As the year comes to a close, we are bombarded by 11.11, 12.12, Black Friday and Cyber Monday deals. We see them all over the Internet, via mobile notifications or even decals splashed across the MRT stations, there is no running away that the advertisers are out for your money.
There is certainly a place for retail therapy after a hard year’s work, and with Christmas round the corner, it also means having a checklist of loved ones to buy gifts for. It is on this note that we have also designed a year-end financial checklist for you lest you also forget to consider how you should certainly pay yourself first during this season.
6 Financial To-Dos Before The Year Ends:
1. Boost your bank account
Perhaps you have made a new year resolution to spend less, save more and finally set aside that rainy day fund. Did your bank balances grow this year? Fret not. You have one last chance to make it up. For those of us who will be getting a year-end bonus or Additional Wage Supplement (AWS), instead of thinking of how to spend it, consider using this bonus to reduce your debt, add to your rainy-day fund or grow your wealth through investments.
Fun Fact – A 13-month calendar was considered back in 1849 based on having exactly 28 days in a month or 364 days in a year. If that proposal had been accepted, all of us would be entitled to 13 months of pay in a year!
2. Cut down on credit card fees
Have you been diligent in paying off all your credit card bills on time and in full each month? If you’re like me, where calling the bank’s hotline to request for fee waiver is a monthly affair, perhaps it is time to consider consolidating your credit cards. Cancel the cards you haven’t used regularly but do remember to redeem all your points for shopping vouchers before you do so. Being able to shop for ‘free’ makes you feel good too.
Fun Fact – Credit card fees for late payment has risen over the last few years. Currently, if you fail to make any payment by the due date, you will be levied a $100 late charge (which is increasingly harder to waive off) and a finance charge at 26.88% p.a. on the outstanding balances. Ouch!
3. Lower your income tax bracket
It is not too late to make last-minute cash top-ups to your Supplementary Retirement Scheme (SRS) Account or CPF Special/Retirement Accounts to lower your income tax bracket and save on taxes while building your retirement funds. For example, by topping up your CPF Special Account by $7,000 and your SRS Account by $15,300 (the maximum possible in a year), you can get $22,400 in tax relief which reduces your tax payable by $2,576 if you fall within the marginal tax bracket of 11.5% (i.e. your annual income is between $80,000 and $120,000).
In this spirit of giving, you can also consider making a top-up to your loved one’s CPF SA and get an additional $7,000 in tax relief. Alternatively, spread the cheer with a donation to a registered tax-deductible charity and get 250% tax relief of the amount donated. Check out http://giving.sg which has a list of more than 500 registered charities for you to donate to. You will need to complete these transactions before 31 December 2019 to enjoy the tax benefits.
Fun Fact – The maximum personal tax relief you can get in any year is capped at $80,000. This is inclusive all child reliefs so do make sure that you haven’t burst this cap before making the above transactions.
4. Beef up your insurance coverage
Though insurance is not something you buy on a whim or when there is a discount, if you are already planning to, then year-end is a good time to complete your transaction. Insurance companies want to close their financial year on a high and could possibly be more lenient in their underwriting process and/or (more shopping vouchers!) to sweeten the deal. You may also find your agent being more motivated to expedite your application so that it makes it through this financial year.
Fun Fact – Based on a Life Insurance Association study in 2017, the average protection gap for a working adult is about $170,000 for death coverage and $260,000 for critical illness.
5. Conduct an investment stock-take
Despite all the doom and gloom in the market and fear of recession amidst trade wars and negative yields, you may be surprised to also know that the S&P500 (an index that tracks the stocks of the biggest 500 companies in the US Stock Exchange) and the MSCI World (an index that tracks the stocks of 1,655 companies in 23 developed countries globally) hit all time highs in 2019.
If you had stayed invested throughout this year, you may not even be aware of the turbulence in the stock markets, which isn’t necessarily a bad thing. Sometimes we end up reacting in the wrong way to news.
Using the annualised 10-year return of the above indices, 13.44% and 9.34% respectively, to represent the performance of the global markets, how did your own investment portfolio fare? I recently did a stock-take of my own fund performance and found out to my horror that I had only averaged a return of 3% p.a. over the same time period. It was certainly time for me to offload these expensive, underperforming investments and shift my funds into instruments that can give me the market returns simply by employing time tested investment strategies of proper asset allocation, broad global diversification, time in the market and low fees.
Fun Fact – The difference in wealth accumulation between investing $10,000 in a fund that charges 1% p.a. and one that charges 2% p.a. is $40,000 over 40 years. Food for thought on whose retirement you’re really funding.
6. Put your estate in order
Were there major changes in your family make-up this year such as marriage, birth of a child or death of loved one? You should review your estate plans periodically to ensure that they still meet your intentions. You can make your intentions clear via a valid will which enables you to indicate who your beneficiaries, executors and guardians for your minor children would be. For your CPF savings, you can only distribute these via a CPF Nomination which can be performed at any of the CPF Service Centers or by completing the CPF Nomination form and mailing it to CPF Board.
Another aspect of estate planning that is often overlooked is with regards to our personal and financial welfare if we are still alive but lack mental capacity. A will does not cater for such a situation. What you need is to make a Lasting Power of Attorney (LPA) to appoint the people you trust as your donee(s) and assign them decision powers over your welfare should you lose mental capacity. While getting dementia may seem like a remote possibility now, you won’t want to wait till you’ve forgotten about what you need to remember to do this.