Friday, July 22, 2016

How Age Changes The Way You Think About Money

Your perception and use of money will change with age. Here’s what you can expect as you enter your 20s, 30s, 40s, 50s, and 60s. Why do many Singaporeans regret not saving money after a certain age? Why is budgeting actually harder as you get older? One of the strange facts about money is that your perception of it changes as you grow older.  In many cases, we would benefit from some foresight. The following will prepare you for common shifts in mentalities as you grow older:
Money in Your Late Teens (17 to 19)
At this age, money often used to socialise. It is not so much about getting clothes, bags, or gadgets (although that may be the case with some); it is more about being able to hang out with friends. Being able to eat out with friends or go on a long weekend trip to Malaysia with them consumes most of the limited income we have. The most money guzzling activity is often clubbing. When it comes to issues like saving or buying insurance, this is often still relegated to our parents.
The Major Hazard: At this early stage, we often don’t want to think of issues like buying a house or retiring. “I’m a teenager, I shouldn’t be thinking about it,” is a common, stressed out cry of protest. And unless you’re very mature, that’s often true. It’s a stretch to look that far ahead. But what can be useful at this stage is to start using credit in small, manageable amounts to learn responsibility. A $500 student credit card, for example, can be used to build up a credit score, while at the same time being a learning tool (e.g. learning how quickly we really spend money). Those undergoing National Service, if they have a great degree of discipline and maturity, should also consider saving up 80 per cent of their NS allowance. Over two years, this will help offset your university costs.
Money in Your Early 20s (20 to 24)
Money at this point is not just about having a good time. Money becomes conflated with social standing. When we are younger, we tend to be more open about not having enough money (e.g. I can’t hang out with you this week, I am broke). In our early 20s however, many of start to find this embarrassing.
The Major Hazard: Many purchases made are often done so to fit in with peers. This can cause some of us to overextend ourselves by eating in places we can’t afford, or buying shoes that max out a credit card. Social anxiety compounds financial difficulty. Sometimes we can’t afford to keep up with our peers, but we don’t want to show it either. This is especially lethal, because our early 20s is when some of us first qualify for credit cards. So while many consider the 30s to be a critical age, we actually feel this is the most perilous time. It is possible to inflict financial damage that can last a decade, due the combination of (1) having credit, (2) getting the first serious pay cheques, and (3) feeling significant pressure to spend. It is important, in your early 20s, to develop a thick skin. The sooner you can say “Sorry I can’t afford that”, the sooner you will feel relief from all the pressure.
Money in Your Late Twenties and Early Thirties (25 to 32)
This is when most people get serious about money. They are forced to by changing circumstances. Often, they are facing marriage, a first child, or having to buy their first house. Suddenly, the details of index funds and variable rate property loans become interesting. As do products like endowment insurance plans or balance transfers. This is the age of worry and panic – at this point, financial considerations often eclipse worries about what our friends are buying. This is also the age at which we start to earn more, but it’s also the age where serious debts appear.
The Major Hazard: Panic sets in, causing us to go along with the first strong voice we hear. At this age, we are dealing with debts that we never imagined possible before. Numbers like S$20,000 (wedding), or S$400,000 (home loan) seem downright surreal.
How could we ever pay that?
