The Magic of Compounding

If you don’t earn much and can barely pay your expenses, the idea of saving is ludicrous as just saving $30 or 1% of your monthly income may seem small and irrelevant. The old me would rather indulge in a good meal at Chomp Chomp than to save it in my piggy bank. Why would I even bother?

Because Rome wasn’t built in a day.

Everyone, including myself, has to start somewhere. Small pieces of bricks put together will eventually form a fortress. Our financial situation will improve over time and even the smallest amount of savings will definitely benefit us over the long run. This is largely due to the power of compounding.

Compounding is the process in which an asset’s earnings, from either capital gains or interest, are reinvested to generate additional earnings over time. This growth, calculated using exponential functions, occurs because the investment will generate earnings from both its initial principal and the accumulated earnings from preceding periods. Compounding, therefore, differs from linear growth, where only the principal earns interest each period. -Investopedia

The Math Behind Compounding

Power of compounding proves that time is our greatest asset when it comes to building wealth. Here’s the mathematical breakdown on a fixed deposit account.

Formula (1)

For illustration purposes, let’s take $100,000 initial deposit with 5% annual interest and compare the differences between saving it for 5 to 40 years.

Screenshot_3 (2)

From the graph above, it’s shown that the 5-year growth increases with the number of years deposited, causing an exponential effect. This proves that the longer you let your money compound, the better. Which is why investors always like to say:

Time in the market is better than timing the market.

However, the above formula represents interest compounding at a continuous rate. Realistically speaking, interest doesn’t compound every day and second. A high interest savings account such as DBS multiplier compounds every month while an endowment plan offered by banks or insurance companies compounds 1-2 times a year. To put it into simple terms, the more times the interest money is credited annually, the better. A 2.5% interest savings account that credits twice a year is better than a 2.5% interest savings account that credits annually. So do remember this when you are considering two or more saving plans at similar interest rates!

Effect of increased compounding periods per year

interest (1).png

As you can see, having interest credited twice a year is definitely beneficial. Although the returns are small and negligible during the first few years, they could really ramp up over the long run and this difference would mean having an extra holiday with your family or not!

The actual formula for compounding is shown below:

FV = PV * [1 + (i / n)] (n * t), where:

  • FV = future value
  • PV = present value
  • i = the annual interest rate
  • n = the number of compounding periods per year
  • t = the number of years

Case study

Now that you know compounding is basically earning interest on interests and time is our greatest friend, let’s take a look at a typical scenario.

Johnathan and Mike have the same retirement goal of wanting to retire at 65 with $1,000,000. They both, however, led very different lifestyles. Johnathan is a smart saver and started saving $500 every month since the age of 25. Mike led an active lifestyle and was willing to double Johnathan’s savings when he hit 40 to compensate the loss in savings during his mid-20s. They both put their money in a portfolio which compounds yearly with an average return of 7%. Let’s take a look at their retirement accounts at 65.

mike vs johnathan (1)

Annual addition Years to grow Interest rate Compound
$6,000 Johnathan: 41 Mike: 26 7% 1 time annually
Total amount invested ($) Final amount ($)
Mike 312,000 881,806
Johnathan 246,000 1,377,793
Difference 66,000 -495,988
% Difference Mike invested 27% more Mike had 35% less

You must be wondering, how did Mike end up with 36% (496k) lesser than Johnathan despite saving 27% more? Ladies and gentlemen, this is the power of compounding! At 7% interest rate, taking the rule of 72, it takes roughly 10 years to double his capital. $6,000 would turn into $12,000, then $24,000 then $48,000 and finally $96,000 over 10, 20, 30 and 40 years. It was the final 1-2 doubles that really mattered and widened the gap between Johnathan and Mike.

“I’ll start saving next year”

Sounds familiar? Although there is little harm by delaying a few years, we could miss out on great returns the later we start. Here’s the graph showing Johnathan’s returns should he start at ages 25, 26, 27, 28 and 29.

savings at different age (2)

Age 25 to 26 26 to 27 27 to 28 28 to 29 Average
Difference ($) 96,136 89,847 83,969 78,476
Difference (%) 93.02% 92.99% 92.95% 92.92% 92.97%

On average, every year Johnathan delays reduces his potential returns by ~7%. Of course, this is not meant to scare any of you, but I hope these figures and graphs show you the importance of starting today. When people start to save, it often seems slow and pointless because things don’t change overnight. But as time passes, the rate of absolute change gets faster and faster and this is why the power of compounding is magical.

Before I finish, I would like to highlight that albeit the advantages of starting early, we should’t have a one-track mind and only focus on growing our wealth. If you’re like me and enjoy spending on movies, concerts and cafes, you don’t have to overly sacrifice your lifestyle just to lead the ‘suffer now, enjoy later’ life. Remember, progress is best made in a moderate and sustainable manner.

The future is unpredictable, so we should find a good balance between saving and spending. The best way is to set a goal and live within our budgets. I’ve covered this in my previous article: The Newbie’s Guide to Budgeting.

Lastly, if you don’t know how to find consistent returns on your savings and investments, my suggestion is to talk to your trusted financial adviser. I’m a huge fan of diversification and although I prefer to manage my own portfolio, I also feel the need to allocate a portion of my savings in a high growth investment plan. This protects me from the risk of losing all my savings if my investments were to turn ugly. If you are looking for an agent that comes from an investment banking background and managed to bring consistent returns for his clients, you may contact me at and I’ll link you up with him. Thank you for reading and happy building your layers.

The video below summarizes this article in two minutes.

