What to do with your first pay cheque

[SINGAPORE] It’s been almost a year since I started receiving a monthly pay cheque. 

To be honest, my life hasn’t changed significantly since graduation. I still go to my usual dinner haunts with friends and splurge on yet another pair of jeans, although I now have responsibilities like giving my parents an allowance. 

And yet, it feels like there are money milestones I have yet to tick off. 

I haven’t sorted out proper insurance coverage, my budget plan isn’t the most disciplined, and my investing habits could use more consistency. 

With so many things to do, I spoke to two experts for advice on where to start. If you’re lost in the sauce, your priority list could look something like this. 

#1 Build your savings

While it is tempting to start pouring money into a brokerage account, the first step is less glamorous: build an emergency fund.  

A rule of thumb is to set aside three to six months’ worth of essential living expenses, says Lorna Tan, head of financial planning literacy at DBS. 

Gig workers may need up to 12 months, she adds. 

How much you need also depends on your season of life and financial obligations, says Vincent Loke, a family wealth consultant at Unicorn Financial Solutions. 

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You may also need to set aside savings for medium-term goals, such as saving up for a house purchase or further education. 

Keep this money somewhere you can access easily, such as a high-yield savings account. The idea is to have a buffer for unexpected expenses without having to sell your investments. 

Short-term, moderately liquid investments, such as bonds, are also an option. These products have fixed and guaranteed interest, making them suitable for parking emergency funds.

#2 Get insured

Before buying insurance plans, figure out what coverage you already have – this could be Singapore’s basic health insurance MediShield Life or coverage purchased by family members. 

James (not his real name), for instance, entered the workforce with insurance coverage his parents had bought for him. He declined to disclose his full name when discussing his personal finances.

But the plan mainly provided a payout in the event of unexpected death, leaving him without coverage for a serious illness. That prompted the 26-year-old to buy early critical illness insurance to plug the gap. 

Tan says your insurance needs depend on factors such as existing coverage, your healthcare priorities, and whether you have dependents who rely on your income.

As a reference point, MoneySense, the national financial education programme, suggests working towards death and total permanent disability coverage worth around nine times annual income, and critical illness coverage worth four times annual income. 

To avoid being overinsured, it advises against spending more than 15 per cent of your take-home pay.

#3 Invest consistently

An investing goal in your first year doesn’t have to mean scoring big on the stock market. A more manageable target could be simply building a habit before worrying about optimising returns, says Loke. 

He suggests automating regular transfers into a designated investment platform every payday, even if the initial amount is modest. 

“Something young adults get wrong (when managing their first pay cheque) is they plunge into investing without thinking about whether they have set aside (sufficient) emergency funds and insurance,” says Tan.

“A lot of them do it in the wrong order, so when times are hard, they end up selling their investments at the wrong time and place.” 

Singapore Savings Bonds and Treasury bills are among the options to consider if you have a lower risk tolerance or are saving for short-term goals. 

For longer term goals, diversified exchange-traded funds and unit trusts offer exposure to a broader range of assets. 

Here’s a short guide to get you started if you’ve been leaving investing to next year’s you. 

What about credit cards?

Swapping your debit card for a credit card may feel like a mandatory step towards adulthood. 

A credit card can offer rewards such as cashback, airline miles, and also help you build up a credit score. 

Your credit score is a numerical representation of your creditworthiness, based on factors such as how consistently you pay your bills, income stability, and your overall debt behaviour. 

It becomes particularly important when you apply for larger loans in the future, such as housing or car loans. 

Loke suggests treating your credit card like a debit card – never charge an amount you cannot immediately pay.

Making a plan you can stick to

When 26-year-old healthcare worker C Goh started work, he was determined to save at least half of his salary each month. 

He struggled to keep it up, and now uses the amount left in his bank account at the end of the month as a rough check on his spending. He declined to be identified by his full name while disclosing his finances.

“My biggest regret was not keeping track of my spending from a younger age… It’s difficult to start the habit now because of work and life,” Goh says. 

One way to make saving more consistent is to “pay yourself first”. Tan and Loke suggest setting aside a fixed amount of savings as soon as your pay arrives, instead of saving whatever is left at the end of the month. 

That doesn’t mean every dollar of your pay cheque has to go towards a financial goal.

 After landing a job in health care, 24-year-old Vanessa Chew bought a sports watch she couldn’t previously afford as an undergraduate. 

“My parents did offer to buy a sports watch for me, but I felt like I shouldn’t rely on them anymore (financially), and I wanted to spend my first pay on something meaningful to me,” she says. 

Loke’s advice is to find a system that fits your life and stick with it, rather than spend your first year of work searching for the proverbial “perfect” one.