Regrets, we’ve all had a few. Whether you wish you had paid more attention during Chinese class since your work now requires you to field interviews in Chinese or regret that 10kg you’ve piled on since you left school, you’re only human.
In the domain of personal finance, things are no different. Mistakes get made and tears get shed. The only problem is that financial blunders can follow you throughout your life, affecting you when you retire, your relationship with your job and how much stress you experience when the bills arrive.
Here are six big financial blunders Singaporeans make.
1. Making last minute booking or buying decisions
Some Singaporeans start preparing their kids for the PSLE when they’re still in kindergarten, but when it comes to their own purchasing decisions, they’re happy to wait till the eleventh hour.
A recent study showed that 2 in 5 Singaporeans book their overseas trips at the last minute. This often results in their having to fork out more cash, just because they couldn’t be bothered to plan earlier.
But it’s not just air tickets that get more expensive when you buy at the last minute. For example, desperately searching for an outfit to wear to your sister’s wedding one day before is more likely than not to result in you paying more, since you won’t have the luxury of waiting for sales or hunting for bargains.
What to do: Just as you might maintain a to-do list of errands to run, create a to-buy list of all the things you have to spend money on. That way, whenever you have a spare moment, instead of opening the Facebook app for the nth time, you can channel the time into comparing prices and looking for deals.
2. Taking out a loan before buying a home
For those for whom being a student meant surviving on instant noodles and running to catch the last MRT, adulthood can be an exciting time. You can finally buy whatever you want, and banks will even lend you money to do so!
But taking out loans before you buy a home will actually make it harder for you to qualify for a home loan. The Total Debt Servicing Ratio (TDSR) rules generally bar you from spending more than 60% of your income in loan repayments. That includes not just car loans but also credit card debt and personal loans.
So unless you plan to live with your parents for life, don’t happily run out and buy a car the minute you realise you “can” afford one, and try to keep that plastic in your pants.
What to do: If you absolutely must take out a loan before you buy a home, always keep tabs on your loan repayments as a fraction of your overall income. If it’s too high, consider loaning less money and paying the balance in cash. Live within your means and try as much as possible to avoid high interest debt like credit card debt and personal loans.
3. Wasting money on fees you aren’t aware of
Thanks to the Internet, we can now make all sorts of financial transactions online. Whether you’re going on a shopping spree online or channelling your life savings into blue chip stocks, you can get hit by a range of fees without even knowing it.
For instance, when you use your credit card for online shopping, you get hit by a bunch of fees including currency conversion fees, cross-border transaction fees and/or Visa/MasterCard/AMEX fees. The actual amount of extra cash you end up forking out can be over 3%.
Likewise, when you decide to buy and sell shares, you need to open an account with a brokerage firm. The way these firms make money is through charging fees for their services so make sure you are aware of what you are being charged because this can erode your earnings if you are not smart about it.
What to do: Knowledge is power, so read up on the kinds of fees you are being charged. If you can’t find information online, contact your bank or broker directly. Here’s a nifty article on brokerage fees, and another on credit card fees.
4. Not buying insurance
Whenever the insurance salespeople approach you at an MRT station on the pretext of getting you to fill out a survey on your employment status, you do your best impression of a deaf mute.
Ignore them if you want to, but you should probably still have a basic Integrated Shield Plan, and, if there are people in this world whose lives depend on yours, life insurance coverage (note: not necessarily the same thing as investment-linked life insurance), too.
If you’re going to consciously decide not to buy medical insurance, make sure you know what this means in the event that you are inadvertently forced to check in to a hospital.
Reading about insurance might not sound like the most exciting use of a weekend, but think of it as an investment in your future.
What to do: Understand what an Integrated Shield Plan is
5. Throwing a huge, expensive wedding
In Singapore, it is considered perfectly normal to spend $30,000 to $50,000 on a wedding. No wonder the Baby Bonus isn’t working! Maybe it’s time to start doling out a Wedding Bonus, too?
The kicker is that many Singaporeans think expensive weddings are a waste of money, but still get strong-armed into doing so by their spouse, parents or in-laws.
Then there are the expensive frills like the wedding photoshoot in an exotic location, designer wedding garb and horse and carriage.
That wedding is just one day in your life. But the consequences—years of debt, marital strife due to financial hardship, and a lasting effect on your ability to retire, are just not worth it.
What to do: Negotiate for a wedding you’re financially comfortable with. If your parents will disown you unless you let them invite their 100 best friends, settle for a cheaper venue and skip the pre-wedding photoshoot.
6. Not budgeting your shopping, travel and entertainment expenses
We’re always quick to complain the minute MRT fares rise by 2 cents. But then we go and book a trip to Paris on a whim without batting an eyelid.
Just as you should know how much you’re paying each month for your necessities like your home loan, utilities bills and phone bills, you need to come up with a budget for the pleasures in life to make sure you don’t go overboard.
Singapore is an expensive city, and if you really want to go all out and not be disciplined about your spending, there are a million and one businesses who will be happy to take your money. Know what your monthly limit is, and stick to it.
What to do: Track your spending for one to three months so you know how much you’re spending on dining out, shopping, travel, trips to the cinema, alcohol, KTV, etc. Then decide how much you will allow yourself to spend in each broad category (eg. dining, entertainment, shopping, travel). Use a budgeting app so you can track how much you spend and see when you’re about to exceed your budget in a particular category.
We’re not saying you can’t treat yourself every now and then! But keep your eye on the future, because when it comes to money, the consequences of not planning can be dire.
More Info: fortomorrow.sg
Categories: Money Matters