Insurance vs investing vs saving: What should young adults prioritise?

When you are just starting out in your career, money decisions can feel overwhelming. Should you get insurance first? Maybe it is better to invest early? Or perhaps its better to just stash away cash in your savings?

The truth is, there is no shortage of advice out there – and a lot of it can sound biased. That’s why for this guide, we asked AI to analyse the options.

The rest of this article was completely written by artificial intelligence. These insights are designed to provide an unbiased, structured approach to financial planning, helping you understand trade-offs and priorities while making informed decisions.

Of course, everyone’s situation is unique. If you have strong family support, no dependents, or a higher risk appetite, your sequence might look different. But for most young adults, this AI-backed framework provides a practical starting point.

Understanding the roles: protection, liquidity, and growth

Before deciding where to put your money, it is essential to understand what each pillar does:

• Insurance: Provides a safety net against life’s uncertainties, such as illness, accidents, or death. Without insurance, even minor emergencies could force you to drain savings or take on debt.
• Savings: Liquid funds set aside for emergencies or planned expenses like travel, home deposits, or unforeseen bills. These offer security and immediate accessibility.
• Investments: Assets aimed at long-term growth. They carry higher risk than savings but have the potential for returns that outpace inflation, enabling major financial goals like home ownership or retirement.

AI Insight: Insurance protects your foundation, savings provide a buffer, and investments grow wealth over time. Prioritising protection first is recommended from a risk-mitigation perspective, though individual circumstances may justify a different order.

Insurance: consider early protection

Unexpected events are inevitable. A sudden illness, accident, or life event can have a major financial impact, especially for young adults starting their careers. Key insurance coverage includes:

• Health Insurance: Covers hospitalisation and medical bills. MediShield Life is mandatory, while Integrated Shield Plans provide additional coverage and more hospital choices.
• Critical Illness and Disability Insurance: Provides lump-sum or income replacement if you are diagnosed with a serious illness or cannot work.
• Term Life Insurance: Affordable protection for dependents in case of untimely death.

AI Perspective: Establishing insurance first protects your financial foundation. It ensures that unexpected events do not force you to liquidate savings or investments prematurely. However, this is a recommendation based on general risk principles, not a one-size-fits-all rule.

Example: A young adult diagnosed with a critical illness without coverage could deplete savings, delay investments, or take high-interest loans. With insurance, the financial impact is cushioned, enabling focus on recovery and long-term goals.

Building savings: your financial safety net

Once essential protection is in place, the next priority is savings. Savings provide liquidity for both planned and unplanned expenses, allowing young adults to navigate life with confidence.

• Emergency Fund: Ideally, 3–6 months of living expenses in a liquid account. This covers sudden costs like medical bills, car repairs, or temporary income loss.
• Short-Term Goal Savings: Funds for travel, gadgets, or home deposits.

Why It Matters: Savings provide security. Unlike investments, they are low-risk and immediately accessible. A strong emergency fund prevents premature liquidation of investments, preserving long-term growth.

Example: A young adult earning S$4,000 per month should aim for an emergency fund of roughly S$24,000 (6 months’ expenses). This allows them to handle unexpected events without stress while maintaining investment contributions.

Investing: growing wealth for the future

Investing allows young adults to harness compounding and long-term growth. While riskier than savings, investments can significantly increase wealth over decades.

Common investment options include:

• Stocks and ETFs: High growth potential but market volatility is expected.
• Unit Trusts or Robo-Advisors: Diversified portfolios for moderate growth and professional management.
• CPF and Supplementary Retirement Savings: Tax-advantaged vehicles for long-term wealth accumulation.

AI Insight: Starting early, even with small, consistent contribution, can have a major impact due to compounding. For example, investing S$200 per month at a 5% annual return over 20 years could grow to roughly S$72,000. Early investing builds financial freedom while keeping risk manageable.

Sequencing priorities: Insurance → Savings → Investing (AI Perspective)

From an AI-driven risk analysis, many frameworks recommend the following sequence:

1. Insurance: Establish basic protection against financial shocks.
2. Savings: Build liquidity for emergencies and planned short-term goals.
3. Investing: Allocate excess funds toward long-term growth.

AI Note: This sequence is recommended for risk mitigation and financial resilience. It is not prescriptive. Some individuals may prioritise savings or investments first based on personal risk tolerance, income stability, or family support. The goal is balance: protect against risk, maintain liquidity, and pursue wealth creation simultaneously.

Life stage considerations

• 20s: Lower financial responsibilities. Focus on essential insurance, a starter emergency fund, and small but consistent investments.
• 30s: Responsibilities increase—family, mortgage, career. Expand insurance, grow your emergency fund, and accelerate investments.
• 40s and beyond: Maintain insurance coverage, protect accumulated wealth, and focus investments on retirement.

Key Insight: Life stage affects priorities. Early preparation allows flexibility and resilience as responsibilities grow.

Behavioural advantages of prioritising protection

Prioritising insurance first encourages disciplined financial habits. It reduces stress and ensures your safety net is in place before taking investment risks or committing to long-term savings.

Example: With hospitalisation and critical illness coverage, a young adult can invest consistently, confident that unforeseen events won’t derail financial plans.

Practical steps for young adults (AI recommendations)

1. Start with essential insurance coverage: Health, critical illness, and term life insurance.
2. Build an emergency fund: 3–6 months of living expenses.
3. Automate savings and investments: Consistency matters more than initial amounts.
4. Review annually: Adjust coverage and contributions as income, expenses, and responsibilities change.
5. 5. Seek professional guidance: Financial advisers/representatives can help tailor protection, liquidity, and investment strategies to individual needs.

Conclusion: Balance, not choice

Insurance, savings, and investments are complementary pillars. For young adults:

• Insurance protects the financial foundation and guards against catastrophic events.
• Savings provide liquidity for short-term needs.
• Investments enable long-term wealth accumulation.

The sequence of prioritising insurance first, then savings, then investments is suggested from a risk mitigation standpoint. Depending on your personal circumstances, such as risk tolerance, financial obligations, or family support, your optimal strategy may differ. You may wish to speak to a financial representative if you would like a personalised guide on what your strategy might be.

The key is achieving balance—protection, liquidity, and growth—so you can confidently navigate life and pursue long-term financial goals.