I had ulterior motives when I approached my boss Jason to pitch an article about his spending habits.
After all, Jason turns thirty next year. An important milestone in life. Recently, he got married and took out a mortgage on an HDB flat, financing the down payment with a mix of cash and CPF contributions from his Ordinary Account (OA).
His story, I argued, could be very relatable to Singaporeans who are still in their 20s, trying to figure out their personal finances.
I had the trap laid out perfectly. First, I’d pretend to be a sympathetic ear by asking him about his spending habits. Next, I’d feed him my own personal morsel of financial heartbreak to get him to confide in me his deepest and darkest secrets. Then, I’d take his confessions and pick them apart, line by line, until he becomes a sobbing mess on the floor.
Toxic, bullying behavior? Or qi being redirected back at the capitalist oppressor?
By doing this, did I run the risk of losing my job? Sure. But that’s a risk I’m willing to take to give the huddled Singapore masses #content they deserve: pure schadenfreude at my boss’s expense.
My Boss In His Own Words: A Personal Finance Journey in His 20s
My savings fluctuated quite a bit in my 20s. I started working in uni, where I held three jobs: barista, tuition teacher and freelance writer. At my peak, I was making around S$3,000-S$3,600 per month. During that time, I saved around 50% of my earnings every month, mainly because I was too busy between work and study to spend any of it.
After I started work full time, my spending went up. Growing up, I didn’t get much pocket money, so having disposable income suddenly was novel to me. During this time, I saved roughly 20-30% of my average paycheck.
I don’t buy a lot of things, but when I do, they tend to be big ticket items: Filson bags, nice restaurant meals with my girlfriend (now wife). I also started drinking more alcohol after graduating. Mainly craft beers, wine, or a gin and tonic after work.
Growing the company hasn’t always been easy, so I’ve spent some money trying to “take the edge off” as they say. Both my wife and I plan on cutting back on alcohol during this circuit breaker. When you’re stuck at home, the days seem to blur into one another.
In terms of wasteful spending, I’ve bought a lot of books I didn’t end up reading. I always think I’m going to do a deep dive into a topic, but usually find myself too exhausted from work to read, so the books just keep piling up and cost me about S$100-150 per month.
The most ridiculous thing I’ve spent money on was a Samsung S10e phone. This was back when my old iPhone 4S started dying and I switched to Android. I never got used to it, so I gave the phone to my dad. I’d spent S$1,000+ on the phone, and an extra S$100 on a case and screen protector before giving it away. Then I switched back to Apple and upgraded to an iPhone XS for another S$1,000+. It was a weird time in my life.
Still, I have managed to save up a ‘rainy day’ fund in my 20s to cover at least five months of expenses (six months if I stretch it). Last year, my wife and I took out a mortgage for a modest sized HDB flat, which was partially funded by our CPF Ordinary Account (OA). This has emptied out most of our cash savings.
Looking ahead at my long term goals, I probably plan to retire past 65. If I had to guess, I’ll need at least S$2,500 to $3,000 per month to retire comfortably. Have I ever topped up my CPF Special Account (SA) beyond what’s required from my salary and my employer? Nope. Right now, I keep my emergency fund and leftover savings in the bank, earning between 2.1% to 3% interest. I also give my parents money, in cash deposited directly into their bank account.
An Employee’s Reaction To His Employer’s Story
I was furious after our interview ended.
Instead of confirming every suspicion I had about his incompetence, I found myself relating to my employer on a human level. A classic case of Stockholm Syndrome.
And while I still had to use my finance major and three CFA exams worth of study hours to tear his financial life apart, hearing my boss’s story had ruined the mood. While I wasn’t exactly punching down, it didn’t feel like punching up either.
To be honest: Jason wasn’t in such bad financial shape.
He’s been lucky enough to earn enough income to accumulate a five month rainy day fund and saved 20-30% of his take home pay. This is especially important in his 20s. We should all be ‘paying ourselves first’ by setting aside a small portion of every paycheck in a separate savings account, one that we don’t touch except for emergencies.
Fortunately, this is where the positives end.
What’s So Special About the Special Account (SA)?
Perhaps the easiest win Jason could’ve taken would be to hop in a time machine, sign up for a library card, and redirect the S$100-150 per month he pretentiously spent on books (yuck) and use it to top up his CPF Special Account (SA), which is designed for his retirement. For just S$100 a month, at interest rates of up to 5% p.a., he could be growing his retirement nest egg by more than $24,000 in 15 years.
But look, I get it. Even the most financially responsible millennial might balk at stashing money away into CPF that can’t be withdrawn until age 55—except for certain expenses like housing and healthcare. After all, life is about more than just planning for the ‘next thing,’ especially when the next thing after retirement is typically death. What about living in the moment? Spending money on the simple pleasures in the here and now?
All of this is true, which is why moving forward, I wouldn’t recommend Jason top up his SA beyond what he can realistically set aside for the long term. Considering that he just got married, there might be a baby to save up for in the not-too-distant future. Or other short term goals like travel that he may have to prioritise before he and his wife give up their freedom.
At the same time, millennials can’t afford to miss out on the 4% interest rate offered by the SA. Regular top-ups to our SA balance also provide higher monthly payouts when we retire. Even small increments set aside in our 20s could have an outsized impact on our financial future.
Using the handy ‘rule of 72’ with a 4% compounded growth rate, Jason’s SA balance would roughly double every 18 years (72 divided by 4). This means that every S$1,000 sitting in his SA by age 30 would be worth roughly S$4,000 by age 65.
To summarise: millennials in their 20s need to ensure that they make sufficient income to cover their short-term needs first, while also creating a sustainable, long-term plan to top-up their SAs for retirement.
Covid-19 Can Be a Threat or Opportunity For Singaporeans to Right Their Financial Ship
Recent events around Covid-19 and the circuit breaker also presents Jason with an opportunity to kick his household savings rate into overdrive. For example, he’s already planning on cutting back his alcohol consumption.
And since he won’t be going out except for the essentials, he can probably set aside a lot more than he would in a normal month. The government’s Solidarity payout of S$600 (along with other indirect measures), will also help tide him over to pay for essentials during the slow economy and tough financial times brought on by Covid-19.
Covid-19 also highlights the importance of CPF in a crisis. Much like how Singapore’s past reserves have been saved up by previous generations to protect Singaporeans in this downturn, retirees today can also lean on their monthly CPF payouts for their essential needs—without putting too much strain on their children, who are also struggling to adjust to this new reality.
For millennials, Covid-19 won’t be the last crisis we will have to deal with in our lives. Sometimes, the hardships we experience today may give us more perspective of what’s important—giving us more time to right our financial ship early.
A Sad Epilogue To This Personal Finance Hit Piece
For this employee on the other hand, the story doesn’t have a happy ending.
When I finally approached my boss to point out this huge missed opportunity regarding his SA contributions in his 20s, all he did was nod and agree with me. Then he gave me a pat on the back for writing such a terrific piece promoting financial literacy and the importance of doing early and regular CPF top-ups for retirement.
He also had the nerve to suggest I start doing the same. Like this was his idea all along: to educate his employees on the importance of retirement savings, then cash in on their hard work by publishing a branded article about it.
Sometimes when you throw a rock at the system, the rock comes back to hit you.
Don’t let short term events like Covid-19 become a distraction for your long term goals in retirement. Stay the course with small, regular top-ups to your CPF Special Account (SA) to take advantage of the attractive rates. Visit this page for more information.