Tan Kin Lian's Blog: Financial Advice for Young People

Thursday, November 13, 2008

Financial Advice for Young People

I wish to give some advice for young people, especially those who have just started work.

You should budget your monthly earnings for the following:
> repayment of study or other loan committed previously
> contribute towards the household expenses (if you are staying with your parents)
> your monthly expenses for travel, meals and clothes (be frugal)
> put aside 15% of your earnings as savings

If there is a balance, you can use it for travel, entertainment or other luxury.

Most importantly - set aside 15% for your savings. You may need to draw down on your savings if you lose your job, or you change your job, or you need cash to meet an emergency. Keep the savings in flexible form.

Avoid investing in a life insurance policy, as the savings are locked up and inflexible. If you need protection, buy term insurance.

Avoid borrowing on your credit card. The interest charges is very high. It can cost you a lot of money.

Read this FAQ:
http://www.tankinlian.com/faq/fptips.html

29 comments:

G C said...: Never never use the credit term offer by any credit cards. You may use the cards but ensure you pay with the term and not let the card company charge interest. If you find difficulty discipline yourself, the best is DO NOT take any credit cards.

Always spend with yours means. This is the GOLDEN RULE.

G C Tham; November 13, 2008 11:58 AM
Concerned said...: Don't forget. Never invest in credit linked products no matter how attractive the product or the RM look like.; November 13, 2008 12:18 PM
Anonymous said...: help to spread the word around your group of friends - never ever deal with a relationship manager, a personal banker, an insurance agent, etc - if you need any information on any financial matter, there are many friends on this blog, besides Mr Tan, who will be most willing to help.; November 13, 2008 2:21 PM
Anonymous said...: I think, Begin retirement planning with your first job tip was so important.

retirement plans, retirement planning calculator, retirement planning, early retirement planning, retirement savings, retirement investments; November 13, 2008 2:37 PM
Anonymous said...: Start saving early and young and you will appreciate the power of compounding, even if the starting amount is small.

To illustrate, even with 1 cent a day saved but double the amount every day will give you $5242.88 after only 20 days!

Of course in real life won't be starting with 1 cent or 200% interest per day but still it can be substantial after compounded for some time.; November 13, 2008 3:12 PM
Anonymous said...: Never trust an insurance agent
Never trust a product pusher
Never buy an whole life product
Never buy an endowment product
Never buy a regular ILP
Never buy an Anticipated endowment because it guarantees you lose
Never buy a Limited pay whole life because it gives limited protection and return
Never buy a guaranteed product because it guarantees you lose
Remember an insurance agent can masquerade as financial consultant or by another title.
How to spot one? They behave like above and only sell the above products that give them high commission
Lastly, never ,never, never,trust the mothers and fathers of all product pushers, and pushers of these products who have name card that bear logos like MDRT or COT or TOT, these are proofs that they are product pushers, they push high commission products, they NEVER put your interest first and that is why they have earned logos like those on the name card.; November 13, 2008 3:37 PM
Anonymous said...: Dear Mr. Tan,
You should also add that young people should use the ATM to do all transactions or internet banking but never enter the bank and never talk to RM.; November 13, 2008 4:14 PM
Anonymous said...: I agree with how the anon above said it. Never deal with RMs, insuarance agent and those financial advisors. Because once you get into a talk with them, they will try to psycho you. It's their job. So, to avoid falling into their sweet or scary-stories tactics, please read Mr Tan's blog first. Get your financial ABCs from a financial veteran.; November 13, 2008 4:25 PM
Anonymous said...: well, you cant even save 15% when you have to plan for your parents retirement, pay for the house, pay for the loans taken during university etc.. talk about every person having a choice to study in university and meritocracy etc, its bullshit.

taking myself as a case study, i have a take home income of 2250.

500 for bank loan (of which 150 is for interest payment), thats the price to pay for studying in uni.
400 for mother who is not working
200 for grandmother
600 for the utilities and hdb flat (not enough though, the hdb is knocking on our doors asking for repayment of late loans every now and then, i suspect repossession in 1-2 years time)
160 for transport
90 for internet and hp

and that leaves me with 300 for food and clothes and going out with gf and saving for our dream home.

end up have to moonlight during weekends and nights.

thats what you have for a meritocratic society with no social security.

i propose interest-free loans for university students and some sort of social security for elderly people, otherwise i suspect there are others like me who have parents who don't even have CPF, how are they going to go through their old age.

