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Do you know what CPF և 401K is?
If you are Singaporean like me, the CPFE should be what you know. If you have worked for some time, this term should be familiar. If you are not Singaporean, CPF is similar to America 401K.
What are they? CPF is the Central Provident Fund. According to the official website, CPF is “a comprehensive social security savings plan that provides hard-working Singaporeans with security and confidence in their old age.”
The general scope of the PCT և advantages include the following:
- Home ownership
- Family protection
- Expansion of assets
Working Singaporeans and their employers make monthly payments to the CPF, և these investments go into three accounts.
Regular account – Savings can be used to buy a home, CPF insurance, investment վճար pay for education.
Special account – for investing in financial products related to old age pension.
Medisave account: – Savings can be used for hospital costs ված approved health insurance.
Your CPF savings receive 2.5% risk-free interest rates guaranteed by the Government. Special, Medisave և pension account savings currently receive a guaranteed minimum interest rate of 4% until December 31, 2013. In addition, the first $ 60,000 in your combined CPF balances, up to $ 20,000 from your regular account, will receive an additional 1% interest rate. So leave your money in your CPF accounts to enjoy this extra interest.
Note: Official website www [dot] ց: [dot] Government: [dot] SG. The above data were last taken in 2013. On February 18.
When I finished, I quickly learned that I needed to know how it worked … And more importantly, why it was implemented. Now, from the next paragraph, I want you to not take my word for it. My opinion here is purely for the purposes of discussion. If you do not agree with me, please do not take my position or bias.
Why was the CPFE implemented?
In general, it is designed to protect the most financially illiterate. It is called “forcing” citizens to save for pensions.
What is good about CPF?
I think CPF is great for 2 groups of citizens.
Group 1. Those who do not have savings discipline
Group 2. Those with a high average income, ie at least $ 30,000 a year
That is, the CPF system will have some key features that will get you some money.
1. If you earn at least $ 2,000 SGD, 20% of your income is automatically credited to your CPF account. That means you will not see $ 400. And you have $ 1,600 left as a gross salary. Employers are also required to increase your CPF by 15%. This means that if you earn $ 2,000 in January, you will receive $ 400 + $ 300 = $ 700 in your CPFE և you take home $ 1,600.
2. Your money will be divided into three categories: medisave, ordinary account և special account. One of them can be used by Medisave for any medical bill, and the other two will be convenient when you buy a house or invest in the future.
Sounds good, doesn’t it?
Well, there is no one-size-fits-all system in this world. Not that I know. (If you know anyone, let me know.)
What’s not so good about CPF?
Remembering that I gave the example that 20% of your CPF will automatically be deducted from your salary CPF, this is what will happen to you if you are a regular employee և if you earn 2000 2000 more per month :
Now here’s the shock.
Do you know what happens to the value of the money kept in the PSC for 10 years?
Assuming you started working at the age of 20, you have never bought a house before or used CPF in any way. When you are 30 years old, you think that what you have saved is what you really have.
Think about inflation, how much of a negative impact does it have on you?
$ 100 today is about $ 60 based on 4% over 10 years.
Assuming you earn the same $ 2,000 a month, you get a $ 700 monthly investment. 10 years later you have a CPF of $ 84,000.
You think that’s a lot. Come on …
That $ 84,000 can only buy you $ 50,400 today. It’s as good as saving $ 33,600 just by saving money, not touching it.
Hey, is there a risk-adjustable interest rate adjustable to protect against inflation?
Do you really think that a risk-free interest rate is enough? I will tell you that this is not enough, because inflation does not affect us in a fair way. The poorer you are, the higher the inflation rate in your daily expenses. Read my article “Inflation աք MacDonald”.
Think about liquidity. How easy is it to transfer your money?
You know? In CPF, money is “locked in” until you are a certain age or when you have a special need.
What do I mean? At the time of writing, you can only withdraw from a regular account as a pension fund from the age of 55.
Do you think you can live that long (or watch short anyway)?
Most people believe that’s White Men. Why? Because medical technology is going to prolong the life of citizens … right?
Well … I think it will be the case that patients have the money to pay for medical bills … Who will have a deaf person? The rich, obviously … As for the poor. Yes, I think they will too … using their CPF.
Wait using their CPF.
If they save money to retire և they have to pay through their CPFE, will they be able to afford enough to retire?
That’s a good question. I do not know
But I know that earning $ 2,000 a month (or even $ 3,000 … or $ 4,000 … or $ 5,000 a month) would be a great incentive for me to support my family.
If I were a regular employee with only one workforce, 20% of my earnings on a monthly basis would be closed months ago, wasted by inflation. With the remaining 80% of the gross salary I will have to do with it to feed my family.
Try to calculate the monthly expenses of your household. For most people I know, they are ordinary Joes. Kind people, hardworking files: smart in their work … You can not be financially smart. Because the school did not teach them.
When I was at NUS, Individual Financing Planning was given as an option only as Level 4 modules. That means you have to complete levels 1, 2 և 3 before you know that module … I did not like that. I learned this on my own with my teachers outside of the regular school system.
In any case, I learned that in order to get rich, I have to invest.
In order to invest, I need to keep more and more of my income so that at least 10% is invested with a higher return on inflation.
As for me, I know that as long as I do not have “savings” money to start a CPF, I would rather keep it out of the CPF and invest it.
Can we use a regular account to invest? Yes, you can if you save up to $ 20,000. How long do you think you will save up to $ 20,000? If you earn $ 2,000, it will take you 29 months. It was about 2.5 years ago that you were able to save on investing using CPF.
Note: Strictly speaking, if you want to invest, you must meet the following criteria:
- You are at least 18 years old;
- You are an undisclosed bankrupt. և:
- You have more than $ 20,000 in their regular account (for investing under CPFIS-OA) և and / or more than $ 40,000 in their Special account (for investing under CPFIS-SA).
Do you want to know what I’m going to do?
If you are reading this, or you are really curious about what I am going to share, or you are hungry to learn … So here it goes.
I will stay completely out of the CPF system while working independently (self-employed). Yes, I will miss it when the government issues bonuses / dividends to the country.
I would use the percentage of my income on a monthly basis to make economic “sales”.
I will save 10% 20% of my income with a separate bank account.
That’s it. Do you expect more?
I recommend this to everyone.
Like I said, there is no one size fits all solution.
However, I choose to do this because I want to accelerate my money growth. Money loves speed. When opportunities arise, I want to be able to invest money. I also prefer to have higher liquidity to move them around my assets. I call this asset rebalancing.