be taken to cope with unemployment?

You can take the following steps:

•    Have liquid savings of at least six months of your earnings.
•    Avoid taking car loans or other large loans that require fixed repayments for several years.
•    Buy a property that represents not more than four to five years of the family income.
•    Avoid saving in a life insurance policy, as the regular premiums will be a financial burden when you are unemployed, and you will suffer a large loss if the policy is terminated early.

7.    Will my savings of 15 to 25 per cent be adequate for my retirement needs?

Your personal savings, combined with your CPF savings, will be sufficient for your needs if you invest them correctly and do not spend too much to buy a property to live in. You should also be prudent in your financial management.

Alternatively, you can also do your own calculations using the principles explained in my book, "Practical Guide on Financial Planning".

About the Author: Mr Tan Kin Lian is the author of “Practical Guide on Financial Planning”, which is available at Mr. Tan headed a large insurance cooperative for 30 years prior to his retirement. He now teaches Risk Management and Insurance in Singapore Management University (SMU). Here, he shares some financial planning tips for fresh graduates. You can read more tips on insurance and investments from Mr Tan's website at

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