*Featured image from Business insider

Continue reading “The Magic of Compounding”

The Newbie’s Guide to Budgeting

Working more than 40 hours a week is daunting for many and we often resort to rewarding ourselves with a great meal over the weekend. Couple that with the active social lifestyles of millennials, controlling our expenditures on a daily basis can be difficult. As the cost of living continues to rise, the best way to prepare ourselves is to keep our spending habits in check by creating and sticking to a budget plan.

The Savings Layer

This introductory article talks about the different layers of wealth. Savings can be broken into two parts:

  1. Getting the most value from day to day purchases through cash backs, discounts etc.
  2. Putting aside a sum of money in a bank for future use.

The focus of this article is to introduce the golden rule of budgeting and how it can be fine-tuned to match our current financial situation.

50/30/20 Budgeting Rule


*Image from The Balance

This golden rule allocates a portion of our take-home income (after CPF) into 3 different categories: 50% on needs, 30% on wants and the remaining 20% for savings. It’s as simple as that. However, I’m not a huge fan of this allocation as it doesn’t seem to be in sync with the goals of an average fresh graduate. According to the news, the median fresh grad salary take-home salary is $2,720. Following this rule means saving $544/month. If you have seen my goals, I’m targeting to save around $1,182/month and this doesn’t align with it.

Adding 13th-month bonus (assuming another 20% savings each year) and taking 2% annual pay rise, the average fresh grad takes about 7.4 years to save $56,750, equivalent to the average marriage & house renovations cost for each individual (excluding BTO downpayment). What happens after that? Savings go back to 0, leaving nothing in the emergency and retirement accounts.

The same concept applies when we have kids. According to an article by Business Times, 66% of parents are concerned about not having sufficient money to retire. Digging deeper, majority wish they had started saving for retirement earlier. This is why it is important to start early and let the power of compounding do its work, so we could take a breather and relax in the future.

However, if you are a working adult and have already made all your big purchases, then the above rule should work well if the 20% is solely for retirement. But I’ll always challenge my readers to find ways to increase their savings. No matter how financially savvy we are, there are always better ways to manage our expenses.

50/30/20 (Seedly version)

I came across an article by Seedly and they took the budgeting rule to another level.


*Image by Seedly

Over here, 80% expenses on “needs and wants” are reduced to 50%. The additional 30% will be used to invest through the 3rd layer of wealth which focuses on growing our upcoming goals and retirement pots.

This is definitely a better approach for fresh grads like myself as I can build my retirement pot and prepare for my next big ticket purchase at the same time. The 20% savings will be focused on building my emergency funds (3 to 6 times of monthly expenses) before I divert it to accelerate my retirement pot.

Now you have a rough idea on the allocation, bear in mind that just because a budget plan works for the majority doesn’t mean it works for everyone. Let’s break into further details with a step by step approach to budgeting.

Typical Fresh Grad Example

1. Set a target ratio

Just because I introduced the 50/30/20 rule doesn’t mean you die die have to follow. Take some time and think. Some may prefer to save more and have a 40/40/20 ratio, some have more bills and expenses to pay and have a 70/10/20 ratio. Personally, I have my emergency funds ready, I do donations and give allowance to my parents, so my ratio is 60/30/10.

For the sake of this example, I’m sticking with the Golden 50/30/20 rule.


2. Pay yourself first


*Graph showing how much interests our student loans can add up to.

Set aside the minimum sum to pay our loans immediately after we receive our salary. This is a fail-proof way that prevents us from overspending and having to borrow from others just to pay our loans.

I couldn’t stress more on the importance of paying our credit card and student loans as bank interests could ramp up over the long run. Hence, the quicker we pay off these loans, the better. In fact, unless I’m very confident my annual returns on my investments will beat the interest on my bank loans, I wouldn’t even start investing and would rather focus my 30% (wealth allocation) on top of the $400 minimum sum. Taking the median fresh grad take-home salary, that would be $400 + 30% of $2,720 = $1216/month.

Note: If it is a credit card debt with 24% interest, I would allocate a much higher portion to pay the debt.


3. Input your monthly expenses

Estimate your current monthly expenses. This includes bills, insurance premiums, food, transport, entertainment, healthcare etc. As long as money is leaving the bank account, it is considered an expense. If you can’t estimate your monthly expenses, try tracking it for a month using a budgeting app.

Note: Don’t forget to set aside a sum for income tax! Click here for rates.

Taking $1,200 (44%) for this example, there is 11% left for savings.


4. Optimize it!

Optimization is important. It shows our current status and guides us to our goals.

To meet the 50/30/20 target ratio, expenses need to drop by 9% to push savings up to 20%. That means spending $250 less!


What if I’m struggling to cut my expenses?

This is common and many struggle to adapt to sudden changes. Imagine if you decided to cut $150 from grab and another $100 from entertainment. That probably means you cannot afford to sleep an additional 30mins on rainy days that are so sleep-inducing or have 1-2 less drinking sessions with your friends! Similar to when one resorts to quitting smoking, those who quit cold turkey often fail and find themselves back to square one.

The solution? Progressive approach. From the stories I’ve heard, those who succeed don’t aim to cut 9% right away. They reduce their expenses by 1% each month and slowly but surely, they reach their targets. I’m sure there are better ways and would love to hear how you did it below.


The budgeting guide is easy to follow. It helps us spend within our limits and at the same time, it ensures we are saving enough for the future. However, one must not be too rigid with the golden rule as it differs for each individual. Always do proper planning and set realistic targets. Thank you for reading and happy building your layers!

