Singapore turns 55 today. To celebrate our nation’s birthday, here are 55 Personal Finance and Investing tips, some of them uniquely Singaporean.
1. Do not spend more than you earn. No. Just no.
2. Track your expenses. Because that is the only way to know if you are spending more than you earn. Here are some useful apps to make tracking a breeze.
3. Pay yourself first. Sock away some cash every month. Do it before paying all your other bills. Saving even a small portion of your income will see you build tremendous wealth over the years.
4. Automate your finances – The purpose of a habit is to remove that action from self negotiation. Set up standing instructions. Start a regular savings plan.
5. Never use a credit card for credit. Use them for cash back. Use them for miles. Use the Amex Centurion to impress your friends. But always pay them off in full monthly and never roll over the balance.
6. Beware of lifestyle creep. When you get a raise, save that raise and continue to live on your present income.
7. Do not buy things you do not need, with money you do not have, to impress people you do not like. There is no prizes for being able to keep up with the Jones.
8. But if you die die have to buy something, go for experiences and not material objects. Studies have shown that experiences bring people greater satisfaction and higher levels of happiness over material objects. Think yoga classes and holidays staycations over shoes and watches.
10. And since we are on the subject of comparing, comparison sites such as GoBear gives you the lowdown on insurance, credit cards, and travel. It would be worthwhile to spend time comparing packages before committing.
12. Keep an emergency cash buffer. Some say six months, others say one year. For me, I believe it should not be a fixed number but rather a function of how leveraged you are. If you are servicing a home, car and renovation loan on a variable income, it pays to keep even more cash than the recommended. On the other hand, if you are debt free, it is a better idea to work the cash buffer harder by investing in interest bearing instruments.
13. Such as the Singapore Savings Bond. This one confirm no need to compare. In our opinion, the Singapore Government has created the most perfect financial product ever. Such an instrument will never exist in the free market.
15. Learn also to speak the language of money. We live in a capitalistic society. Like it or not, the language of our society is money. If we are able to understand how money works, if we can understand how capitalism works, we will be able to live happier and less stressful lives.
16. Understand our invisible money scripts. All of us feel strongly about money in our own ways. Some of us believe that having more money will solve every problem life throws at us. Others believe that money is the root of all evil. We end up acting in ways to sabo our own financial health. To maintain a truly healthy relationship with money, we need to understand and eradicate our benign money scripts. And speaking of health…
17. Exercise regularly. Eat wisely. Stay healthy. Because Health is Wealth. (@HealthPromotionBoard we’ve got your back)
18. To exercise more, ditch the car. For one, because car loans are calculated using the flat rate method and the effective interest rate is actually much higher than advertised. (See Language of Money above). Also, vehicle ownership also entails paying for parking, maintenance and fuel costs. It is way cheaper to cab/grab or even take a bus. Unless you happen to be staying in Bukit Panjang.
19. Know the difference between an asset and a liability. Assets put money into your pocket, liabilities take money out of your pocket. Strive to own Assets and not Liabilities.
20. Know the difference between good debt and bad debt. Good debt makes you rich. Bad debt makes you poor.
21. Top up your CPF. Enjoy higher interest rates of up to 6% when you top up your retirement account with cash.
22. Optimise your taxes. Not only do you earn higher returns with CPF top ups, you also qualify for tax reliefs of up to $14000. Individuals can top up for their parents, grandparents, spouse and siblings. Sounds like a good idea for those birthday gifts.
23. Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver. Everyone desires different destinations. It could be where the crowd is, or it could be off the beaten path. Only you can decide for yourself.
24. Time is more valuable than money. You can make more money, but you can never have more time. But if you really have too much time on your hands, why not
25. Start a side hustle. Rather than binge watching Netflix and cat videos, your time will be better spent creating other sources of income. Notice that I did not say ‘passive income’, because
26. Passive income is hardly passive. In reality, any pathway towards passive income requires a period of active execution before the passive sets in. Many people do not get past the grind there.
27. Many also do not plan for retirement. Nearly half the number of Singaporeans forecast that they will not have enough money to sustain the lifestyle they want after retirement. You can prevent that from happening to you by planning early and sticking to the plan.
28. Do not rely totally on your CPF monies for retirement, especially when it has already been used to pay for a property. #hardtruth.
30. Make Life Decisions first, then make Financial Decisions which will support your Life Decisions. Many people have no choice but to remain in a job they dislike (Life Decision) simply because you have already committed to that brand new car or that District 9 condo (Financial Decision). It would be wiser to flip it the other way round.
