When you first graduated, were you thinking about how you were going to allocate your money? Today's topic will be as a fresh graduate, should I start with investing, saving or insurance?
As a fresh graduate, receiving our first paycheck, we want to start doing something with the money we are earning, whether to buy for protection (insurance) or to grow our wealth or to save for rainy days, there are a million things we can do with our salary but what should we do first?
I will be sharing more on my perspective and also as a fresh graduate (I have been working full time for about 2 years now). For me, when I first graduated, my starting was not high and definitely not even at the median salary $3600, I was earning way below that meaning my take home pay isn't much as well considering that we pay 20% of it to CPF (retirement account)
I am lucky because my mother did get for me insurance in terms of life and hospitalisation insurance. This really helped me a lot because I knew that I had some form of insurance and can build on that further. I wanted to increase my coverage particularly for critical illness and when I first got my pay, I started with the most important thing, building up an emergency fund.
In my opinion, I would think that building savings to a certain amount and at the same time apply for insurance within your capabilities of paying will be a good first step. Once you have both savings and insurance in place, any other extra money can be invested.
Emergency funds/Savings
So I put aside $700 per month until I reached $13,000. This means that it will take me 18 months to build it up. Besides that, I also had some extra that I put into another account to build up as investment funds. Having an allocation is really important and it can pave the way for your financial journey as it lays very strong foundation.
After I had $13,000 I loosen up on my savings and channelled more into my investments meaning I started saving about $200 - $300 per month to my emergency fund. If you need a large cash buffer, you can choose not to decrease it but for me, I want to invest more and hence the reduction in savings.
Insurance
After I had my savings done, I decided to look into insurance since I am now earning a fixed income monthly and can ensure that I can pay for my insurance premiums. Since I have life and hospitalisation insurance already, I decided to get a personal accident and a critical illness. Definitely, what came to my mind was the premiums involved, you have to make sure you can pay for your premiums and not overload yourself.
I chose to pay for all my premiums yearly because you can save quite a bit as it is paid lump sum rather than monthly. So before the premium deduction date, you have to make sure you have sufficient funds to pay for it. I would think that hospitalisation and critical illness is particularly important because once you fall ill, the costs can add up and these 2 protection can ensure that your cost can be covered or lessen. For me, life insurance is not so critical unless you feel that you have children and a lot of people who really depend on you for their survival that if you do pass away, they require a lump sum to survive.
For me, my mum currently has adequate insurance for herself and she doesn't depend entirely on me for survival. My brother has a scholarship and has monthly allowance so I don't find a huge need to get a large sum assured if I do pass away. But it depends on the situation you are in as every family differs.
Investment
I started investing actually when I was in university but definitely pumped in more money after I started work full-time. You should always have an emergency fund (3-6months salary/expenses) before putting the rest of your money into investments because if things do go bad in the market, you have your emergency fund to lay back on and will not need to liquidate your investments especially if it is a bad time.
Investment is something that is best to start when you are young so that you can afford taking more risks (venture more) and also have the time for compounding to take place. For me, I was into individual stock picking initially and it was bad, my portfolio ended up too diversified for a small amount of capital and I decided to start index investing also because of work commitments. So far, it has been going well for me and I will keep to it. Though I still buy individual stocks once in awhile.
As a fresh graduate, we all have a lot of thoughts on how we want to use our first pay check and I think it’s good that we are thinking about it. My mum told me that her first pay was $200 and she spent it all on a makeup palette where she even had to borrow some money to pay for it. Haha, that’s definitely quite funny as I always asked her how come she spent all her money. But she just mentioned that at that time, she just spend whatever money she had on hand as at that time saving wasn’t in her mind.
If you are thinking about how to allocate your salary means that you know that financially you have some goals.
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