*Featured image from WallStreetSurvivor

Continue reading “The Newbie’s Guide to Budgeting”

All You Need to Know About Personal Insurance in 15 Minutes

Earlier this month, I’ve talked about understanding cash flow, how you can protect yourself from going bankrupt and goal settings. However, things don’t always go according to plan. We may have the best budgeting hacks, savings accounts and investment strategies. But what if something were to happen to us and we’re unable to keep our jobs? We wouldn’t want to risk losing all our hard earned savings or put our families in a bad financial situation! This is when the importance of insurance comes into play.

In this article, my goal is to introduce all the insurance plans available in the market, whether it’s worth getting and how I plan the amount of coverage I need.

Disclaimer: The list of insurance plans below are ranked from the most important to least important based on my own opinion. I am no insurance agent, but I’ve done a lot of research and met a number of agents who share similar sentiment with the order below.

Before we begin, here are some things to note:

  • Insurance agencies usually require us to undergo medical underwriting or health declaration when we purchase their policies. If we have any existing conditions, the insurer may choose to exclude that particular condition or raise our premiums.
  • Premiums will increase with age and lifestyle. A 30-year-old smoker will have to pay more than a 25-year-old non-smoking adult. These premiums are usually fixed (except hospitalisation) till they mature, expire or upon renewal.
  • This means the best time to insure ourselves is when we are young, healthy and have no existing medical conditions.
  • Insurance isn’t always cheap. We should plan and set aside a small sum of money to protect ourselves from the “what ifs” in life. Generally, a well covered individual would spend about 5-10% of their annual income.
  • If you do have an existing medical condition, your priorities would differ from a healthy individual. Please contact your trusted agent and I’m sure they will be more than willing to help you.

If you need help in finding a good agent, drop me an email / PM at or and I’ll link you with my personal agent. He’s an independent financial adviser (IFA) and has access to almost all the insurance policies from the major insurance firms. You get to compare and select the best policy amongst the different insurance companies and get the most value depending on your needs, saving time and money. 

1. Integrated Shield Plan AKA Hospitalization plan

Should I upgrade to an Integrated Shield Plan 2.png

*Image from CPF

This plan covers medical bills so long as we are hospitalized. As compared to MediShield which only covers up to Ward B2, getting a hospitalisation plan allows us to stay in a private hospital for wards A and B1. This plan is regarded as the “most important” because medical bills can be really costly should any unfortunate circumstances fall upon us. Click here for a cost guide on hospital treatments in Singapore. Luckily for us, hospitalisation shield premiums are extremely cheap and allow us to claim up to 90% of our medical bills. We only need to pay the first $1,500 – $3,500 and 10% of the remaining bill, also known as deductibles and co-insurance.

Want full coverage?


*Image from AXA’s brochure

Insurance firms that sell shield plans often allow the insured to add a rider on top of their hospitalization plans to cover the deductibles and 10% co-insurance. The premiums are slightly more expensive but may be very well worth. With increasing medical costs, a $100,000 medical bill today could cost about $450,000 in 30 years time. 10% of that and we have to pay $45,000. If we are unfortunate and have to pay a million dollar bill, that’s $100,000 of our savings gone! While there is no guarantee how much medical bills will cost in the future, personally, I would prefer to pay a more expensive premium and have full coverage. That way, I know I wouldn’t have to worry about hospitalization bills in the future and any form of hospitalization would not put my retirement funds in jeopardy.

Unlike Critical Illness and Term/Whole Life plans, the premiums for Shield plan will increase as we age. Due to the rapid rise in medical costs, most, if not all insurance agencies will adjust their premiums from time to time.

If you think getting the rider is too expensive, you may want to get the plan in the following order from the most important to least important:

Integrated Shield plan > Co-insurance benefit rider > Deductible benefit rider

2. Critical Illness (CI)

As the heading says, Critical Illness plans insure us if we are unfortunate to land with one of the 36 defined critical illnesses. A few examples include heart attack, cancer and stroke. There are plans that only cover critical illness but they usually come as a rider to our Term/Whole Life insurance (See point 3).

A common misconception for Critical Illness plans is the sum assured by the insurer is meant for hospitalisation. This is wrong as hospitalisation is covered by a Shield plan (ISP/Medishield) and the sum assured is supposed to cover our loss of income / medical expenses not covered by the shield plan while we recover at home.

A good gauge on how much coverage you should have is usually 4-6 years of your annual income.

While the chances of recovering from critical or terminal illness are low, early detection increases our chances of survival by 2-3 folds. Thus, one may consider getting a rider that allows the insured to claim part of the sum assured under “Early Critical Illness“.

The second type of rider allows one to claim “Multiple CI“. Below is an example taken from a plan I’ve gotten from Aviva recently (not sponsored).

This slideshow requires JavaScript.

*Source: Aviva Website

Although it sounds really good, the premiums for these riders usually cost ~4 times more than the usual CI plan. I’m paying about $1,000/year for early CI + Multiple CI rider while the usual CI rider only costs $260. To have a good gauge on the market rates for CI plans, you may want to visit DIY Insurance.

Now the million dollar question is…

Is it really worth it? Should you get these riders on top of a CI coverage?

Unfortunately, I do not have an answer for that as it varies for each individual. It’s totally up to you to decide.

A few points to note:

  • These riders usually have a limit for the claims we can make for the same category. In this case, Aviva groups Early cancer, Heart-related illness and Nervous system/Systemic conditions separately and each group may only be claimed once.
  • Critical illness may or may not be claimed twice if there is a relapse, depending on the insurer.
  • There is usually a waiting period between each claim

My take on this is the Multi CI rider should, at the very least allow us to make subsequent claims for the same Major CI as the chances of relapse is higher than getting a new CI.

