How to maximise your first paycheck to reach your financial goals

You are fresh out of the education system and embarking on your first job. After a month, you receive your very first salary and you are excited to finally have more financial power.

However, as a financially prudent individual, you want to ensure that you are maximizing every dollar you make. How do you do so?

Lifestyle and goals

At this early stage of your life, it is important to find out what your goals are, whether to start a family, save for some big-ticket purchase in the future or retire early.

Having a goal makes it easier to stick to a budget and prevents you from overspending.

For a start, you should always ensure that you have an emergency fund set aside. A general rule of thumb is to set aside three - six months of your expenses as an emergency fund. You can then go ahead to save or spend after you have your emergency fund set aside.

Buying a house

For most Singaporeans, buying a house is a new and exciting part of adult life and would be one of the biggest purchases you will ever make. Though you can get HDB loans or mortgage loans, it will still be a major purchase considering the amount you can loan. Typically, you would get up to 80per cent on bank loans and 85per cent on HDB loans. Which means the rest are payable upfront.

Fortunately, you are able to pay for the down payments using your CPF. However, buying a new house is not that simple. You will have to consider furniture and renovation which will cost you tens of thousands of dollars depending on your budget and what you choose.

Getting married

A wedding can be quite an expensive experience for most as it is a once-in-a-lifetime event and most of us want it to be remembered. A normal wedding would set you back around $37,000. It is therefore important to save up, have a clear budget and be realistic about what you can afford.

Retire Early: Fire Movement For those who wish to have an early retirement, FIRE Movement is a great way to achieve that. Fire Movement is essentially about saving large amounts of your monthly income to your retirement fund so that you have enough to sustain your retired lifestyle when you retire early.

People who partake in the Fire movement are generally those that can delay gratification and have good budgeting ability. Fire movement is suited for younger individuals as they would have a greater window to save. If you wish to retire earlier, start with your first paycheck and be prudent when you spend your money.

50/30/20 rule

The 50/30/20 rule is a popular budgeting rule that is simple and effective in helping people save. In essence, you would spend 50 per cent of your paycheck on necessities, 30 per cent of your paycheck on wants and 20 per cent of your paycheck on saving.

The 50/30/20 budgeting rule is a more realistic budgeting system for adults. If you consider your monthly bills and repayment into your necessity expense, it will easily reach 50per cent of your paycheck. Giving yourself 30per cent to indulge and 20per cent to save is a sensible system to adopt.

Once you have determined your goal and lifestyle, you will need to find the right financial instrument to achieve your desired goals.

Saving account

With your first paycheck, you are stepping into the adult lifestyle and you will need a timely upgrade. Instead of a simple saving account, look for a high-interest saving account that will bring you higher interest rates while you deposit your salary into the saving account.

For example, you can use the DBS Multiplier account to earn a high-interest rate while you save.

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Minimum Initial Deposit: $0 Minimum Average Daily Balance: $3,000 Fall Below Fee: $5 (Waived if less than 30 years old, or if it's applicant's 1st account with DBS) Max EIR: 3.00 per cent p.a. at $100,000 balance
DBS Multiplier Interest Rate Grid Transactions/Month Salary/Dividends/SGFin Dex + transactions in one category (up to $25k) Salary/Dividends/SGFin Dex + transactions in two categories (up to $50k) Salary/Dividends/SGFin Dex + transactions in three categories ($50k-$100k) < $2k 0.05 per cent 0.05 per cent 0.05 per cent $2k – below 2.5k 0.40 per cent 0.60 per cent 1.20 per cent $2.5k – below $5k 0.40 per cent 0.70per cent 1.40 per cent $5k – below $15k 0.50per cent 0.80 per cent 1.60 per cent $15k – below $30k 0.50 per cent 1.00 per cent 1.70 per cent $30k+ 0.60 per cent 2.00 per cent 3.00 per cent Interest Rates rewarded by specific bands of balance: Up to $25k or $50k & from $50k–$100k Categories include Credit Card spend, Home Loan Instalments, Insurance and Investments Salary and/or dividends must be credited to account to qualify for bonus interest Max Effective Interest Rate: 3.00 per cent p.a. (at $100k balance)
DBS Multiplier Savings Account is an exceptional option for high-spenders with financial involvement across a variety of DBS banking products. Account holders earn interest based on a few intersecting factors. First, consumers must credit dividends or their salary to their account each month. Then, you must make a transaction in one or more specific categories ranging from credit card purchases and home loan payments to insurance policies and investments through DBS. Depending on the amount of total monthly transactions and the number of categories in which transactions were made, your total interest can reach 3.00 per cent p.a. While this is the highest EIR available on the market, meeting the necessary criteria is quite challenging. The average consumer may expect to earn more along the lines of 1.50 per cent p.a., which is still a market-leading rate. This makes DBS Multiplier one of the best savings accounts in Singapore, especially for those who can balance multiple financial products. This makes DBS Multiplier Savings Account the best in Singapore for one of the highest EIR in the market. Learn About Other DBS Products DBS Cashline Personal Line of Credit Review POSB & DBS Debt Consolidation Plan Review

Credit card

As a working adult who has higher spending power and more items to pay for, getting a credit card would be a consideration when you start working full time. Find a credit card that allows you to earn cashback on bills or insurance repayment. If you are a small spender, look for cards that have fee waivers and low minimum spending requirements.

