There are plenty of mistakes you can make with your money, whether it’s overspending or ignoring debt till it piles up. Here’s a handy guide to avoiding all these in the first place.
Humans have the tendency to act irrationally, just like any other living being out there. Whether it’s toddlers unknowingly munching on crayons or adults going through multiple pints of ice cream after a bad breakup, mankind isn’t hard-coded to always make the right decision. This rings especially true when it comes to money.
Everyone has moments where they make impulse purchases or miss out on paying their credit card bills. However, there are seemingly innocuous money mistakes out there that can pile up and leave you with a huge headache. Watch out for these and find out how you can avoid them.
- Day-to-day mistakes
- Vacation mistakes to avoid
- Mistakes to avoid in your 20s
- Mistakes to avoid in your 30s
- Common mistakes when you’re retrenched
- In conclusion
1. Overspending on food delivery
In case you didn’t know, most — if not all — eateries mark up prices on their delivery menu, even for the exact same meal or dish. That’s because food delivery platforms charge around 30% commission fees, which, to be fair, is pretty tough for the restaurant or eatery to swallow whole.
Then, there are delivery fees, platform fees and, sometimes, if you’re ‘lucky’, small order fees that bump up the cost of your meal easily by 20%, if not more. If the dish you’re hankering after can be bought at your neighbourhood coffee shop or food centre, then there’s really no point ordering delivery.
Having more family members to share the meal may make it slightly more worthwhile, but avoid the urge to splurge as remember you’re still paying marked-up prices.
2. Wasting money on unproven supplements and devices
In a bid to safeguard the health of your loved ones and your own, you may be tempted to start buying supplements, treatments and cures after COVID-19’s global health scare. However, you may simply be wasting your money on bad science.
Instead of throwing away your money, let good sense and proven science prevail. Wash your hands with soap and water as often as you can, wear a mask when you need to go out, and practise safe distancing as much as possible.
3. Not reducing your debt interest rates
Although interest rates are set to rise as the world leaves COVID-19 in the rearview mirror, there’s no reason not to strike while the iron is still hot. Refinance your home loan if you haven’t or take the time to suss out the best one if you’ve just collected the keys to your humble abode.
On the other hand, if you’re having trouble clearing debt such as outstanding credit card balances, here’s what you can do. As you know, the troublesome thing about credit card debt is compounding interest, which can make tackling your debt feel like you’re trying to climb out of quicksand. The key is to stop the compounding, lower the interest, and stabilise the amount you pay each month.
The easiest way to do this is to convert your credit card balances into a personal loan. Pay off your high-interest credit debts in full with the loan to stop the compounding interest. Then, you only need to focus on making fixed monthly payments for the duration of your personal loan.
4. Forgetting to cancel unused credit cards
There is an annual fee for having a credit card – we’d like you to remember that! Nonetheless, we still meet people who have seven or right credit cards, of which they actively use two. In extreme cases, some of these people retain the other cards out of sheer laziness.
Assuming a case of auto-renewal with S$150 to S$200 annual fees, they would realise they’re potentially pouring a thousand dollars down the drain every year – a disaster avoided if they had bothered to do a round of credit card housekeeping.
Have the cards that you need, and don’t rely on too many ‘spares’.
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Vacation mistakes to avoid
1. Letting a free Business Class upgrade or flight ticket expire
This happens before your vacation and is probably one that you’ll rue the most. About once or twice a year, we will hear the anguished cry of someone who spent a year amassing flier miles, and is just a few miles short of a free air ticket. Then suddenly they log in to their account one day, and discover all their accumulated miles are suddenly reduced to zero.
The reason is that they didn’t check the expiry clause, and now all their bonus miles – to which they may have charged S$10,000 or S$20,000 toward acquiring – are wasted. Please, don’t let this happen to you. Either spend your points or miles before they’re gone, or get a card where the rewards don’t have an expiry clause.
- Citi PremierMiles
- OCBC 90°N
- Standard Chartered X Credit Card
- DBS Altitude Visa Signature
- American Express Platinum Card
2. Not bringing extra cash
Imagine a situation where your vacation takes you to multiple countries. It’s easy to overestimate how much extra cash you would have left after traipsing across the first nation. You’d also have to look for a bank or money changer in the second country that will allow you to exchange the currency you have on hand.
Adding insult to injury would be the fact that you’re subject to their forex rates, so you might just end up wasting both time and money. And if you’re not keeping tabs on how much the original currency is worth, you might also end up overestimating the amount you’ll receive. Not a great way to start the second stop on your tour.
3. Not bringing your debit card
You can easily avoid situations where you don’t have much cash on hand, by paying with a credit card. But you’ll be subject to overseas transaction fees and (possibly) poor forex rates. If you have your debit card however, you can simply withdraw cash you require at any ATM located nearby.
Sure, you’d have to pay foreign transaction fees, but as you’re drawing from your existing funds, you can avoid cash advance fees.
Mistakes to avoid in your 20s
1. Going crazy with your first credit card
Until you have had your first credit card, you don’t know how easy it is to overspend.
It’s only toward the end of the month when you realise you owe S$5,000, or whatever twice your income is (in your 20s the credit ceiling should be manageably low – enough to shock you, but not enough for a lifetime of debt).