A few questions you might want to ask yourself:

  • Check your family history if there is any record of inherited cancer genes. If yes, don’t panic because it doesn’t mean you will get cancer. But it would help you make better decisions when getting a CI plan (Increased coverage, multi coverage etc).
  • Can you afford these riders? A well covered individual would typically spend 5-10% of their monthly salary on all their insurance needs. Don’t put yourself in a situation like one of my agent’s clients who spends 60% of his monthly salary on insurance + other products that don’t align with his future goals (yes, he was scammed by another agent) and has little to no funds left to build his other layers of wealth.

If you think getting the early CI and Multi CI rider is too expensive, you may want to get a CI plan in the following order from the most important to least important:

CI plan / rider > Early CI rider > Multi CI plan / rider

3. Term/Whole Life insurance

These plans give us a lump sum of money when we die (Death) or become permanently disabled (TPD).

Why is this important? Similarly to CI, they cover the loss of income for our family should we leave this world or are unable to work due to permanent disabilities. Some also purchase such plans to leave a “legacy” for their loved ones.

Term vs Whole life

This is a topic for another article. There are people who worship Whole Life plans and others that resent them. In a nutshell, I feel both Term and Whole Life plans have their pros & cons and we should only purchase the plan after knowing how we would prefer to approach our personal finance. The main difference between Term and Whole Life insurance is one covers you till a certain age (Usually 65-year-old for Term) and the other for “life” (Usually 99 for Whole Life).


*Image from moola

I would also like to add that even though a Whole Life plan gives you the option of withdrawing your cash value, you would lose your coverage during the process. This is extremely important especially if you are planning to leave a legacy for your loved ones.

How much coverage should I get?

It’s difficult to determine the exact figures as our expenses increase when we reach certain milestones. Still confused? Here’s what I mean:

  • A typical student may not require a high death coverage as he/she does not have any housing loans or dependents. The death coverage they require should minimally be sufficient to support their parents through retirement and cover their student loans. The worst case scenario that could happen at this age would be an accident that requires medical care for the rest of their lives. Thus, one may consider increasing their coverage just in case.
  • A typical working adult looking to start a family would require an even higher coverage as they have to account the loss of income for their children’s upbringing, home loans etc.
  • A typical 65-year-old senior citizen looking to retire would require minimal coverage as they have no dependents and loans to pay.

Here’s how I do it

Before I begin, I would like to emphasize that the illustration below is for my own planning. It wouldn’t be the same for everyone because it depends on whether you plan to have no kids or 4 kids, stay in one room flat or condo, parents have sufficient retirement funds or not etc. In a nutshell, coverage needed is different for everyone.

The best way is to ask yourself and have a rough plan of your future. If you really can’t, speak to your trusted financial adviser. Should you decide to upgrade your lifestyle in the future, don’t worry, you can always increase your coverage in the future.

Death Coverage = Debts/Loans + Dependents

The way I plan is simple. Assuming if I were to die or get bedridden at the worst possible timing, (just moved into my BTO with a huge housing loan to pay, with other outstanding loans, have 2 babies, parents not enough retirement fund, only breadwinner of the family) I take the sum of my debts and expenses at that time to get a rough estimate of the coverage I require.

wa (2).jpg

In this case: $350,000 (to support my disability / death benefit for my other half) + $350,000 (Housing) + 2*$300,000 (Kids) + $200,000 (To support my parents retirement) would add to about $1,500,000.

Optional legacy planning: I plan to add a buffer of $300,000 to support my wife.

Are my calculations above exaggerated? In my opinion, yes.

  • Firstly, there are schemes available for single parents and this would reduce the costs of raising kids by a huge sum.
  • Secondly, if death was caused by a CI, the insurer would also payout the CI portion.
  • Thirdly, my company provides a group term insurance covering 36 times my monthly basic salary.
  • Fourthly, in the event I’m bedridden and disabled, there will be disability insurance given out on a monthly basis to cover my loss of income (see disability insurance below).
  • Lastly, if death isn’t caused by CI, chances are it is caused by an accident. Insurance companies would also payout if we have a personal accident plan.

Thus, my realistic coverage for Term+Whole Life would be much lesser! But in my humble opinion, it’s better to have more than less. Just treat the additional payouts from the other insurance plans as an additional benefit. Term Life plans are usually cheap for the amount of coverage we get, and even better if we are eligible for the MINDEF group Term plan.

My insurance buying strategy

waa (1).jpg

Firstly, I add all the sum insured from my current Term/Whole Life plans.
Note: If you own a Whole Life plan, you can call your insurance company and request for the latest benefit illustration to be mailed to your house. From there, you can see the declared non-guaranteed bonuses and current cash value of your plan.

Company A Whole Life (Since childhood, plan matured) 50,000 + 14,000 declared bonus + future non guaranteed
Company B Whole Life (Since childhood, payable for life) 75,000 + 16,000 declared bonus + future non guaranteed
Company C Whole Life (Since childhood, plan matured) 15,000 + 9,000 declared bonus + future non guaranteed bonus

Total = $179,000 + future non-guaranteed bonus

Secondly, I subtract it from my expected coverage at my current age.

Age Amount needed Shortfall
24 (Working) 500,000 -321,000
28 (Marriage) 900,000~1,200,000 -721,000 ~ -1,021,000
32 (Kids) 1,500,000~1,800,000 -1,321,000 ~ -1,621,000
55 (Semi-Retirement) 500,000 -321,000
70 (Retired with no loans) 0 0

As you can see, I need $321,000 to be covered at my current age and at 55 when I’ve fully paid my housing loans and children’s education. What I did was to get a Term plan with a fixed premium that will cover $350,000 till I retire. When I signed up for the Term plan, I noticed it only costs a few dollars more per year to cover $500,000 (economics lol) so I just went on with it.

