Financial: 5 Key Things Tutors Must Be Mindful Of

For those eking out a living as full time tutors, chances are you will probably be running the show all by yourself (or with an extremely small number of like-minded people in a tuition center setting). You enjoy no medical benefits, no CPF employer contributions, no protection under the Employment Act, none of this, none of that.......basically you get no love from society. You are left to fend for yourself.

It is as frightening as it sounds, and it doesn't help that many choose to simply ignore the essentials of constantly keeping their fundamental finances in proper order. Living day to day without a care in the world is never good enough. Because you could find yourself enjoying a cup of coffee with the tax authorities in an interview room for improper tax filing (or worse still, tax evasion), or come to a realization you can't afford to pay for a necessary medical procedure. This was thus written to create greater awareness amongst you private educators, to help you safeguard your current existence, and to plan for the future. Here are the big 5 you need to be well acquainted with:

1. Paying Taxes

Who says tutors need not pay taxes? The Inland Revenue Authority of Singapore (IRAS) does not turn a blind eye to sole proprietors in the private education industry; selected individuals are audited from time to time. Just because you weren't called up to submit personal records of earnings does not mean you can brush aside the compulsory need to pay your dues. Hide nothing and declare your full income. Taxes are typically filed in early March to mid-April of the year-one can log into the Tax Portal maintained by IRAS to do so; just have a valid SingPass at hand. Be a less than law-abiding citizen, you won't know what hit you so hard when the dark clouds shed rain because of your intentioned ignorance.

Besides contributing to nation-building (that stupid, contrived statement you see printed on most IRAS tax-related correspondences which many will roll their eyes to), our tax returns do have one useful purpose: securing property mortgages from a bank. The higher the reported income, the higher the loan amount being secured in most cases barring external personal credit risks. This becomes even more important with the implementation of the Total Debt Servicing Ratio (TDSR) by MAS in June 2013, where property loans extended to borrowers cannot exceed 60% of their earned income. Do not forget a further discount of 30% is applicable to tutors in general because they are deemed to be earning variable wages.

Using an example of a tutor who rakes in $3000 monthly, his/her monthly bank mortgage cannot exceed $3000*0.6*(1-0.3)= $1260. (Note this is merely a quick skeleton illustration; the actual allowed loan quantum will differ from bank to bank based on their additional terms/conditions - remember to bring along hard copies of the IR8A for the most recent two years when consulting a mortgage loan specialist.)

Need a clearer picture with regards to the amount of taxes you are required to pay? THEN READ THIS.

2. Contribution to CPF

Unlike salaried employees, private tutors need not part with 20% of their income each month just so their CPF accounts can be fattened. So should you therefore contribute to your CPF account independently? Yes, we say.

But for the right reasons. Certainly not to meet the seriously flawed, constantly being enhanced Minimum Sum Scheme(MSS) so that you can "enjoy" a miserable few hundred dollars monthly payout (true for most) from the time you reach the stipulated draw down age requirement till you are six feet under (chances are you will end up a furious spirit because you did not manage to spend all monies before breathing your last). But for partial down payment of the flat you want to purchase and to finance your children's university education in the local universities. After all, CPF interest rates are markedly more attractive than the pathetic numbers offered on most bank savings accounts.

Oh and regarding the deal on paying university tuition fees on behalf of your children when they first matriculate, don't forget to waiver their repayment obligations towards your CPF account after they have graduated- request them to return everything in cold hard cash instead (money in CPF equals money locked in eternal limbo).

3. Contribution to Medisave

If you intend to incorporate a company on local shores in the forseeable future, ensure you contribute to your Medisave account religiously (this can be conveniently accomplished by initiating a standing GIRO payment order). Medisave contribution amounts are determined based on your taxes filed. Beyond this, the only other possible usefulness of loading your Medisave account is that they go a little way towards reducing your annual taxable income. Every bit counts right?

Need a clearer picture with regards to the amount you are required to contribute to your Medisave account? THEN READ THIS.

4. Upgrade MediShield Life to A Private Integrated Shield Plan

Depending on the bill size incurred and whether you choose to put up at a private hospital or a Class 'A/B1' vs a Class 'B2/C' ward within a public hospital, Medishield Life (which replaced Medishield on 1 November 2015) may or may not completely cover hospitalization costs (less co-insurance and deductible components which shall be paid by cash and/or through funds in one's Medisave account).

For illustration purposes, consider a person who racked up $10,700 for a 5 day stay in a public hospital (Class 'A' Ward) to undergo a surgical procedure - MediShield Life provides a payout of $1570, while he is personally responsible for a deductible of $3500 plus a co-insurance amount of $720 totaling $4220. Now, what happens to the outstanding $10,700 - $1570 - $4220 = $4910 ? Unfortunately he has to shoulder that too. All in all, he will be out of the pocket by a whopping $4910 + $4220 = $9130.

Obviously something must be done to plug this visibly big gap. Sign up for a private integrated shield plan to allow for more comprehensive coverage. Naturally premiums will vary based on insurer, subscribing person's age and the particular shield plan selected (be prepared to shell out more though for a rider component which will take care of the co-insurance and deductible costs). Surely you must have heard of AIA, Prudential, NTUC and Great Eastern? Pay their offices a visit, compare premium rates and then decide which you fancy most within parameters of practicality.

Need a more detailed explanation with regards to how a private integrated shield plan works? THEN READ THIS.

5. Insurance And Investment Do Not Mix

To hell with investment-linked policies (ILPs), period. Insurance agents are paid higher commission for making clients take up such policies, not to mention some of these fund managers suck big time, producing poor returns year after year. You are better off managing your own investments. Get either a term or whole life policy, and invest your capital separately in stocks, trusts, ETFs and bonds (property if you can afford it). Do we need to remind you to invest in accordance to your risk appetite?

Already bought an investment-linked policy (ILP) and wish to terminate it asap? THEN READ THIS.

Remember, procrastination can be fatal. Take immediate charge of your finances, and always stay safe. Cheers to your health, wealth and future.