Saturday, June 25, 2016

How To Escape Living Paycheque To Paycheque In Singapore

Living paycheque to paycheque is not only stressful – it’s dangerous. Here’s how to stop and turn your finances around. If your paycheque seems to vanish as soon as it arrives, and you find yourself surviving on Maggi mee toward the end of the month – you have a problem. Specifically, you’re living paycheque to paycheque. Not only is it stressful; it’s dangerous. A single emergency, such as retrenchment, will send you neck deep in debt. Here’s how to break the habit:
1. Always Pay Yourself First
Before you start spending your money, make sure 20 per cent goes into your savings. We know the CPF does this for you already, but you can’t take out your CPF money easily. It’s important to have an emergency fund that you can tap into when you need. So the moment you get your pay, take 20 per cent and put it in a separate savings account. You’ll want to keep doing this until you accumulate six months worth of savings (however long that takes). Having an emergency fund means you won’t need to resort to loans in a crisis. It also gives you the confidence to make critical decisions, such as switching jobs or starting up a small side-business.
2. Reduce Your Loan Interest
If you find that almost all your money goes into repaying loans, it’s time to reduce the interest rates. One simple way to do this is to use a balance transfer to pay off a credit card completely, or to use a personal instalment loan to pay off higher interest debts. For example: Say you owe $5,000 on a credit card, which has an interest rate of 24 per cent per annum. You could take a personal instalment loan for S$5,000, at just six per cent per annum. You then pay off the credit card with the personal loan. This would effectively reduce your interest rate from 24 per cent to just six per cent. If you use a balance transfer, you might be able to get deals that reduce your debt to zero per cent interest for six months. This makes it considerably easier to pay off the amount owed. You can find the best balance transfer options on You should stop using a credit card or credit line after making a balance transfer to pay it off, or using a loan to do so.
3. Find an Expense Tracking Method That Works For You
What gets measured gets managed. If you track your expenses, you are less likely to overspend. Here’s the tricky part: the same tracking method won’t work for everyone. For some of us, having an Excel spreadsheet does the trick; the rest of us need methods such as sticky notes or phone apps. Experiment with the methods available, from writing things down to using phone apps. Stick to the one that feels most intuitive. This is the first step to developing a functional budget. Which leads to the next issue.
4. You Need a Budget, But Forget the Rigid Methods
The easiest and most effective way to budget is to deduct 20 per cent of a particular expense. For example, if you spend S$1,200 a month on food, see if you can cut it down to S$960. Do this by setting aside $960 in your food budget, and then storing the excess S$240 in savings. You are free to spend the S$960 on food any way you choose – but when you run out, you’ve run out. No cheating and tapping your savings to pay for more. This method is usually more effective than trying to plan out the dollar value of each and every meal. Because we are human beings and not companies, it is not natural for most of us to stick to corporate-style budgets, where the exact amount of each expense is predetermined. Try to use this method for two or three categories in which you spend the most (e.g. food, travel, and clothes). If you fail to keep the budget in one, you may still succeed with the others.
5. Stop Automating Payments
If you have automated payments, such as for gym memberships, MMORPG subscriptions, or clubs, we suggest you cut them off. You should always be aware of what you’re paying, and how much you’re paying for them. This will remind you to stop forking out money for services or goods you don’t actually need. On the other hand, you do want to automate your savings if possible. The reason your CPF seems so huge is because the 20 per cent is deducted for you – out of sight, out of mind.
6. Tighten Your Belt the First Week You Receive Your Pay
Make a pledge to do minimal to no shopping, on the very first week you receive your pay. The only thing you should do that week is transfer money into your savings account and repay any due debts. This will help to break the habit of overspending in the first week, and then needing loans or credit to get you through the rest of the month. It will also prevent you from needing an advance, something that employers look on negatively as it affects their payment process.
7. Let Someone Else Do the Shopping
As a last resort, if you truly cannot control your spending, consider letting someone else do the shopping. Get a spouse, parent, or close friend who is willing to help, and give them a fixed shopping list. Pass them the cash to do the shopping for you, so you don’t get tempted. You can still indulge in the occasional bit of shopping. During the LAST week of the month, if you have a surplus, you may take the money and go shopping yourself. However, you should not bring any credit cards, lest you be tempted to rack up debt.