Lastly, the remaining will be covered by personal accident / company’s group term plan. For me, I didn’t add the company’s plan because there is no guarantee I’ll be working in the same company for life and not all companies provide insurance for their employees.

$1,321,000 (required coverage at 32) – $500,000 (term life) – $100,000 (personal accident) = $721,000. Plus $300,000 legacy planning = $1,021,000

If you are a Singaporean male that served National Service, the MINDEF group insurance under Aviva is a good plan to keep as it is one of the cheapest if not the cheapest plan in the market. However, do not be too reliant on it as a massive disaster could limit our claims. While we are young and in good health, we can easily get the maximum coverage of $1,000,000 at $41/month. The best part about this plan is they will return a portion of the premiums paid for that year if there are little to no claims made. My strategy here is to cover the remaining ~$1,000,000 with this plan and slowly downgrade as the years pass.

My tip: It’s best to get the coverage we need at the “worst case scenario” while our health is still in good condition than to upgrade as we hit certain milestones (e.g, increase coverage from $500,000 to $1,500,000 after we get married). We’ll never know what is going to happen tomorrow and if (touch wood) anything happens to us, getting an additional coverage will be tougher as we will have to fill a medical declaration form when we want to increase the sum assured.

4. Disability income insurance (DI)

Most people get confused and associate this plan with TPD and Long term care insurance. TPD pays a certain percentage of the sum insured when we permanently lose a portion of our body (limbs, eyes etc) while the long term care insurance plans provide us with monthly income in the event we aren’t able to do 3 out of 6 of the activities of daily living.

Disability income insurance

Disability income insurance protects us and pays a certain percentage (up to 75%) of our declared salaries in the event we aren’t able to continue our current jobs due to illness and disability till the retirement age of 55-65.

A few good examples would be:

  1. Singer loses his voice
  2. Door to door salesman loses his ability to walk due to spinal injury
  3. Analyst suffering brain damage

We don’t usually hear about this plan when we meet our agents because only 3 out of the 8 leading insurance companies offer it. These companies are Great Eastern, Aviva and AIA.

Is it necessary to get this plan?

Yes and no. A few things to take note:

  1. Your greatest asset is yourself and your ability to work & generate income. For me, while I’m still young and have about 41 years to retirement age, I have huge growth in human capital ahead of me. Assuming my annual income is $45,000 and with a salary increment of 2.5% yearly, I would have an estimated capital of $3,232,791 after 41 years. Should anything happen to me tomorrow, I will potentially lose my $3.2m capital but with disability insurance, I could protect myself to about $2.5m.
  2. As we age and achieve financial stability or freedom by building our five layers, our needs of disability insurance would decrease. I see no point in getting this plan if we don’t have to work for money.
  3. To be eligible for claims, we must be employed at the time of disability. Freelancers are not eligible, but may wish to consider freelance income protection offered by Etiqa.
  4. There is a waiting period before the payout begins. It ranges from 2-6 months and insurance companies charge higher premiums with a shorter waiting period. If we have our emergency funds set aside, this shouldn’t be a huge issue.
  5. If we are back to work after the recovery period of 24 months and are drawing the same salary or earning even more, we will not be eligible for claims. If we are earning lesser, the insurer will top up to meet the sum assured.

I find this plan a great value for money (est ~$1/day for $3,000 coverage) especially if we are young, gainfully employed and still have many more years till retirement.

5. Personal accident (PA)

For a small premium (less than $200/year), it covers death / TPD caused by an accident, medical expenses, recovery care, TCM and even Chiropractors if the injury is caused by an accident due to recreational sports, leisure underwater activities and so on. Some even have full terrorism coverage!

Earlier when I talked about Integrated Shield plan, we will have to pay the first $3,500 on hospitalisation bills if we do not have a deductibles rider. In the event of a minor accident and we are charged $3,000 for a one day stay to do some additional scans and stitches, we still have to pay the full bill.

Many like to combine this plan with hospitalization as it helps them cover the deductibles portion while having extended coverage to TCM and Chiropractors.

You should consider this plan if you are an outdoors person that enjoys hikes, sports and motorcycling or if you are working in an industry that is more prone to accidents (e.g. Engineering, Grab/Taxi etc)

Personally, I got this plan because I’m injury prone when doing sports and I consider my work environment risky.

6. Long term care insurance

The Long term care insurance plans provide us with monthly income in the event we aren’t able to do 3 out of 6 of the following activities:


*Image from policypal

The most basic plan in the market is provided by the government and by 2020, all Singaporeans and permanent residents will be covered by CareShield once they reach 30 years old. This plan will replace the current ElderShield plan.


*Image from MOH

Long term care insurance is extremely difficult to claim as the insured must be certified by a doctor that he/she is unable to perform 3 of the 6 daily activities. Its main purpose is to help families with the high cost associated with taking care of the insured. If we already own a Disability insurance and Term/Life plan, the basic plan provided from the government is sufficient. At the moment, I don’t see any value in getting any additional coverage for this as it is much easier to claim disability income and TPD. One might argue that disability income only provides us with income till 65 and TPD is just a one lump sum payment. Even at the worst case scenario where the insured suffers from paralysis at 66 years old after his/her DI and term life has expired, the insured will have sufficient income from CPF, personal savings and an additional $1,000 from CareShield to cover them for life. So I’ll prioritize disability income over this plan unless I’m self employed and want additional coverage.