sorry for all the rants here, i have been pretty stressed up for the past year since i graduated with the loan payments and such. =(

but the point is, many graduates wont be able to save even 15% with the high cost of living in Sg. And the government rather give more scholarships to foreign talents who zip away once they finish their bonds.; November 13, 2008 5:01 PM
Anonymous said...: avoid buying at roadshows especially stalls operated by products peddlers from ntuc. I am warning all consumers
because they have only 2 products to sell only. They are high commission products like revosave and vivolife. Worse if they are combined they will give up toxic. So be careful.Don't get burned.If you are at Bugis Junction they have a poster that says $5000 guaranteed. Don't be fooled. To help other passers by call the police to report miselling and misrepresentation and cheating is a crime.; November 13, 2008 6:02 PM
Anonymous said...: I save, save, save....

and it seems those so called Credit Linked products is sweeping away a lot of my saving....; November 13, 2008 6:06 PM
G C said...: One of the reason why I was so impress with Mr. Tan' s advise was actually from my own personal experience.

I am a strong believer in taking up life insurance protection. So from the day I started work I have been investing so to say in life insurance and as of to day I am paying an annual premium of about RM40,000. The problem was that though I have the coverage but most of the premium was go to so call saving element and thus reduced the sum insured. The saving portion return was as Mr. TAn say was not that high.

Now after reading Mr. Tan's advise on life insurance I only realized that the best insurance should be reducing term life, ie you pay a small sum but for big protection, and the saving on the premium should go to other form of saving and should not be with the Life Insurance company.

Talking about reducing term life this was exactly what happen with me now, my needs for protection has been keep reducing as my saving over time also have been increase. My saving accumulated so far are much much more then the sum insured now despite I am paying RM40k a year.

That made me strongly agreed with Mr. Tan's advise once should take up reducing term life rather than pure life as the premium was high and the sum insured was low.

The problem was no insurance agent will tell you that fact as I believe the Reducing term Life commission was much much lower than the pure life, that end up all insurance agents are promoting pure life and thus we all made them richer and richer.

Please seriously take note of what Mr. Tan's advise on the life insurance.; November 13, 2008 7:09 PM
Anonymous said...: Kin Lian, not sure if you already know but there is a discussion board setup for affected victims and investors at delphi forum. forums.delphiforums.com/sisualai

maybe you would like to bring to your reader's attention?; November 13, 2008 7:28 PM
Anonymous said...: "dennis said...

well, you cant even save 15% when you have to plan for your parents retirement, pay for the house, pay for the loans taken during university etc.. talk about every person having a choice to study in university and meritocracy etc, its bullshit.

taking myself as a case study, i have a take home income of 2250.

500 for bank loan (of which 150 is for interest payment), thats the price to pay for studying in uni.
400 for mother who is not working
200 for grandmother
600 for the utilities and hdb flat (not enough though, the hdb is knocking on our doors asking for repayment of late loans every now and then, i suspect repossession in 1-2 years time)
160 for transport
90 for internet and hp

and that leaves me with 300 for food and clothes and going out with gf and saving for our dream home.

end up have to moonlight during weekends and nights.

thats what you have for a meritocratic society with no social security.

i propose interest-free loans for university students and some sort of social security for elderly people, otherwise i suspect there are others like me who have parents who don't even have CPF, how are they going to go through their old age.

sorry for all the rants here, i have been pretty stressed up for the past year since i graduated with the loan payments and such. =(

but the point is, many graduates wont be able to save even 15% with the high cost of living in Sg. And the government rather give more scholarships to foreign talents who zip away once they finish their bonds.

5:01 PM"

You are the perfect example of an INEXPERIENCED WageEarner-Spender heading for a financial pothole THAT YOU COULDNT SEE even if its under your nose. Sounds familiar yet Investors?

Stranger still is every parent on this island wants their children to grow up this way.

Blind Faith, Misdirected Diligence and Utter Lack of Foresight wont get you anywhere far.

Loss, Wastage, Desperation are your BEST teachers.

