1. Azure School
Financial Planning
Lesson 1

2. Reading materials
• Read chapters 1 to 6 of the book, Practical
Guide on Financial Planning, written by Mr.
Tan Kin Lian

3. When to start financial planning
• Start your financial planning as soon as you
start work, with your first pay check
• Most people will work for 30 to 35 years
before they retire
• Do not buy a life insurance policy too early as
it is not a good way to invest your savings
• Students should avoid buying life insurance as
they do not have a regular source of income

4. Budgeting
• For most people, the earnings should be
allocated as follows
– For current expenses 50%
– For buying a home 25%
– Savings for the future 25%
• Your contribution (including your employer’s
contribution) to the Central Provident Fund
can be considered as part of the 50% savings
for buying a home and for the future.

5. Central Provident Fund
• The employer and employee contribute a total
of about 35% of earnings to the Central
Provident Fund (CPF)
• You should set aside an additional 15% of your
earnings as personal savings.
• If you earn $3,000 a month (gross), your
personal savings should be $450.

6. Emergency fund
• Your first priority is to build an emergency
fund of 6 months’ salary.
• If you earn $3,000 a month, your emergency
fund should be $18,000
• Keep the emergency fund in a savings account
or in liquid investments.
• Do not invest your emergency fund in a life
insurance policy.

7. Pay off your loans
• If you have study or other loans, you should
pay off the monthly installment.
• Do not delay the payment, as you may have to
incur an interest charge.
•

8. Meet current expenses
• You have to spend 50% to 80% of your
earnings to meet the following expenses:
– Personal expenses
– Contribution to your parents (if you stay with
them)
– Pay off the loan installments
• Set aside 15% as personal savings
• If there is any balance, you can use it for
holidays and other discretionary expenses

9. Cost of borrowing
• If you spend more than your earnings, you have
to pay a high interest rate on the borrowing, i.e.
– 24% per annum on credit card
– 48% per annum on installment payments
– Higher, if you borrow from a loan shark
• The interest charged on $10,000 on your credit
card is $200 a month on interest or $2,400 a year
• Do avoid borrowing and paying a high rate of
interest.

10. Unexpected need for cash
• Sometime in the future, you may face
unexpected need for cash for the following:
– Down payment for a house or car
– Furniture or renovation
– Tide over unemployment
– Medical expenses, e.g. for parents
• You can use your emergency fund to meet this
expenses, and avoid borrowing at high
interest rate

11. Getting out of debt
• If you have a large debit, you can consider the
following options:
– Borrow from friends or relatives
– Refinance the loan at a lower interest rate
– Sell off some assets
• If you need professional help, you can consult
Credit Counseling Singapore (www.ccs.org.sg)

12. Buying a home
• Here are some rules to follow when you buy a
flat or home:
– The purchase price should not exceed 5 years of
your income
– The monthly repayment should be within 25% of
your income
– You should take a loan not exceeding 25 years
• If both spouses are working, you can take the
combined income.

13. Be prudent
• If you take out a large mortgage loan, be
aware of these risks:
– You may lose your job or suffer a cut in earnings
– The mortgage payment may increase in the
future, due to higher interest rate
– Your earnings may stagnate at an older age
• Take a smaller loan, so that it does not
become a financial burden to you.

14. Use of CPF savings
• You are allowed to use your CPF savings to
make the down-payment and for the monthly
mortgage repayments for your home
• Try to pay the mortgage entirely from the CPF
savings, without relying on cash top-ups
• You are not allowed to use your CPF special
account for mortgage payment, as it is kept
aside for your retirement.

15. Save for future needs
• Your personal saving can be used for
– Unemployment or disability
– Large medical bills
– Education (for you and your children)
– Retirement
• You have flexibility in using the savings
• Make sure that at least half of your total
savings (personal and CPF) is kept aside for
retirement.

16. Savings at retirement
• You should have at least 6 years of your
income at the time of your retirement. If you
have more, it is better.
• If you retire with an annual income of
$60,000, you need savings of $360,000
• You home should be fully paid up at that time.
Do not upgrade your home with a loan that
stretches beyond your retirement age.

17. Draw-down of savings
• If you have adequate savings, you can draw
down 30% of your pre-retirement salary for
your retirement
• If your salary was $5,000 a month, you can
draw down $1,500 for your retirement.
• You can increase the draw-downs in line with
inflation
• Your savings will be sufficient to last you for 25
years.

18. End of lesson 1
• Read the chapters of the book again in more
detail.
• When you are ready, you can do the Quiz.