7. Investment linked policies (ILP)

There are certain variations of this plan, but the most common ILP can be broken into 2 parts: a yearly renewable term life insurance and an investment plan. For the first few years, a large portion of the premiums paid will be used to renew the insurance policy while a smaller portion will purchase a few units of investment funds depending on your risk appetite. See below for a simple illustration:


*Picture from moneysense


  • ILPs are more flexible compared to Whole Life and Term plans as they allow us to adjust our insurance coverage as required (Increasing may be subjected to underwriting).
  • Unlike Whole Life plans, we are allowed to decide which funds to purchase based on our risk appetites. It could potentially give you higher returns than a savings plan.
  • These plans often come with an option of selling part of our investment portfolio to pay off the premiums for that year.


  • ILP is not like any whole life or endowment plan. It does not have any cash value. Just like any investor’s portfolio in the stock market, the value of the investment portfolio will vary from time to time depending on the performance of the funds we purchase.
  • The insurance portion renews every year. As we age, we are more vulnerable to diseases and disabilities. This causes the insurance premium to slowly escalate as we renew each year.
  • In the event if the investment projections don’t go as planned, it is possible to encounter a situation where our investment funds are no longer sufficient to renew the insurance portion, forcing us to decrease our coverage to lower the cost to renew.

Should you be getting an ILP?

Before you sign up for an ILP, consider these factors:

  • Are you willing to take the risk of not having guaranteed returns on your investments?
  • Does an ILP fit your investment style and risk profile?
  • Are you adequately covered by other policies in the event your units in investments aren’t sufficient and you have to lower your coverage?

Will I be getting an ILP?

For me, no. The premiums are just too expensive given my annual income (the ones I’ve seen costs $3k/year, more than all my policies combined and it doesn’t give me half of my current coverage). Yes, there is an investment portion which may potentially give me higher returns. But with every investment comes risk. I’m not a big fan of renewing my insurance, paying higher cost of insurance as I age and risking my coverage just for a chance of getting higher returns. Also, I’m still young and I prefer to manage my own portfolio. ILP doesn’t fit my investment style and risk profile.

In the future, when I start writing on the third layer of wealth “Long term Investments”, I’ll show you that it is possible to build wealth and beat inflation in a safe and risk-free manner.

Final tips

  • Do not tunnel vision & spend too much on one type of insurance and neglect the others (e.g: spending 3k/year on a Whole Life insurance + Critical Illness rider without covering yourself with hospitalisation, disability income and personal accident)
  • Have a good balance between each type of plan and spend within your limits. Don’t forget: General rule of thumb is to insure yourself with 5-10% of your annual income.

Before I finish…

Most of you must be wondering how many % of my annual income do I spend on insurance. My current premiums cost exactly 7.28% of my annual take home salary.

I currently own:

  • Integrated Shield plan + Co-insurance + Deductibles rider
  • Term Life insurance + Multi CI + Early CI rider
  • MINDEF group insurance
  • 3x Whole life my parents got me, 2 of which matured and I don’t have to pay a cent
  • Personal accident plan

Getting soon:

  • Disability income insurance

Right now, I’m helping some of my friends sort out their insurance and personal finance. If you have any questions with regards to them, I’m willing to help you as long as it’s within my limits. You may drop me an email at or PM me at I do not have any products or services to sell so I’ll just help you to the best of my abilities.

Lastly, shout out to feedspot for featuring my blog as the top 100 retirement blogs. Have a good day and happy building your layers!

*Featured image from Hamilton Leonard

Continue reading “All You Need to Know About Personal Insurance in 15 Minutes”

Understanding This One Concept Will Protect You from Going Bankrupt.


You’ve probably heard of the term ‘cash flow’, but don’t really know what it is. In layman’s term, cash flow is money flowing in and out of your bank accounts. Essentially, it’s subtracting your expenses from your income (salary + side income).

Cash flow into savings = Income – Expense

In this article, we will take a look at 3 different cash flow situations and how we can protect ourselves from bankruptcy.

1. Worst scenario


The worst case scenario: Cash flow of some ‘wealthy’ people. Most of the time, they spend more than what they can afford. This is the worst case scenario because their savings are getting lesser as time passes. Eventually, they start borrowing money to pay the bills. Some even declare bankruptcy.

Just ask yourself: What would you do if you hit the jackpot and win a million dollars? If your answer is to buy a new sports car and/or upgrade your house while your monthly salary stays the same, I hate to break it to you but you have poor management of your cash flow. You are spending more than what you can afford. You may appear wealthy at the beginning because of this new lifestyle, but if it isn’t sustainable, slowly but surely, the one million dollars will deplete and you will end up in bankruptcy.

“The easiest way to avoid this situation is just to ensure your monthly cash flow is +++POSITIVE

And that’s it! It’s that simple, if you are spending less than what you earn, there is no way you will end up in a situation where you have to borrow money to pay your bills.

Here’s another question: Is an endowment or retirement savings plan considered an expense?

Ans: Some may argue that an endowment or retirement savings plan shouldn’t be counted as expenses. But if the sum of your loans, bills and savings plan still put you in this scenario, wouldn’t the resulting situation be the same?

2. Typical scenario


“The typical scenario is to save what’s left from your expenses.”

A typical fresh graduate cash flow: With a take home salary of $2,800, you spend $2,400 on loans, bills and day-to-day expenses. Minus that and you save $400. It may seem like a huge leap from saving $1 a day during secondary school days, but is it really enough especially when we are living in the most expensive city in the world?

How much should I save then?

On the day I signed my employment contract, I asked myself: “How much should I save every month?”

I’m sure this is a very common question most of us can relate to. With many factors such as marriage, kids education, retirement etc to consider, we can never seem to hit the perfect number. If that sounds like you, chances are, you haven’t decided how much you need in the future and are just saving whatever is leftover from your expenses hoping it is sufficient for your future needs.

