Financial Planning and Managing Money

Some things I know about money management, would be that initially, being given pocket money and allowance from my parents, I never had a very good concept and i do not know about the importance of money in our lives. Therefore, I would spend my money without actually thinking, which caused me to run out of money even before the end of the week. As i grew older, I started to learn how difficult money was to earn. Like how some people had to work an hour just for a $5 pay. Then I understood that I should think before spending my money to sort out my wants and my needs and proceed to spend the money. If it was a want, I would consider if i had enough money or could i do without it. If it was a need, was it really necessary at that point of time. Besides that, i also learnt to start planning out my finances, like how much i could spend per day. And it involved things like if I would want to splurge on a particular item, i would have to spend less on other days or start saving on a day to day basis. I then learnt about having some savings to set aside that could be there when i wanted to get something. It all boils down to financial planning and managing my money.

Of course, at our age, we have all learnt that there are things such as investments. When we put our money in banks, we get a mediocre amount interest in return. But is that what we are contented with? I would like to know about how to better manage my finances, how to come up with a plan that is not only going to help me save more money, but also to split up my finances for different uses such as healthcare, gifts et cetera. Thus, I would want to know how money can be managed better to even grow that money.

After reading up on money management related things, I have learnt that my salary would need to stretch for various expenses, set some goals to achieve some form of financial independence, have a clearer understanding of Singapore's taxation as well as the CPF scheme and plan in advance to avoid over spending in the early years.

I have learnt about the taxation in Singapore which is about 0% to 22% on income (income tax rate). This money goes to the government and the society and it is spent on infrastructure, education, recreation, healthcare and services. Singaporeans may think that our income tax rate is high at 22%. However, if we compare our income tax rate to the income tax rate in Denmark or Sweden for example, 22% is really nothing. Denmark and Sweden has an income tax of 60.4% and 56.4% respectively, which means that both Denmark and Sweden, have to return more than half of their income back to the society and the government. Therefore I do not think that Singapore’s income tax rate is high. Tax reliefs and rebates are given in support of individuals saving for retirement and serving the National Service as well as encourage family formation, filial piety and upgrading of skills. They are also given as a recognition for individual’s efforts. Instead of compensating taxpayers for certain types of expenses fully, reliefs are given to promote certain social objectives. When someone says that something is expensive, it means that that person is not willing to pay for the item at that price, however if it was cheaper, that person would definitely get it. Taxes are most likely to increase due to the ageing population and the low birth rate in Singapore. Lower birth rate and an increase of the ageing population would lead to an increase in tax to support the elderly citizens. By 2020, about 3.6 working adults would be supporting one elderly citizen as compared to in 1970 where about 13.5 working adults were supporting one elderly. Therefore, there will be an increase in tax. Another reason why the taxes would increase would be so that Singapore can improve the infrastructure and the often frequented by tourist area so that the government can earn revenue and build important and useful infrastructure for the citizens.

I have also learnt about the Central Provident Fund (CPF) scheme. Employers must contribute 12-17% of the wage for people aged 20 to 60 and at least 7.5% of the wage to people aged above 60. Meanwhile, employees must contribute 13-20% of the wage for people aged 20 to 60 and at least 5% of the wage to people aged above 60. The self-employed are entitled to tax relief for Medisave and voluntary CPF contributions will be capped at the lower of 37% of your net trade income assessed or CPF relief cap of $37,740 or actual amount contributed by the employee. For the CPF scheme, individuals can either choose the Full Retirement Sum or the Basic Retirement Sum with a sufficient property charge/pledge. The remaining cash balances in your Ordinary and Special Accounts can be withdrawn, or you can continue to keep your savings in CPF to earn interest. You can also top-up your Retirement Account up to the Enhanced Retirement Sum. The savings set aside in your Retirement Account when you reach age 55 provide for monthly payouts from age 65, through CPF LIFE or the Retirement Sum Scheme, for your expenses in retirement. I think it is a good scheme as it helps people to have some money after they retire to pay for medical expenses so that they do not have to rely on people and it helps them to save some money for their retirement. However, I also do not think it is a good scheme as people may really need that extra money to pay for something important to get sufficient food for themselves as they are from a lower-income family. I would think that Medisave is an alternative to CPF. Medisave helps to subsidize medical expenses to the elderlies which is similar to CPF which helps elderlies to save up before retirement to pay for their medical expenses in the future.

I have learnt about the taxation in Singapore as well as the CPF scheme that Singapore offers. This helps me to plan and set targets for myself instead of overspending on unnecessary things in the present. I have also learnt the difference between wants and needs. This has helped me to understand that I should spend my money on things that I need instead of thing that I want as things that I want is not a necessity. I also learnt that I should gain some sort of financial independence. This way I can learn how to manage my finances better at a younger age which helps me to understand that I should save money instead of spending the extra pocket money I get from my parents. Therefore, I have learnt that I should be careful when spending my money.