If you want to change your financial situation for the better, here are the New Year’s resolutions you shouldn’t make in 2016.
The New Year is a time for new resolutions, which simultaneously improve you and make your life harder. Or just make your life harder, with no tangible benefit.
This article is about the latter. If your goal is to save money or earn more money by the end of the year, avoid making these New Year’s resolutions.
1. Unquantifiable Financial Resolutions
Financial resolutions can be useless or even dangerous if they are not quantified. An example of this would be resolving to “get rich” or “make more money”. These are vague terms that don’t allow for proper planning.
Without quantifiable resolutions, it’s easier to fall prey to financial scams and toxic products.
For example, say you have a quantifiable goal to make an extra S$10,000 by the end of the year. It will be easier for you to look critically at financial products – you would know methods such as Multi-Level Marketing cannot generate the amount required. Even if you were lured into it, you could measure it against your goals (say, an extra S$834 a month) and know you need to leave and try something else.
2. Pay ALL Your Debt in an Unreasonably Short Time
Some of you may have the option to pour huge amounts of your paycheck (70% or more) into debt repayment. You’re not wrong about paying it fast to minimise interest. The problem is, you can’t rush repayment to the point where you have no savings.
If you live paycheck to paycheck because all of it goes into debt repayment, you could lock yourself into a cycle of poverty. If an emergency occurs (e.g. you need surgery, or crash your car), and you have no savings, you will simply be forced into using credit again.
This could result in a cycle of emptying your paycheck, needing credit, and then emptying your paycheck to pay it back again.
So make repayments strategically. If you have credit card debt, get a balance transfer or a personal loan, with fixed payments each month. If you need to take a little longer to pay it back, that’s fine; but make sure you have savings even as you make repayments.
You can find options for the cheapest balance transfers and personal instalment loans on SingSaver.com.sg.
3. Buy a New Car (If You Don’t Have a House Yet)
At present, car loans are capped at 50% financing. With a typical car costing around S$120,000, that’s a S$60,000 down payment–and the rest must be repaid over a maximum loan tenure of five years.
Even if you can scrape together the S$60,000, note that the down payment on a three room flat may just be half that amount. And a house is not only more essential – it is an appreciating asset. On the other hand, the value of your car falls by 60% the moment you drive it off the lot.
Having a car loan will also affect your Total Debt Servicing Ratio (TDSR). This will lower the amount you can borrow when buying a house.
In short, it’s a terrible idea to buy a car before a house, even if you can make the down payment.
4. Resolve to Save Without Investing
It is almost impossible to “out save” the inflation rate. In Singapore, as with most developed countries, the cost of goods rises by around 3% per annum. Most savings accounts pay interest rates far below 1%, and a current account typically has an interest rate of 0.125%.
It is important to have savings of up to around six months of your income for emergencies. However, a portion of your money also needs to be invested to beat inflation. Otherwise, you are effectively losing money because your cash is worth less every year.
In general, investors aim to beat the rate of inflation by 2% (returns of about 5% are appropriate in Singapore.) A financial advisor can recommend an appropriate product, which may include endowment plans, inflation-linked bonds, exchange traded funds, etc.
5. “Just Do It” and Finally Start a Side Business
This is a good way to lose money or time. 70% to 80 % of new business ventures fail within the first 10 years, and that’s with proper funding. Most new businesses, whether it’s blog shops or handcrafted jewellery, will take three to six months to break even.
Rather than make it a resolution to launch your business right now, resolve to meet certain milestones. For example, save up the first S$5,000 you need by June, or get at least three pre-orders by then. This also prevents you from being overwhelmed and impacting your regular job.
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By Ryan Ong
Ryan has been writing about finance for the last 10 years. He also has his fingers in a lot of other pies, having written for publications such as Men’s Health, Her World, Esquire, and Yahoo! Finance.