OCBC Frank

OCBC Frank is one of the best cards for younger consumers on a budget since it offers high cashback rates (6per cent), low min spend ($600) and a relatively high cashback cap of $75.

• Pros
  • 6 per cent rebate on online, mobile contactless, and FX spend
  • Fee waiver with $10,000 annual spend

• Cons
  • 0.3 per cent rebate on general purchases
  • Annual fee after two years
  • Capped cashback at $75

Annual fee: $80 (waived for two years) Automatic annual fee waiver with min annual spend of $10,000 6 per cent rebate on online and app spend 6 per cent rebate on mobile contactless payments (Apple Pay, Samsung Pay, Google Pay, Garmin Pay and Fitbit Pay) 6 per cent rebate on foreign currency spend 0.3 per cent cashback on all other spend Monthly cashback capped at $75 OCBC Frank Card is one of the best options available. First of all, OCBC Frank Card rewards consumers who are comfortable with technology–specifically, cardholders earn 6 per cent cashback on online, FX, and mobile contactless purchases. These boosted rates are accompanied by a 0.3 per cent on all other purchases, which has no minimum spend requirement. Rewards are capped at $75/month (separate $25 limits for online, FX & mobile contactless, and general spend). If you’re looking for an accessible cashback card that rewards social and online spending with high rates,is one of the best options available. First of all, OCBC Frank Card rewards consumers who are comfortable with technology–specifically, cardholders earn 6 per cent cashback on online, FX, and mobile contactless purchases. These boosted rates are accompanied by a 0.3 per cent on all other purchases, which has no minimum spend requirement. Rewards are capped at S$75/month (separate S$25 limits for online, FX & mobile contactless, and general spend). What makes OCBC Frank Card special is that young adults can access these rates after just $600 spend. Competitor cards with similar rewards rates have minimums above $600. Finally, the already low $80.0 fee is waived two years, and then with $10,000 annual spend. Most competitors don’t offer a fee waiver. Overall, OCBC Frank Card is the easiest and most accessible way for young consumers to earn on online & mobile spend.

OCBC Frank is one of the best cards for younger consumers on a budget since it offers high cashback rates (6per cent), low min spend ($600) and a relatively high cashback cap of $75. 

• Pros
  • 6 per cent rebate on online, mobile contactless, and FX spend
  • Fee waiver with $10,000 annual spend

• Cons
  • 0.3 per cent rebate on general purchases
  • Annual fee after two years
  • Capped cashback at $75

Annual fee: $80 (waived for two years) Automatic annual fee waiver with min annual spend of $10,000 6 per cent rebate on online and app spend 6 per cent rebate on mobile contactless payments (Apple Pay, Samsung Pay, Google Pay, Garmin Pay and Fitbit Pay) 6 per cent rebate on foreign currency spend 0.3 per cent cashback on all other spend Monthly cashback capped at $75

If you’re looking for an accessible cashback card that rewards social and online spending with high rates, OCBC Frank Card is one of the best options available. First of all, OCBC Frank Card rewards consumers who are comfortable with technology–specifically, cardholders earn 6 per cent cashback on online, FX, and mobile contactless purchases. These boosted rates are accompanied by a 0.3 per cent on all other purchases, which has no minimum spend requirement. Rewards are capped at $75/month (separate $25 limits for online, FX & mobile contactless, and general spend). What makes OCBC Frank Card special is that young adults can access these rates after just $600 spend. Competitor cards with similar rewards rates have minimums above $600. Finally, the already low $80.0 fee is waived two years, and then with $10,000 annual spend. Most competitors don’t offer a fee waiver. Overall, OCBC Frank Card is the easiest and most accessible way for young consumers to earn on online & mobile spend.

Insurance

If you haven’t bought insurance, it is time to buy some. Get yourself suitable health coverage depending on your needs and don’t forget to buy life insurance as well. Furthermore, health and life insurance are cheaper in your earlier years as you are healthier and less likely to be seriously ill.

Beyond these basic insurance, insure other parts of your life like a car or motorcycle if you own one, home insurance if you own a house or personal accident insurance if you engage in risky activities.

Investment

Some light investment will be a great way to maximise your money. Consider opening up a brokerage account and investing in some blue-chip stocks or index funds. If you want even lower risk in your investment you can opt for government bonds.

If you are uncomfortable about investing in the stock market, you could also sign up for those insurance saving plans or even an endowment plan. The insurance saving plans offer attractive returns for users who commit to a longer maturity, thus it is beneficial to start early, especially when you just started working.

Conclusion

Receiving your first paycheck and having the financial capability to spend on yourself is one of the most surreal feelings.

However, be diligent in finding your financial goals and formulating a sound budget. Make use of financial instruments to earn interest and cashback as much as possible. Lastly, get yourself properly insured for any eventualities in the future.

This article was first published in ValueChampion.