31. But no matter which way you flip it, make sure that you are properly insured. Surveys have shown that Singaporeans do not have adequate insurance coverage. We have come a long way from when insurance and illness are taboo topics which people avoid talking about, but we still have a long way to go to ensure that the entire nation is well protected.
32. Rule of thumb when it comes to deciding on insurance coverage – 1. Do not worry about the bills you can pay, insure the bills you cannot afford to pay. 2. The premium must be affordable. Both rules must pass.
33. Consider buying term and investing the rest. Just because you are paying a lot for your insurance every month does not mean that you have sufficient protection. If you are on investment linked plans (ILP), a large part of your premiums could be going to the investment component, leaving you without coverage on key components. Here is a short story about someone who has been overpaying for her coverage. In short, you will be better off buying term and investing the rest.
34. We are living longer and we are more at risk of diseases like dementia. Should that happen, we would need someone we can trust to decide on how to best utilise our money. Having a proper will and a Lasting Power of Attorney (LPA) will save our loved ones a lot of frustration.
35. If you are a young adult, you should seriously consider purchasing your first property from HDB. Up till now I do not know of anyone who has lost money after buying an apartment from HDB. Apply here now. Thank us later.
36. If you are a baller and have gone way above the HDB income ceiling, try to buy a property with en bloc potential. If it really goes enbloc, it is the equivalent of striking property lottery. Then again, ballers probably don’t care. Oh well, whatever.
37. After getting your place, watch your renovation spending. A tastefully designed house sells faster and for more than a simply renovated one eventually, but the difference is usually a fraction of the cost of the original renovation. It pays to be mindful of that.
39. You cannot afford not to invest. A plate of chicken rice that used to cost $2 now costs $4. Inflation is eroding the value of money as we speak. If you are not growing your money, you are getting poorer by the day. Not cool at all.
40. Pay attention to fees. That additional percentage point here and there will add up to become very significant over the long run. To keep costs low, invest via Exchange Traded Funds. The STI ETF tracks the entire STI index and its expense ratio can be as low as 0.3%.
41. Know the difference between price and value. Price is arbitrary. Value is Fundamental. Many investors confuse the two and end up over paying.
42. Time in the market vs Timing the market. Many investors attempt to time the market, hoping to buy low and sell high. In reality, many end up misreading the market and losing money in the process. A dollar cost averaging strategy injects a fixed amount every month. This allows the investment to have ‘time in the market’, leading to greater returns.
43. Diversify. Do not put all your eggs in one basket.
44. Do not diversify. Diversification is for people who do not know what they are doing.
45. Do not let people tell you whether to diversify or not. There are strong arguments for both a concentrated portfolio and a diversified one. Read them both and decide what is best for yourself.
46. If you do not know who you are, the market is an expensive place to find out.
47. Know the difference between trading and investing Trading and investing are two very different animals. Do not allow your short term trades to turn into long term investments because prices came down and you refused to cut loss.
48. Stay away from SIA shares. I love to fly with them and I am extremely proud of our National Carrier. But really, I have better things to spend my money on. If you need further convincing.
49. Do not just look at the returns. It is very easy to achieve higher returns in investing – just take on more risk. What is more important is managing the appropriate level of risk. Getting carried away with returns without consideration of risk is but a disaster waiting to happen.
50. Be fearful when others are greedy, be greedy when others are fearful. Easier said than done though. The market is extremely greedy now. How many of you are genuinely fearful?
51. Know how to differentiate between signal and noise. In a world where the quantity of information is increasing at an exponential rate, it is so easy to be fooled by the noise and overlook true signals.
52. In investing, never waste a crisis. Covid is the crisis of our lifetime. We live in exciting times.
53. In a crisis, in such trying times, scammers come out in full force to prey on the vulnerable. Do not fall for scams. If it sounds too good to be true, it probably is. There is no free lunch in this world. Don’t give the police more work.
54. The MAS investor alert list is another helpful resource. When in doubt, consult it. Notable alumni include Sunshine Empire, Profitable Plots and Australian Wine Index who have all made away with millions of investor monies.
55. Never stop sharing with your family and friends. Personal finance is a misnomer because it is furthest away from being personal. If your family and friends do not bother with insurance, prudent spending and sound investing, the burden of care will eventually fall upon you when they run into financial difficulties.
Happy National Day Singapore. May we emerge from Covid stronger and more united!