That’s when you will be forced to learn about balance transfers, or using personal loans to at least lower the interest rate of your debts. The first time you take a S$5,000 loan at 6% interest (personal loan), to pay off a debt of S$5,000 at 24% interest (credit card loan), banking will suddenly seem more relevant and interesting.
2. Living paycheck to paycheck
When you live paycheck to paycheck, you have no reserves to deal with emergencies. Those emergencies will happen at the worst possible time, because the universe hates spendthrifts. Need immediate medical attention and a new bike after a run-in with a rude motorist while cycling? Of course that’s a day or two after you’ve spent the last of your paycheck.
You will then learn to save a portion of your pay until you have an emergency fund (about six months of your income), before continuing to spend every paycheck to its last cent. The difference is that you’ll be safe doing it this time, because you have the fund backing you up.
3. Holding off on buying insurance
We have that Medi-whatsit thing, and insurance is boring, and oh, who cares, right? Go ahead and surf in Bali, and zip line across crevasses in South America – don’t worry, you have a travel insurance policy.
Until your first major accident, and you realise the cost of the medical evacuation to bring you home (or just to a hospital, depending where you are) is enough to wipe out the entire claim from your S$50, ATM-purchased travel insurance.
If you’re wise, this will send you scrambling to buy insurance before premiums rise any higher, and before you’re hit by another wallet-emptying incident.
Mistakes to avoid in your 30s
1. Leaving your money in a fixed deposit for a decade
On the upside, this at least means you’re saving money. On the downside, this means you’re losing as much as 2 to 3% of your savings every year from inflation. Most fixed deposits don’t even have interest rates of 1%.
For reference, Singapore’s inflation rate is about 3% (and that’s being optimistic). Trying to fight inflation with fixed deposits is like trying to put out a forest fire with nothing but a full bladder. So where you should put your cash instead?
These days, there are a plethora of options for investors. If you have sufficient capital and a larger risk appetite, you can purchase equities across the various stock exchanges in the world. If you have heavy financial commitments, fret not. Robo-advisors and regular savings plans allow you to grow your money flexibly via monthly top-ups or a one-time payment.
You can also talk to a financial adviser on how to use your money more actively.
2. Getting heavily in debt from buying depreciating assets
We’re aware that you look totally cool owning your own car, motorcycle or even powerboat. Now if you’re rich enough to buy these things then more power to you. Otherwise, one of the silliest things you can do is to owe a huge amount on a depreciating asset. That is, an asset that decreases in value over time.
A car, for example, depreciates by as much as 60% the moment it’s delivered and you start it up. As for watches, almost all of them (even limited edition ones) will probably result in you losing money upon resale.
Critical financial planning, such as planning for retirement, should be on your mind by the time you are 30.
3. Not paying your credit card debts in full or on time
As you get older, the consequences of making this mistake become increasingly dire. It’s not the S$60 late fee, but rather the damage to your credit rating. By the time you receive your first warning letter, your much treasured ‘AA’ credit rating may have slipped to a “CC’.
This could drastically impact what banks are willing to lend you on bigger loans, such as property loans, car loans, and personal loans. You may recognise those things as being quite important to a 30+ year old.
Common mistakes when you’re retrenched
1. Moving too fast to liquidate your assets
Due to the shock, recently retrenched people often overreact. The first casualties tend to be assets that are easily liquidated. Unit trusts are sold off (even at a loss), cash is pulled from fixed deposits (which sacrifices the accrued interest), and endowment policies are sold off before maturity (which can make you lose money).
In extreme cases, some people even rush to downsize the home; they may even be willing to accept offers that are below valuation, as they perceive an immediate need for cash.
Avoid this blind panic. Speak to a financial planner first. If you must sell off assets, it should be done in a systematic manner. For example, you might liquidate blue chip stocks to cover the first month of expenses, then move on to selling unit trusts the second month, then look at cashing out of savings bonds, and so forth.
2. Blow what little savings you have
Let’s say you don’t have an emergency fund when you’re retrenched. Don’t immediately decide ‘it’s all over’, and go on a binge and spend everything because it ‘doesn’t matter now anyway’. It never helps to have less money. Your first response should be to preserve what you have.
Remember that the more you’re forced to rely on credit, the more you’ll accumulate high-interest debts. If you can’t pay off your debts while looking for a new job (see point 3 on this), then at the very least avoid accumulating new debt.
3. Allowing your insurance policies to lapse
You may decide that, given your lack of income, you can’t afford to keep your insurance. We beg to differ: given your lack of income, you can’t afford to not be insured. The less money you have in savings, the more important it is to maintain your insurance. If you can’t make the premiums, quickly call your financial adviser and come up with a back-up plan.
Your adviser may be able to switch you to a cheaper plan (which is still better than no insurance), or in some cases even let you go on a premium holiday, where you stop paying premiums for a while. (Note: not all insurance policies have premium holidays.)
There are plenty of situations that will cause us to behave irrationally, especially when it comes to money. No matter the state of your cash flow, you should always think several steps ahead to avoid these errors. Heck, you might just end up being the one to dole out these handy tips to your friends and family down the road.
Help yourself to better financial shape in the new norm, with SingSaver's all-new Ultimate Savings Guide! Got your free copy yet?
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