Finance planning is a big part of adult life. Armed with a nice degree and set of skills attained over your university years, you might want to plan out your life finances as soon as you start earning an income so you are able to get a head start over your peers.
Here are some basics you should equip yourself with if you have just entered the workforce, or and planning on starting your career.
#1 Insurance Coverage
How this helps you: Financial cover for Critical Illness, Accidental Death, Permanent Disability
Insurance is never a hot topic when it comes to financial planning, even for fresh grads. Many young adults have a view of insurance as a weak investment plan, but insurance is really not meant to serve that purpose. What insurance can do for you, is provide coverage for illnesses, and debilitating conditions that will hinder you from working.
You can also consider adding on rider schemes which boost extensive coverage when you feel the need. Fresh grads of around 23-26 years old can expect to pay around $300-$400+ in the first few years with rider scheme and pay $0 should you end up with something nasty like Appendicitis. Most insurance companies offer effectively the same plans, but you should still do your due research before deciding to sign up for one. Make sure you also check out everything you need to know about your company’s medical benefits, so you don’t end up paying for something you don’t need.
Insurance is a good basic to have as a young adult, especially since we have many years to suffer if we lose the ability to work. Before you start planning your spending on various investment channels, you should first cover yourself for personal accidents and any illnesses that may leave your family in financial burden.
Contact a few agents from different companies to see what fit your salary and life expectations best, and then move on from here. Never let an agent dictate your choices.
#2 Personal Spending & Savings
Before you can do any advanced financial planning, the first thing you should do is to plan your personal expenses. Internet, handphone bills, household contribution, food and transport are some basic expenses for any young adult. Once you get to a remainder sum, set aside about 20% to 30% of that sum to save up every month. This will ensure you get some liquidity and a pool of money for big ticket items, such as getting an apartment or a car.
#3 Understand how Income Tax works
Many companies take care of an employee’s tax reporting come April every year, but for those that do not, it is in your best interest to find out more. The important thing to recognize here is that there are tax-deductible expenses incurred during work, such as cab transports that you are eligible for.
Naturally, you’ll want to retain those receipts so you can declare those as tax-deductibles. Remember, any income below $24,000 is exempted from tax, so do your best to go under the radar. If you are lucky enough to run your own business on Sole Proprietorship or Partnership, you can even charge some personal expenses to your business (such as stationery or even getting a new phone).
#4 Build a bulletproof personal finance system
http://www.iwillteachyoutoberich.com/automate-your-personal-finances/
Ramit Sethi, a New York Times bestselling author, recommends this system for people like you and me who are too busy (i.e. too lazy) to manage their finances.
Even though this system is tailored for the United States, what we can do to apply this to your own local context is to replace the 401k with the mandatory or opt-in savings programme, and Roth IRA with the an investment scheme.
Here’s what he has to say:
“By setting up a bulletproof personal finance system, you can start to dominate your finances by having your system passively do the right thing for you. It will help you automatically manage your money, guilt-free, for years to come. Bills, payments, and even investments will be automated, leaving you to focus on the things that really matter. And since the system is so flexible, you can tweak it to your specific situation.”
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