Taking the typical scenario of saving $400 a month – if we have a milestone ahead of us, let’s say getting married, given the median wedding fees of an average Singaporean which is $32,500, we need 81 months (6.8 years) to save that amount. Even if the fees are split between you and your future spouse, saving for marriage will still take approx 3.5 years. Bear in mind this is only for wedding! Now add in BTO, honeymoon and renovation costs….unless you are willing to settle for something less, saving $400/month may not be the ideal figure.


“Setting goals is the first step in turning the invisible into the visible” -Tony Robbins

I’ve done a simple calculation for us to estimate how much we should be saving each month to reach our goals.

Simple illustration

Below is a simple illustration on the expenses of an average Singaporean couple. This is a debatable topic as marriage costs vary for each individual. There are grants given to Singaporeans depending on their income and location of BTO. We also have the option of using our CPF to pay for our BTO. Thus, the actual numbers may deviate significantly based on the points above.


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You can download the goals calculator for free here.

You may wish to add more columns as you need and the download button is at the top right corner (just in case you can’t find it). With this tool and a little Google magic, we’ll be able to have a general idea on how much we should be saving each month.

From this example, the ideal savings amount is $1,182/month. And to the large majority of us, saving $1,182 monthly isn’t a small sum. Thus, I couldn’t stress more on the importance of spending within our limits. Play around with the goals calculator and see what works best for you. Afterall, we do not wish to fall under the “Worst scenario” category.

Other considerations

If you’ve read my first article, you’ll know that my ultimate goal for us is to retire comfortably by building the five layers of wealth. The earlier we start, the better. Thus, you may wish to consider setting a goal for retirement.

Emergency funds are equally important as we’ll never know when we might lose our income due to unforseeable circumstances (recession, health issues etc). With that in mind, we would also want to build up our emergency funds for rainy days.

These topics will be covered very soon because they form the core of our savings layers.

3. Best scenario


“Increase your cash flow by budgeting and/or earning more money”

By now, you should know how much savings you need but don’t know how to increase your cash flow.

There are 2 ways. Remember this formula?

Cash flow into savings = Income – Expense

Reducing our expenses, increasing our income or both, will increase our cash flow.

For example, cutting expenses by $800 and earning $500 additional income will increase our savings from $400 to $1,700. That’s an increase of 425%! This not only ensures we are on track towards our goals, we also have additional cash to build on our investment and passive income layers, better preparing us for retirement.

But how? The simplest solution is to gamble save through budgeting, finding ways to cut down on our expenses (credit card rebates, shopback etc) and/or finding additional income.

In summary, with proper management of our cash flow, we will be able to protect ourselves from going bankrupt and with goal settings, we are able to work towards an ideal cash flow situation.

Thanks for reading and happy building your layers.


*Featured image credits: Mick Stevens/The New Yorker Collection

If you’ve enjoyed this content, please share it around. Be notified when I publish a new article by clicking the subscribe via email button on the right. For those who prefer social media, you may follow me on Instagram, Facebook and Medium. If you also enjoy writing and sharing your ideas, I’m open to collaborations. Feel free to contact me here or at if you need help or have any questions.

Here’s how you can be a real life Crazy Rich Asian.

Dreaming to be a Crazy Rich Asian? Stop dreaming and start making it a reality. While most of my friends and colleagues are spending their time making a fuss about the high costs of living in Singapore, the wealthy have already planned their steps ahead. We may not be rich or crazy rich now, but with proper planning and execution, it certainly isn’t impossible.

First things first, we must define what being rich or crazy rich is. To me, being financially free is considered rich. Being financially free and able to afford branded goods is crazy rich.

This article will introduce the concept of The Five Layers, how to retire comfortably in Singapore and finally, being crazy rich.

Assumptions include:

  • Retiring at 65
  • Expenses at $3000/month equivalent to $36,000/year

1. Central Provident Fund (CPF)

For majority of us Singaporeans and Permanent Residents, whether we like it or not, CPF is mandatory. It is a social security system that requires both the employer and employee to contribute a certain amount for retirement, property and healthcare.


*Image taken from CPF website

Fun fact: Do you know your CPF account returns you an interest rate of up to 5% annually? Taking the rule of 72, it will take 14.4 years to double your amount!

Assuming we meet the Full Retirement Sum, we will be receiving a monthly payout of $1400/month starting 65 years old, almost half of the target of $3000! I will be sharing more about the tips and tricks to maximizing our CPF accounts in future posts.

2. Savings

There are two types of savings:

2.1 Saving money from budgeting and stretching your dollar.

Before we start saving, we should aim to be debt free first. That includes paying for our credit card loans and student loans because the interest rate from the banks could really hurt overtime.


Assuming you took a student loan of $40,000 at 4.88% interest and the minimum monthly instalment is $400 every month, it will take 10 years to clear your student debts and you would have paid a total of ~$50,000. That’s a loss of $10,000! This is why financial experts usually advise people to first pay off their debts before investing.

Budgeting is important. Pay yourself first. By that I mean allocating a specific amount into your savings account once you receive your paycheck to clear your debts. I will be writing on how to allocate our money using a very simple strategy. Different ways and tools you can use to allocate and track your expenses. And if you are feeling adventurous enough, you may wish to follow my way of optimizing my budgets.

2.2 Saving by putting money in a savings account.


*Image taken from Seedly.

Nothing beats the old fashion way of saving money by putting it in a bank account. But why put it in an ordinary savings account returning 0.05% interest when you should be getting 1% at the very minimum?

However, most banks require us to use their services such as crediting our salary, signing up for credit cards and meeting the minimum spend etc before we can enjoy these interest rates.

Let me ask you this question: How much are you saving if you were to spend $70 on a $100 item? The obvious answer is $30. But in actual fact, you just lost $70 because this amount could be saved for the future!