Wednesday, June 22, 2016

5 Smartest Things To Do With Your Pay Raise In Singapore

There’s a good chance your income will increase in the coming years – but don’t waste your pay raise on expensive things. With the Progressive Payment Scheme in full swing, some Singaporeans can expect to earn more in the coming years. In fact, even though job growth has slowed, real wages in Singapore are up around seven per cent. Even labourers see a wage hike from the Progressive Wage Model, with median wages up by 20 per cent. So there is a very good chance that you will see your income rise this year. Before you rush out to splurge on a new tablet or shoes however, see if you can do something smarter with that money:
1. Pay Off Your Debts
There are many reasons to pay down your loans* early, if you can. Loans apply compounding interest to the amount owed. The longer the loan tenure, the more you end up paying. For example, your credit card debts grow at 24 per cent interest per annum. Assuming you owe S$5,000, and pay back S$200 a month, you would take 35 months to fully repay it. That’s a total repayment ofS$7,000, for a debt of S$5,000. Yes, credit card debt is very expensive. This is why we suggest you repay the full amount every time, and never owe anything. In addition, paying down your loans will help your Total Debt Servicing Ratio (TDSR). When it comes time to buy your flat, your loan repayments are capped at 60 per cent of your income. This includes all your loans, including the intended home loan and your car loan, credit card loans, etc. So if you pay down these other loans early, you are more likely to be able to buy the house you want. *An exception is if you have a personal instalment loan, with fixed repayments. There may be a prepayment penalty if you try to pay off these loans early – these penalties might mitigate any savings you get. Compare the cost of prepayments to the amount you would save.
2. Expand Your Insurance Coverage or Payouts
Insurance policies provide protection and can also act as savings plans. If you don’t like to invest yourself, you may want to consider enhancing your insurance. Even a S$100 increase to premiums can result in significantly better coverage. You may be able to upgrade to a policy that covers hospital stays in a better ward, for example. You may also be able to add riders that cover you in the event of accidents, or include riders that mitigate the need to buy travel insurance in future (e.g. a rider that makes your insurance apply even in places you travel to). If your insurance plan has a savings component (it grows your money), raising the premiums can mean a much bigger payout for an endowment policy. The exact amount will vary based on your plan, but it’s worth speaking to your financial planner about. Investing an extra S$100 or more can be enough to cover your children’s tuition fees, or provide for a more comfortable retirement.
3. Build Your Emergency Fund Sooner
An emergency fund consists of about six months of your income. Emergency funds are used to pay for unexpected costs, or to provide for you in the event of illness or retrenchment (remember, even insurance policies may take some time to give you a payout). Having an emergency fund removes the need to use expensive loans when you need cash urgently. The sooner you finish building the emergency fund, the sooner you can put more into retirement planning. Alternatively, if your retirement plans are well in place, building the fund sooner means you will have more discretionary income for vacations and shopping.
4. Enhance Your Retirement with Passive Investments
Now that you have more cash, consider passive investments, such as savings bonds (appropriate if you are older), or blue chip shares and index funds. These are simple investments, which do not require you to trade (i.e. You do not need to time the market, and buy and sell to make a profit). Singapore Savings Bonds (SSBs) provide savings at a higher interest rate than the bank, with the flexibility to withdraw at any month. Blue chip shares and the Straits Times Index Fund can be acquired for as little as S$100 a month – this service is available from participating banks such as OCBC and POSB. But remember not to buy anything with advice from a professional – you can get help if your bank offers wealth management services (this comes with certain types of bank accounts, or premiere banking). Alternatively, speak to an Independent Asset Manager (IAM), or a licensed financial planner.
5. Upgrade Yourself
With the Skills Future programme in place, you already get S$500 to buy training courses. Don’t settle for your current raise – aim to get another one. Combine your new income with the government freebie, and get certified in the right skills. Remember to check with your employer first though. You don’t want to waste money on a course that isn’t relevant to your career, or that will have a minimal impact on your job prospect. Ask your boss what skills the company most values or needs. You should also consider building soft skills, such as leadership or expression skills, which are often needed in higher management.

Tuesday, June 21, 2016

Charge Cards Versus Credit Cards In SIngapore: What's The Difference?

