What Should Millenials Spend Their First Paycheque On?

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Savings account, insurance, loan repayment – what?

Congratulations on entering the workforce. After you receive your first paycheck, you’ll discover the greatest thing about employment: it’s your money, and no one can tell you how to spend it! But before you splurge on a game console or a vacation, here are few things to consider instead:

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Setting good habits early on

What starts off well tends to end well, and that’s certainly true with personal finance. The sooner you develop good budgeting and saving habits, the more comfortable your life will be (both when you’re middle-aged, and when you’re retired).

To start off right, let’s use a sample “first paycheck” of S$2,500. After CPF contributions, this is S$2,000. Here’s how we’re going to prioritise that money:

  • Savings fund
  • Insurance
  • Loan repayment
  • Investment
  • Budget for expenses
  • Discretionary spending

1. Savings fund (S$500)

Your first priority is to build a savings fund, of at least six months’ of your income. The savings fund ensures that you keep your bills paid, in the event of emergencies (e.g. your employer goes bust and you need to find a new job).

By using a savings fund, you avoid having to use credit cards and personal loans during emergencies. This saves you from having to pay high interest rates.

A savings fund also has important psychological value: if you live paycheck to paycheck, you tend to always be worried about money. The financial anxiety can affect your sleep, and lower your performance at work (thus lowering your income even further).

Having a savings fund reassures you that, whatever happens, you have significant funds to fall back on.

Once you have built up six months of your expenses, channel this S$500 into investment instead (see point 5).

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2. Insurance (S$200)

Your insurance amount will vary, based on your policy and state of health. However, the younger you are the cheaper it tends to be. For that reason, it’s important to get yourself insured as soon as possible.

We suggest that you purchase a rider for your Integrated Shield Plan (IP), as this only costs a few hundred dollars a year. This will lower the co-payment on hospital treatments to just five per cent. Speak to a financial advisor for more details on this.

Note that this cost can include general insurance, such as insurance for your mobile or other expensive work tools.

3. Loan repayment (S$100)

If you have a credit card, you should always repay it in full, every month. Always pay more than the minimum.

We will assume that, at this stage in your life, your use of credit is minimal (e.g. no car loans or home loans). Try to keep it this way!

However, we’ll budget S$100 for the occasional need, such as a small loan to buy a work laptop.

4. Investment (S$200)

You can begin investing for as little as S$100 a month, through blue chip investment programmes. Check out OCBC or DBS for more details.

Besides blue chip programmes, you can also invest in endowment plans or unit trusts. Aim to get a return of at least five per cent per annum, for your retirement fund – this will help you to keep pace with Singapore’s rate of inflation (three per cent), while still growing your wealth for a comfy retirement.

A qualified financial advisor can give you specifics on what to invest in, based on your risk appetite and life goals.

Note that you can ramp up your investments once your savings fund is complete.

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5. Budget for expenses (S$1,150)

Work out your fixed and variable expenses for next month. For variable expenses, treat them as if they are around 30 per cent higher than expected. For example:

Food S$450 (Budgeted at +30 per cent = $685)
Transport S$60 (Budgeted at +30 per cent) = S$78
Phone bill S$65
Contribution to household groceries S$50
Laundry S$25

6. Discretionary spending

After all of the above, you should still have around S$97. You can use this on anything you like, or save it up for a bigger discretionary budget next month.


By Ryan Ong
Ryan has been writing about finance for the last 10 years. He also has his fingers in a lot of other pies, having written for publications such as Men’s Health, Her World, Esquire, and Yahoo! Finance.