20 Nov 2024
SOURCE: CPF Board
Take a minute and ask yourself: how savvy are you about your financial and retirement planning? There are many things to consider and various scenarios to prepare for ahead of time, but amidst the maelstrom of information and planning, it’s important to step back and review the basics. In other words, ensuring you have a strong understanding of your situation before embarking on your financial journey. To get started, let’s find out if you have the proper BASE. That is, knowing your Basic spending, Additional spending, Sources of income and Establishing a solid plan!
Basic spending
Basic spending refers to expenditure that cannot be avoided, and is typically associated with necessities. Spending under this category goes into fulfilling your basic needs, such as utilities, housing, healthcare and food. When planning for retirement, it’s important to know how much you must set aside each month for basic spending, so you understand how much you’ll have left to save or spend on other areas.
As this type of spending is for essentials, it takes precedence over other forms of spending. In other words, your spending habits and saving habits must take basic spending into account and be planned around it, not the other way round.
Additional spending
As its name suggests, additional spending refers to spending that occurs outside of basic spending, and that is optional. To put it simply, these are “wants” rather than “needs”.
Examples of additional spending can include fancy meals, a new phone, or new outfits when your current wardrobe already meets your needs. Another example is private healthcare insurance – if you’re thinking about an Integrated Shield plan or riders, remember to consider the long-term affordability of these plans, as the costs go up exponentially with age.
While not strictly necessary, it doesn’t mean that this form of spending should be avoided altogether. Being able to prioritise your spending will help you navigate your finances with more confidence and clarity.
So if you’re not sure whether you should be spending on something, ask yourself: Do you really need this right now, and is it at the top of your list of priorities? Are the tradeoffs from spending on this worthwhile? If the answer is no, then you know you should hold back.
Sources of income
It’s also important to have a good grasp of your sources of income. That is to say, where your money is coming in from, and in what quantities. Apart from your paycheck, other sources of income can include payouts from investments, such as the Singapore Savings Bonds (SSB) and T-bills, or rental yield.
Keeping track of all your different income sources gives you a clearer understanding of how much you are receiving. You should also keep track of where your sources of income are saved. For example, part of your paycheck goes into your bank account while a portion goes into your Ordinary Account (OA), MediSave Account (MA), and Special Account (SA) in the form of CPF contributions. It’s important to know where your money is saved to better plan for your future spendings. Not only do different accounts serve different purposes, they also grow your savings at different interest rates.
Establishing a solid plan
Once you’re clear about your spending needs and income sources, you’re ready to start setting up your future goals, and charting a path to achieving them.
Planning for your future, not just retirement, can be intimidating at first, but the more thought you put into it, the less daunting it becomes.
While it’s fairly straightforward to understand your current sources of income and spending, many struggle with projecting their future earnings and spending. Planning for the future requires making certain assumptions, but do remember that you also have the flexibility to plan based on different assumptions to understand the possibilities, as well as to update your assumptions along the way.
Whether you are planning to grow your savings, buy a home or cover your healthcare expenses – whichever your priorities may be – these are all critical aspects that will have an impact on your retirement. The Be Ready with CPF page can help you with that, by offering resources to help you better understand the implications and options available to you.
If you need some more inspiration, you can also check out how others have embarked on their journey to achieving financial calm with CPF.
It’s only by establishing a proper foundation can you hope to build upwards with ease of mind. That’s why it’s important to have a solid BASE today, so you can keep moving forward for the future you desire the most.
The information provided in this article is accurate as of the date of publication.
