You will be able to explain the layers of a personal finance system and why each one rests on the one below it.
Most people build their finances in the order things get sold to them. A bank offers a savings plan when you open your first account. A friend mentions an investing app. An adviser shows you a policy at a wedding dinner. Each choice might be sensible on its own. Put together in the wrong order, they can leave you exposed in ways that only show up when something goes wrong.
Here is how it usually goes wrong. Imagine someone in their late twenties who has put most of their savings into shares. They have no separate emergency fund and only the basic hospital cover they got automatically. Then they lose their job in a downturn. Share prices are down too, because downturns tend to hit jobs and markets at the same time. To pay rent, they sell shares at a low price, and the loss becomes permanent. Nothing they bought was a bad product. The problem was the order.
This course is built on one idea: a personal finance system is a stack of layers, and each layer protects the one above it. In this course the layers are cash flow, buffer, protection, CPF, debt, investing, housing, retirement and estate. You set them up roughly in that order.
Cash flow comes first because every other layer is paid for by the gap between what comes in and what goes out. If that gap is zero, nothing else can be funded. The buffer comes next, because it absorbs the small and medium shocks: a repair, a medical bill, a month between jobs. Protection follows, meaning insurance for the large shocks that a buffer can't cover, such as a serious illness or losing the ability to work. Only once those are in place does it make sense to put money into investments you might not be able to touch for years.
CPF sits in the middle of the stack for a reason. It is already running whether you think about it or not, with part of every pay cheque going into accounts for housing, healthcare and retirement. Understanding it early stops you from saving cash for things CPF is designed to pay for, and from counting on CPF for things it can't pay for.
Debt is about cost. Expensive debt, such as a card balance that isn't paid in full, works against everything above it, so clearing it comes before investing. Housing and retirement are the two biggest goals most people in Singapore will fund, and both draw on cash, CPF and sometimes borrowing. Estate planning sits at the top. It doesn't protect you, but it protects the people who depend on you, and it costs little to set up.
Treat the order as a default, because some steps can run side by side. You can set up a CPF nomination in ten minutes on the same day you open an emergency fund account. And if you already have investments, you don't need to sell them. You just need to check that the layers underneath are in place, so you never have to sell at the wrong time.
Each module in this course covers one or two layers. For each one you'll get the one setup action to do this month, and the name of the course that goes deeper when you're ready.
Your first task is simple. Write the nine layers down in order. Next to each, mark it done, partly done or not started for your own finances. Be honest, because the gaps you find are the plan for the rest of the course.
Write the nine layers down in order and mark each as done, partly done or not started for your own finances.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).