This is why many “scaminars” – seminars that sell you trading courses, gold buyback schemes, or multi-level marketing gibberish – target this group. They know people at this age range are facing critical money decisions, and most have had little preparation. At the same time, those at this age often earn significantly more than young students or entry level workers. They’re a goldmine waiting to be ripped off. Get rich quick schemes, along with false financial gurus, will clamour for your attention at this age. The key is to take a deep breath, and stop chasing a quick buck. Calm yourself by realising that millions of people have paid for their homes or sent their children through university. There is no reason you won’t be able to as well. Next, remember that money is very simple. It is about spending less than you earn, and saving at least 20 per cent of your income (until you have six months of your income). The rest is noise.
Money at the Peak of Your Career (33 to 45)
This is the age at which many of us hit our peak earning capacity (note: many, not all). At this point many of us are calmer about dealing with big numbers, and may even the concept of aS$1.5 million condo may not phase us. This is the age at which many start to worry about their health, and their outstanding debts. Many also start to worry about retirement at this point – which is unfortunate, since it’s best to start thinking about it in your mid-twenties. Many of us start to support our parents financially, or have raised children into their teens. As such, we may actually have less disposable income despite earning much more. Certain financial realities, such as the rate of inflation or the cost of healthcare for aging parents, will now factor into a more mature approach.
The Major Hazard: Complacency is the major hazard here. Most of us will be at the peak of our careers, and too busy to even contemplate skills upgrading courses or running a side-business. At this point, you are often managing departments or major projects; everyone and everything demands your time. The thought of doing a second degree, or running a company on the side, can be almost laughable. It shouldn’t be. One of the worst things that can happen is to be retrenched in your 40s, a fate that faced many of our PMETs in 2015 (15,000 layoffs took place). Do not allow complacency to get in the way of skills upgrading. In fact, you should be even more aggressive in seeking new income sources. Remember that your salary may only decline past this point, and the phase of life will not go on forever. Make the time to upgrade, and find alternative income streams.
Money in Your Mid-40s to 50s (46 to 55)
By this point, worries about outstanding debts (if any) are actually lessened. Most have children who can earn their own money, or who have already gone through school. Long term plans, such as endowment plans or investment products purchased in our 30s, would have come to fruition. Work-wise, income may remain unchanged. But some of us, such as those in senior management or running successful businesses, may reach the category of high net worth individuals (e.g. $5 million or more in net worth). This will require a different level of wealth management. Many people start to think about their legacy, such as their will, at this point.
The Major Hazard: Those who have not planned for retirement are, by now, counting on their house as a retirement fund. Or else they have decided not to even think about it, because it’s “too late” and they’ll surrender to fate. Neither are good options. Regardless of whether you should have started earlier, it’s not too late to take drastic measures. You should still talk to a financial advisor – you will have a degree of maturity you did not have earlier, and may have an income that is much higher. Something can still be done. If you have planned for retirement, it is important to rethink your portfolio. Be less aggressive, and allocate more toward protecting your wealth than growing it. You should be hesitant to take big risks at this point.
Money Towards Retirement and Beyond (55 to 65 and Beyond)
At this point, your concern is often either toward children and grandchildren, or toward enjoying the last of your twilight years. Healthcare costs will be at the forefront of your mind, as is your legacy.
The Major Hazard: Stop worrying so much about your children and grandchildren. Do not sell your flat and move in with them, in order to give them money. Come to terms with the fact that you’ve done all you can, and it is now their turn to look after themselves (and you). For the sake of personal comfort, have your will formalised. And go ahead and do all the things that you wanted to do, while you’re still able.