This is how minimum card spend works. So one might spend a few hundred dollars more on items or services they don’t need just to be eligible for credit cards cashback and monthly savings account interest.

I’m not discouraging credit cards. In fact, I have 3 credit cards because they are essential tools to help me maximize my savings. I will be writing on why I decide to make this decision and show you how powerful these cards can be when used correctly.

I will also be sharing my strategy to maximize my savings account and different ways you can approach based on your spending habits.

3. Long term investments

Unfortunately for 41% of Singaporeans, their wealth journey ends at point 2. So unless we can guarantee $384,000 in our account by 65, we will never hit the target sum of $3000/month (CPF+Savings). Not to mention that value is less inflation. The graph below shows a simple illustration on how much $384,000 is worth after 20 years.


With the average inflation rate in Singapore being 2.6%, the equivalent value of $384,000 would only be $226,730 at the end of 20 years. That means we can buy less things with $3000 after inflation. In fact, the true value would be around $2344 after 20 years.

Realistically speaking, unless the bank account we are using is able to equal the rate of inflation, the value of $3000/month will depreciate over time. Thus, we invest to beat inflation.

But but! Investment is risky and I might end up losing money instead!

Well, here’s another fun fact: Investing is only risky when you don’t know what you are doing.


*S&P 500 Index

If you purchased the S&P 500 index since its beginning in 1993, you would have made 537% returns today (August 2018), over a period of 25 years. That is about an annual return of 13.4%, beating inflation by more than 5 times every year! Before you get your hopes up, we must note that past performance is not indicative of future results, a more realistic expectation would be around 8% and I will share with you readers why in the near future.

As someone that only started investing this year, I do not have the wisdom and experience equivalent to the seasoned investors out there. However, there are really simple investing strategies which are almost guaranteed (99%) to beat inflation only on one condition: We must invest for the long term.


Those who have upcoming big ticket purchases (renovation, kids’ education fees etc) and are unable to hold their positions in the stock market for long may consider getting bonds which almost guarantees a return of 1.75-2.97%.


*Image from SGS (September’s 2018 bond)

With proper planning and execution, I’m confident that the first 3 layers are sufficient for an average Singaporean to retire comfortably.

4. Passive Income

Remember I talked about being a Crazy Rich Asian? Passive income is what separates the crazy rich from the middle-income. According to Wikipedia, passive income is defined as income resulting from cash flow received on a regular basis, requiring minimal to no effort by the recipient to maintain it.

I highly recommend the book “Rich Dad Poor Dad” by Robert Kiyosaki. It talks about managing our cash flow and finding assets that generate money. If you are too lazy to read, below is a summary of the entire book. And if you haven’t noticed, all the rich people have one thing in common: They all belong to the right side of the quadrant. Nick Young’s family owns many real estates. So yeah…you get the idea.


*Image from The Norells

As the saying goes: “The rich gets richer, the poor gets poorer.” This is true because the rich are “Financial Free” as their passive income has surpassed their expenses. With that monetary security, they are not living life to make money. They are free to do what they want such as pursuing their photography or writing passion, traveling around the world, etc. Literally anything they want. For most crazy rich people, they would buy more real estates or start another business with the extra income they earn and in return, it increases their passive income. See below for a simple illustration.

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Realistically speaking, if you are just like me and have just started working, we shouldn’t be looking into businesses and real estate now. Not until at least we have saved enough emergency funds, be debt free and have a consistent amount of savings each month into our future goals account (BTO, Marriage, Kids education etc).

However, time is our greatest asset. We should aim to invest our time to learn new skills that improve our lives. If you have a particular skill or passion that is high in demand (Writing, design etc), you may want to consider doing freelance to earn additional income. I myself will be looking at taking advanced Microsoft excel course to improve my efficiency at work. To help you better understand, here’s a story.

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That’s the power of investing our time in things that bring value to us.

Did you know? If you are a Singaporean aged 25 and above, you are given $500 skillsfuture credit where you can sign up for approved courses to upgrade yourself? What’s best is most courses don’t cost much and you can enroll in them for free!

5. Trading

This is what I call the cherry on top of the cake.  A trader typically works 1-2 hours a day and on average, they earn about 20% of their revenue PER MONTH. But trading isn’t easy and comes with great risk. According to statistics, only 8% of traders are successful.  Speaking from someone that has tried trading, it requires discipline, consistency and most importantly of all, control of emotions. One may win 9 trades in a row but if he gets greedy on the 10th, he may lose all his earnings. Trading isn’t a one month or one year thing. You need to have a decent trading strategy, hopefully one that gives you a statistical advantage and stick with it. If you read about the law of averages, it states the supposed principle that future events are likely to turn out so that they balance any past deviation from a presumed average (Wikipedia). Eventually, your win/loss ratio will average out and you will start earning money. This is why casinos always make money no matter how much people play.

A simple rule: Don’t trade what you can’t afford to lose. If you think reading and watching online videos aren’t enough, there are many live workshops available.

Being a Crazy Rich Asian isn’t for everyone. But if you are willing to invest your time and money, it isn’t impossible to build your fourth and fifth layers. The road will not be smooth like butter. Expect to fail but more importantly, learn from your mistakes and don’t repeat it.

Lastly, thank you for taking the time to read my first article. If you’ve enjoyed it, please share it around. You may find me on Instagram, Facebook and Medium as well. I’ll continue to write more articles starting from where I began my Five Layers journey and hopefully, you will be able to follow my journey and start building your layers as well. If you need help to kick start your financial journey, please feel free to contact me. I’ll reply when I can.

Once again, thank you for reading and happy building your layers.

*Featured Image from Warner Bros