You will choose a yearly voluntary CPF amount and timing that fits your base-pay system and goals.
By now you know how big your CPF gap is from lesson 3.1, what routes there are from lesson 3.2, and, if you drive or deliver, what your platform already contributes from lesson 3.3. The last step is the one most freelancers never take: writing down a decision. This exercise gets you to one amount, one account or scheme, one month and one reason. It takes about twenty-five minutes.
Before any money goes into CPF, two things must be in place.
The first is your holding account buffer from module 1. Pick a target for it. A common choice for a freelancer is several months of base pay, more than the three to six months of essential spending usually suggested for an employee, because a freelancer's income can stop with no notice period. Lesson 3.1 of The Singapore personal finance system, How big your emergency fund should be, explains how to choose.
The second is your tax and MediSave pot from module 2, holding its share for this year's bills.
If either is short, the answer for this year is to fill it first, and your voluntary CPF amount is zero for now. Zero is a legitimate answer, so write it down with the date you will look again. CPF money cannot come back out in an emergency, which is why the buffer gets finished first.
Look at your housing and retirement goals, and at what CPF would give you if you added nothing.
For housing, ask how much of a future home you planned to pay with CPF, and whether your Ordinary Account will get there without new contributions. For retirement, the CPF Board has planning tools on its website that estimate your CPF LIFE payouts from your current balances. Run one with your real figures and see how the monthly payout compares with what you think you will need.
If CPF alone gets you close, a small amount or none may be fine. If it falls well short, CPF is one way to close the gap. Investing outside CPF is another, and The Singapore personal finance system covers how to weigh the two.
There are two simple ways to set an amount. A fixed yearly sum is easy to plan for and to build into your rates. A share of the surplus in good years fits uneven income better: once the buffer is full and the pot is funded, a set share of what is left goes to CPF, and in a lean year nothing goes in.
Then choose where it goes, using your notes from lesson 3.2. Check the total against the CPF Annual Limit. Add your compulsory MediSave contribution, any CPF on employment income and your planned voluntary amount, and compare the total with the current limit on the CPF Board website.
Last, pick a month that matches one of your quarterly reviews in module 8, ideally the last one of the year. By then you know how the year went, so you contribute from money that exists, not from what you hope December will bring.
Here is Mei's worked example, with all figures made up. She sets her holding account buffer target at six months of base pay. With base pay of S$2,300, that is S$13,800.
Suppose her year goes like her back test in lesson 1.4 and the holding account ends the year at S$23,460, with her tax and MediSave pot funded separately. Her surplus above the buffer target is S$23,460 minus S$13,800, which is S$9,660.
She decides to put half of each year's surplus into CPF and keep the other half in the business for slower years and new equipment. Half of S$9,660 is S$4,830, which she rounds down to S$4,800.
She wants a flat within five years, and her Ordinary Account has barely moved since she left her job, so she chooses the voluntary contribution that is split across all three accounts. She checks the Annual Limit: her MediSave contribution of about S$5,300, her small workshop CPF and S$4,800 together sit well under the current limit she looks up.
Her written decision reads: "S$4,800, voluntary contribution split across my three accounts, in December after my year-end review, because I want my Ordinary Account growing towards a flat and my buffer is already full." If next year's surplus is smaller, half of it is smaller, and she does not need a new decision.
One short paragraph, like Mei's, with four parts: the amount or the rule for setting it, the account or scheme, the month, and the reason. Add the date of your next check if the amount is zero for now. Have your buffer target, your pot balance and the current Annual Limit in front of you, and write yours in the activity.
Write your voluntary CPF decision: the amount, the account or scheme, the month you will contribute and the reason.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).