Wednesday, July 20, 2016

5 Emergency Expenses You're Probably Not Prepared For

If you don’t have savings, these emergencies might tempt you to take a cash advance on your credit card. Nothing is an emergency if you have the cash to deal with it. In fact, not having the cash is what makes it as emergency expenses. Now we all have a human tendency to underestimate the potential for disaster. Here are some emergencies that will catch us off-guard and tempt us to take a cash advance on a credit card.
1. Being Injured Overseas
Most Singaporeans assume nothing will go wrong on vacation – or that if it does, our travel insurance will take care of it. Most of the time, the “disasters” we have in mind are lost luggage, cancelled flights, or smelly coach buses. Not many realise how expensive a medical emergency gets. In most developed countries, health care programmes subsidise anywhere from 50% – 70% of medical costs. In Singapore, for example, schemes like MediSave subsidise as much as 80% from hospitalisation bills. If you’re a tourist however, you won’t get any of those subsidies. In a country like the United States, a single day of hospitalisation (private hospital) currently costs between S$2,500 to S$3,100. This does not factor the costs of medication, surgery, the ambulance ride, consultations, etc. In the event of critical emergencies (e.g. you need to be medically evacuated to a hospital by air, during a skiing injury), even travel insurance of S$50,000 can be wiped out many times over. For this reason, wiser travellers are alright with the idea of buying more than one travel insurance policy. It’s especially worth considering if you engage in sporting activities such as scuba diving, rock climbing, etc.
2. Sudden Retrenchment
The free market is a cruel place, and even established businesses can fall apart in as little as a year to a month. Most Singaporeans don’t expect this, as we assume it is a slow process: first we will see the sales drop, and then management will have tense discussions behind close doors, and then in the year long process of the company undergoing its death throes, we will have time to send out resumes and find a new job. However, this is not always the case. During the 2008 global financial crisis, and the Asian economic recession in ‘97, companies did downsize on short notice. Many employees were given as little as a month’s notice before being severed. As you can imagine, this was a disaster for those who lived paycheck to paycheck. No matter how secure you think your job is, always keep emergency savings of about six months of your income. This will ensure that, even if you are suddenly downsized, your life will not become a series of canned beans and re-used coffee powder before your next job.
3. Credit Card Fraud
No one expects credit card fraud, but when it does happen the cost can be astronomical. Remember that most credit cards have limits set at twice or four times your income – if a thief maxes out your cards, and your bank holds you liable, you can face a debt that takes years to repay. Assume, for example, that you earn S$3,500 a month. A stolen credit card could be maxed out at S$7,000, growing at an interest rate of around 2% per month. In three years, this is about S$13,000+. Now the good news is that, according to Monetary Authority of Singapore (MAS) guidelines, the maximum liability on credit card fraud is just S$100. However, there are cases where people have been held liable for the full amount due to negligence, or due to certain technicalities (e.g. the bank decides that you were late in reporting the situation. Note that the bank defines what amount of time is reasonable). For these reasons, always keep your credit card secure. Do not give the card details to anyone, especially over the phone, and avoid pre-saving the details on websites. You can also buy insurance against credit card fraud. As an alternative (if somewhat inconvenient) safety measure, some people choose to purposely set a lower spending limit on their credit card. This controls their shopping habits, and places a cap on the maximum possible loss in the event of theft.
4. Urgent Home Repairs
This is a cost that catches many Singaporeans off-guard, and often ends up in expensive credit card debt. The two biggest home maintenance emergencies are related to plumbing and electricity. When your pipes are not working (or even worse, they burst and flood the toilet or kitchen), you will probably not be picky about price. There’s no time to compare the best plumbing rates when your living room is doing a good impression of an indoor pool. Even after it’s fixed, many homeowners are stunned by the damage inflicted. Carpets may need to be dried out (around a S$300 service, not including delivery), antique wood furniture can be ruined, paintings might be trashed, and wet electronics may need replacement. Even after it’s fixed, many homeowners are stunned by the damage inflicted – carpets may need to be dried out (around a S$300 service, not including delivery), antique wood furniture can be ruined, paintings might be trashed, and wet electronics may need replacement. The second big emergency is power failure. The concern is not that you can’t watch television or use your air conditioning, those are minor quirks. The issue is that the food in your refrigerator will go bad – chicken or fish is a dangerous meal after six to seven hours in our tropic heat. Again, you often won’t have time to compare prices and be picky. Home insurance is your best bet against these emergencies, but you should always have cash on hand to deal with them fast. These kinds of damage tend to “spread”, as the rest of your belongings will be affected.
5. Dental Problems
The occasional toothache isn’t a huge problem. But every now and then, we get hit by a huge bill for things like a root canal. These can seldom wait, due to the pain and discomfort involved. People are seldom prepared for this, due to the suddenness of the pain – if you’ve had a toothache before, you probably know how quickly it happens; you can be fine one minute, and in agony the next. Most major dental costs range from S$700 and up. It won’t destroy you financially, but it can be serious disruption to your plans on short notice. This is why it’s important to have an emergency fund saved up, or at the very least access to a personal loan or line of credit that has fast approval. Choosing to suffer a bad tooth for a few days is one of the experiences you will happy to live without. This is why it’s important to have an emergency fund saved up, or at the very least access to a personal loan or line of credit that has fast approval. Choosing to suffer a bad tooth for a few days is one of the experiences you will happy to live without.