You wont learn anything if you keep winning your petty skimishes and stay in your comfort zone.; November 13, 2008 7:59 PM
Anonymous said...: To help the consumers get competent and safe advice MAS must ensure that section 27 of the FAA is complied by all insurance agents , advisers and RMs. MAS must enforce them. If any of the insurance agents , advisers or RMs breach this law they must be punished by fine or jail or both.
MAS cannot play play again. Send out more auditors to check on these people and the FIs frequently . Also use mystery
buyers to spy on them to check if the FIs and their reps are playing by the rules. Self regulation deosn't mean leave them alone to do what they like.
And consumers must know their rights.How to check if they are not short changed or the product is inappropriate engage a third party for second opinion. Also remember to read the fact find form to see if they are exactly what you have given and not falsified or doctored by the insurance agents.Do not sign empty forms. It is to your perils.
As soon as discrepancy is discovered lodge a complaint with FI or CASE or MAS. It is your right.
Remember to deal at arm's lenght with insurance agent.Preferably not with your relatives, siblings or fiends so that you can grill the agents and ask tough questions.
This should be the way to ensure that you get the best deal.; November 13, 2008 9:56 PM
Anonymous said...: The entire economics system is very simple. It is a quantum game. millions..billions..trillions...X % gain.
Rich ppl got cash. Bank help them , use their cash, sell to people who needs money. makes the difference. since the quantum is huge , the profit is good.
Cos they got a lesen call BANK.
They need more, they spend more, they want bonus, nice office, nice car and ...expansion to get more $.
They got listing, print more shares, got more money , lend more, write off more...some countries prior retirement , CEO fix up big loans,financing and gain kickback, and when they loan turn bad, they just write off as NPL. few hundred millions vs ten of billions, it is OK.
Then more aggressive, they advertise, they issue more credit card, more...nice Premier clubs...
Suddenly, US bankers get more creative, they invented TOXIC CDOs..get insurance companies to involved, so AIG dragged....
This is the SAGA of modern global financial SYSTEM. WTF; November 13, 2008 10:14 PM
Anonymous said...: Dennis,
understand your dire straits but you have done the right thing to supplement by moonligthing.
While you understand hardship don't let the insurance agents rob you and aggravate your circumstances.. Remember never buy a whole life or endowment or anticipated endowment passed off as cashbacks or coupons because these products never give you value for money. These products short change you of the protection and the return. These products are cleverly disguised to fool you too.
Anyway to play safe don't have anything to do with insurance agents or agents disguised as financial consultants. You will surely kenna cheated. All the best.; November 13, 2008 10:52 PM
Anonymous said...: Must think very careful if you want to borrow for 20 to 25 years. There were 5 crises during the last ten years.

Have to ask ourselves whether it is necessary to buy a property and worth the risks.

Better be contented instead of borrowing now and whole family suffer later.; November 13, 2008 11:16 PM
Anonymous said...: Good advice for young people. You should follow the advice at least until you get married; November 13, 2008 11:19 PM
Anonymous said...: Dont buy in hotels
Dont buy at shows
Dont buy any financial product that gives you free gifts
Never believe anyone who tells you that you have to make a decision today or you will miss the opportunity.
Never feel pressured to buy for any reason.
Never buy off anyone who makes you feel stupid for not understanding.
Always read the contract
If the salesman wont write it down its not true (even then it may not be true - ask for independent written confirmation if in doubt)
As in poker if you dont understand who the sucker is in the game its probably you.
If you dont understand dont buy.
Always get a second opinion from someone you trust who does not benefit from the transaction.
Dont feel ashamed about asking for a third opinion.If in doubt dont buy.
Remember there is no such thing as half price gold.; November 14, 2008 12:55 AM
Anonymous said...: Unfortunately, many unknownly spend a lot of their income servicing interest. Borrowing doesn't come cheap.; November 14, 2008 4:14 AM
Anonymous said...: Hi Mr Tan, I appreciate your advice. However, with such a high mandatory contribution rate into CPF savings, whats left for the young,or even old, to nurture another high saving habits of 15%? This CPF mechanism is distorting the resource allocation decision and I cannot withdraw it to even fund my education abroad. Sometimes I feel its better to be a foreigner in Singapore.; November 14, 2008 8:18 AM
Anonymous said...: Many feel that it's alright to pay their housing loan and interest for their private property from their CPF account for long term.

Even for other investments from CPF, only a handful investors can make money at the end of it.

It would have been much better if the money is left in the CPF to earn interest to save for retirement instead of making great gamble by buying private property & investments.; November 14, 2008 9:00 AM
Anonymous said...: Remember when looking for life insurance make sure the insurance agent give you a financial check up first before prescribing you the products.

