I recently met up with my cousin who just turned 35 and wanted to purchase his first HDB flat. After sitting him down to calculate his finances, imagine the rude awakening when he realized that he is still very far from his dream of owning his first property, due to improper financial planning when he was younger.
Homeownership financial planning does not start only when you intend to purchase your own apartment. In my opinion, it starts way before - at least a good one to two years in advance.
Here are some tips on how to save up and build up your funds, both in cash and your CPF Ordinary Account:
1. Do stick to a well-paying job and climb the corporate ladder
It might seem like a no-brainer but working for an employer has its benefits when it comes to buying a property. Both you, as an employee, and your employer would contribute to your CPF account monthly, beefing up your funds in your CPF OA. On the flipside, if you work in the gig economy, as a freelancer, or in commission-based jobs, your income is variable in nature and financial institutions would have to apply a minimum haircut of 30% off your salary to calculate your maximum loan amount. If you can help it at all, do consider working in the corporate world for a few years before you intend to purchase your property
2. Do not invest too much in stocks and shares
Stocks and shares are unpredictable. If there’s anything the past few years have thought us, share prices are up one day and down the next. If you invest too much of your disposable income in stocks and shares, you cannot guarantee that you will be able to sell them and cash out at a high when you need the money to purchase your house and to pay that deposit. My advice would be to start cashing out your stocks and shares about one to two years before you intend to buy a house
3. Do invest in instruments that have predictability
Conversely, you may consider investing your spare cash in Government Securities like Treasury Bills (6 month or 1 year maturity) or Singapore Savings Bond (10-year maturity, but no penalties for early redemption). These investment tools have guaranteed returns and you know exactly when you are getting your money back. This makes financial planning for a property purchase much more predictable
4. Do not top up your SA account
Topping up your CPF account SA has a couple of benefits. You get to earn higher interest rates than parking your disposable income in a savings account, and also get to enjoy income tax relief as well. However, once you top up your CPF accounts with cash, it is irreversible. You cannot withdraw the money out until you are much older and also, you cannot use your SA account to purchase properties
All in all, don’t start planning your finances only when you wish to purchase a property. It critical to start way before that!
*Disclaimer – The above are just my personal views as I am not a certified financial advisor