Tuesday, July 19, 2016

Are Singaporeans Financially Ready For Marriage?

(Click to enlarge image)

Data from the Social and Family Development Ministry show that Singaporeans value families and want to get married. So why did the number of single 20-something Singaporeans increase over the last 5 years? Personal finance comparison site and local dating app Paktor ran a survey to find out what’s keeping Singaporeans from tying the knot, and how they plan to spend for their big day. The survey reached out to 544 Singaporeans aged 18 years and older, with a near even split between genders (45% women and 55% men). Their answers revealed that couples who are emotionally ready for marriage are not always financially prepared for the next big step. Meanwhile, nearly a quarter of Singaporeans who aren’t looking to tie the knot say it’s because they cannot afford to get married at the moment. It’s not surprising that costs are a big deterrent, with Singaporeans anticipating to spend at least 10 months’ worth of income, or S$35,000, for their wedding and honeymoon. They hope to get financial assistance through their parents or through bank loans to fund their big day.

Of the 544 respondents, 38% said they were ready for marriage, while 62% say they were “unsure” or not ready at all. Nearly half of those who want to get married say they have found the love of their lives. Despite this, 63% think they are financially unprepared to marry their life partners. Meanwhile, 65% of respondents who were not ready for marriage say it is because they haven’t found the right partner. Another 20% said it was because they cannot afford to get married at the moment. In terms of describing their ideal spouses, Singaporean men and women place similar importance on good looks and a great personality. However, both groups have gendered expectations regarding income and property ownership. In general, Singaporeans think beauty is only skin deep. Good looks were rated as just “somewhat important” by 70% of the respondents, while 86% think it’s “very important” for their ideal spouse to have a great personality. When it comes to financial stability, Singaporean men expect little from women. Only 27% of men think their partner should be financially stable, as compared to 58% of women who think financial stability is “very important”. Similarly, 78% of men think property ownership is not essential for their future wives, versus 49% of women who think it’s “very important” for potential husbands to own property. Both genders agree that they can live with a spouse who doesn’t own a car, with 73% of respondents declaring car ownership as “not important”. 

On average, Singaporeans expect to spend 10 months’ worth of income, or approximately S$35,000, on their wedding. In terms of allocating their budget, they think spending on their honeymoon and wedding jewellery is more important than spending for the banquet or wedding outfits. When asked which wedding expenses they would like to prioritise, 70% of respondents considered their honeymoon “very important”, while 66% added that the wedding or engagement ring was just as important. Other wedding garb is not considered a priority, with only 55.6% rating the wedding dress or suit as “very important”. Singaporeans don’t seem keen on spending much for the wedding festivities itself, either. An overwhelming 70% thought spending for the banquet was “not important”, while only 52% thought it was important to pay top dollar on wedding photography and videography. If they cannot fund their wedding costs up-front, 30% of Singaporeans will be seeking financial assistance for the wedding (or honeymoon) of their dreams. Of these, 75% will turn to their parents for help, while 40% may consider using personal loans for wedding expenses. 

Currently, banks in Singapore do not have wedding-themed loans, and 48% of those surveyed think they should offer this option. Yet Singaporeans seem to have mixed feelings about taking a loan to nance their wedding. 86% of the respondents also stated that they’d rather not get married if it meant being in debt. 


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