Like seeing a doctor you don't go into the clinic and ask to be sold a medicine and the doctor will do as you ask and charge you consultation fee plus the cost of medicine.If the law allows this you are disadvantaged
because you also pay a fee for which you don't receive diagnostic examination service plus paying for the product.You are short changed. Worse the product may not be suitable for you and may even kill you and it is caveat emptor. You will have no recourse to legal action.Fortunately the doctors have ethics and rules to comply under the law.
Similarly an insurance agent who doesn't examine your needs and circumstances , pushes you a product.You still have to pay the high commission,and no discount for not recieving the check up. Normally the cost to you is about 26 months of the premium, for commission to agents and profit to the company.
The product may not be suitable; you may not be able to pay the premium later; you may be under insured or over insured;you may be paying too much for insurance that your other areas of needs are affected.There is no planning that in event of retrenchment you have to cancel them.
In future all insurance agents MUST give you a financial check up first before recommending you a product.Not only this the product must be of reasonable basis. If it is not the agents can be sued.
Example of unreasonable basis:
After analysing your need, and circumstances it is found that you require $500K protection for your dependents if you die as first priority.The agent recommends you a $50K limited pay living whole life and tells you that you can postpone the rest , you won't die now or when you have the budget call her up again to buy more WLs. 3 months later you meet with an accident and die . The insurance agent is delighted and feels proud that she is in this noble profession to help people .She attends your funeral wake with a $50K chegue. She proudly gives it to your greiving spouse with 4 young children in tow and says she is very pleased to be able to give her a $50K cheque while the others are giving a token 'white gold'. Of course your spouse may be too grieved to realise the cheque amount. She thought she saw $500K until after everything settles down when reality starts to rear its ugly head that she sees the miserable amount. Your spouse is lost and overwhelmed by the tremendous resposibility ahead and money no enough. The devil starts to work on her and tells her what a lousy husband you were to have left her with $50K to fend for the next 30 years.Love for you turns into cynics and curses. To cut the story short, your wife didn't know it wasn't your fault.She comtemplates remarriage . She alone cannot handle . She doesn't know that it was the lack of conscience and the greedy agent's fault. Up somewhere you are trying to reach your spouse to advise her to sue the agent but unable. Watching your children and wife toiling each day is driving you crazy that you can't stand anymore that you ask God to transfer you to hell to suffer to atone for what you have done. In there you are cursing the agent that she will come to hell too so that you can rape her and tear her to pieces. The end.
The moral of this is neverXXXXXXtimes to trust the insurance agents. They never care for you or your family. They only care for themselves and theirs.; November 14, 2008 10:08 AM
Anonymous said...: Hi,
Please never say never trust an insurance agent. Mr Tan is from insurance industry.; November 14, 2008 12:39 PM
Anonymous said...: What is wrong with never trust an insurance agent? It is a FACT that insurance agents are interested in your money and not your needs. If they do they don't sell or push products to you without doing a need analysis.How do they know that you need a whole life or an endowment or a regular ILP? They know that these products can earn them high commission and that is all they are interested to know. Your needs? They don't know how.!!
So you see insurance agents must be avoided like plague, like HIVs.
The worse ones are those with mdrt or cot and those craps. They are the biggest conman or women otherwise how did they get those mdrt or tot. How to trust them?
Never! Never! trust them at your risk....; November 14, 2008 8:23 PM
Anonymous said...: So if we cant trust insurance agents, what would make TKL who heads them for 20 years?; November 14, 2008 10:48 PM
Anonymous said...: 10.48PM,
First Mr. Tan was never an agent. He knew the agents had difficulty competing so he helped by attracting the customers to the agents by offering incentives to the customers to buy. Mr.Tan believed in win-win. During his tenor the products were good but the agents were greedy demanding more commission. The agents were not happy when their commission was cut.They didn't realise without NTUC these agents wouldn't have means of earning a living. On their own the agents don't have skills, not even insurance planning skill. How did the agents do, it was product pushing and depending on the brand name of ntuc.People bought because of NTUC and not because of agents. The agents are rubbish agents whose selling technigues smacked of mis-selling and misrpresentation.They were like the koyok salesmen. Those agents who left ntuc came back. They found out that they didn' t have selling skill or management skills.
The agents should be grateful to Mr. Tan for building up the brand name that consumers have complete trust that any products they buy would have given them money for value. Unfortunately, the ungrateful men and women are now biting the hand that fed them and their family. They wouldn't have whatt they have today if not for MR. Tan who gave them the opprotunity to make career out of this.They would have ended up as taxi drivers , toilet cleaners, receptionist or clerks or tour guide, fast food and some women might have ended up at geylang. Mr. Tan was not appreciated. What the new management is doing is taking the Mr. Tan's back side skin and put on their face as if that the AA+ was due to the them. In their hands the AA+ has been downgraded to AA-. I wonder the AAs would be around in the next few years when greedy agents need more incentive to move their ass. The greedy agents won't last long the way they sell. They may be charged for mis-selling soon.
Never trust insurance agents. They never have your interest at heart.

Jaty; November 15, 2008 3:16 PM
Anonymous said...: Jaty,
i remember the ads on
the best kept secret
honesty is the best policy
the double A rating
these are Mr. Tan's backside skins
the new management is using these skins to graft on their face.
what shameless act; November 16, 2008 12:27 AM

Thursday, November 13, 2008

Financial Advice for Young People

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