Even if you qualify for a charge card in Singapore, a credit card might suit you better. We often don’t use the term charge card and credit card interchangeably – which is good, because there are many differences between the two. Charge cards are often an option for those with higher income and credit scores, and they provide a different range of benefits. However, even if you qualify for them, you may want to contemplate if you truly need one. Depending on your spending habits, a credit card might suit you better. What’s the difference between a Charge Card and a Credit Card? In both cases, they allow you to purchase things at a discount, earn reward points, give you cashback, etc. The key differences are:
1. Charge Cards Have No Credit Limit
Credit cards in Singapore typically set a credit limit of two or four times your monthly income. Alternatively, you can fix your own credit limit on the card. For example, your children have supplementary cards, you can request for the bank to cap the credit limit at half your monthly income, so you can control their expenses. Charge cards do not normally have a limit. Once you have obtained a charge card you could – in theory – swipe it to buy a whole house. But note that charge card limits are not truly unlimited. Beyond a certain point, the card issuer will block further credit. This is either a pro or a con, depending on how much self-discipline you have. For those who are a spendthrift, a charge card can be disastrous as it’s easy to rack up a monstrous bill. For those with self-discipline, it is convenient not to have to worry about credit limits. That said, we are hard pressed to think of a situation where a credit limit is inconvenient. It’s not common for a cardholder to buy something that costs two to four times their monthly income anyway.
2. There is No Variable Repayment for Charge Cards
Credit cards allow you to make variable repayment. This means that if you don’t repay your credit card in full, you need only pay a minimum amount. This amount varies from card to card, but it’s somewhere around S$50 or three per cent of the amount owed, whichever is higher. Any remaining sum is subject to interest, at 24 per cent per annum. Charge cards require you to repay the amount owed in full. There is thus no “interest rate” associated with a charge card. There are, however, harsh penalties for failing to repay the full amount. In some cases, this will lead to further transactions on the card being blocked, with interest charged on the outstanding amount. The interest rate on a charge card can be extremely high, often up to 30 per cent per annum. Late payment fees also tend to be higher for charge cards – around S$65, as opposed to around S$45 for late payment on a credit card. Some cardholders consider this to be an advantage, as it forces them to be disciplined and repay the full amount. At, we advocate repaying the full amount even on a credit card, in order to avoid interest.
3. Charge Cards Have High Annual Fees
Charge cards are expensive. The American Express Platinum Charge card famously costs USD $450 (around S$610) per year. This is much higher than a typical credit card, which might cost around $130 per year. Some credit cards even have a lifetime waiver on the fee, such as the ANZ Switch Platinum Credit Card.
4. Credit Cards are Easier to Get
Charge cards tend to be invite-only, whereas anyone can apply for a credit card. In other words, unless a card issuer sends you a letter inviting you to apply for a charge card, you cannot get one. Charge cards are only offered to people who maintain high credit scores over a course of several years. This is necessary, as a charge card has no preset spending limit. The issuer must be sure the cardholder is responsible. Anyone who has a record of defaults or late payments will probably never get one. In addition, charge cards are often offered to those with a high income, such as S$15,000 per month or more. To check your current credit report, you can pay S$6 to the Credit Bureau Singapore, or take advantage of’s free credit report offer. If your credit report shows anything other than A, you will have to build up your score before standing a chance. If your credit report shows anything other than A, you will have to build up your score before standing a chance. Credit cards can still be obtained if you have a less than perfect credit score (it varies on a case by case basis). Most credit cards are available to you if you earn around S$30,000 per annum or more.
5. Charge Cards Have More Exclusive Perks
Where charge cards have a clear lead is in the area of perks. American Express is most famous for its charge card privileges. The services include a 24-hour global concierge service, which can get you anything from an air ambulance to a restaurant booking in Paris in minutes. The Amex Platinum Charge card, for example, offers a free Far Card Gourmet Membership worth $598, and access to luxury lounges in over 800 airports worldwide. Perks like these are one of the reasons for the higher annual fee. These days, however, credit cards come close to charge cards in terms of reward points, cashback, and other privileges. Its credit card counterpart, the Amex Platinum Card, also has a Far Card membership worth S$425 and perks like complimentary green fees at golf courses across Southeast Asia.

Choose the Card That Best Suits Your Spending Habits
Always match the card to your spending. If you have a tendency to overspend, it’s better to avoid a charge card even if you can get one. The combination of no spending limits, plus harsh penalties for not repaying in full, can lead to expensive consequences. Credit cards, despite their also high interest rates, are more forgiving in this regard.


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