8 Idiotic Ways People Try to Save Money in Singapore (Updated)
Nobody blames you for wanting to live like a total cheapskate in Singapore. After all, it’s ranked world’s most expensive city for expats for fourth consecutive year according to the Economist Intelligence Unit’s (EIU) latest league table.
However, there’s a huge difference between trying to save earnestly for things like retirement, education, a wedding or your first home, and being an extreme cheapskate who actually wastes more money in the long run by being ultra-cheap.
#1 Not Investing to Grow Wealth
Placing your entire life savings in a savings account might sound like a good idea – and to a certain extent it is (see point #4). The problem is that 20 to 30 years from now, you’ll realise that your savings lost value over time due to inflation.
In Singapore, you can expect the value of your savings to plummet by 2.5% or more every year from inflation – and that’s if you have a halfway decent savings account that earns 0.5% interest.
By putting some of your hard-earned money into a well-diversified investment portfolio, you can potentially earn 5% to 10%+ on your investments. That means you don’t just beat inflation – but grow your wealth too!
Here’s what the breakdown looks like when you compare the two:
If you’re new to investing, you can start off small by investing as little as S$1,000 to get the hang of it.
#2 Not Purchasing Enough Insurance
Far too many people lack sufficient insurance coverage. According to survey, 70 per cent of Singaporeans have not increased their life insurance cover to keep pace with rising income levels. Why is that?
- We think the coverage provided by our employers and/or Medisave and Medishield are good enough.
- We think we’re lucky enough that nothing will ever happen to us (especially when we live on the “safest” nation on earth).
- We think of insurance as a financial “ball and chain” around our ankles that saps our hard-earned money every month – and would be better spent elsewhere.
Unfortunately, what many people fail to realise is that the prime purpose of insurance is to protect your wealth in the event something “unexpected” happens. The truth is that you only need to pay an extra $100+ per month on your insurance policy to get the right amount of coverage you need.
Remember – it only takes one major medical emergency happening to you or your loved ones to completely wipe out all of your hard-earned savings and/or investments.
So before you decide to “play it cheap” with your insurance, whether it’s your health insurance, car insurance or even travel insurance – make sure to look for the policy with the best coverage at the best price.
#3 Signing Up For the Cheapest Phone Plan Available (You’ll See Why)
You can have the cheapest phone plan available, but if you’re constantly going over your minutes, data or texts every month – you’re probably going to end up with a monthly bill that might exceed that “expensive” plan you rejected in the first place.
For instance, let’s consider the scenario below,
There will be charges of S$0.165 for every excess local minute and S$10.70 for every excess GB of local data.
If you go over your Combo #1 plan by 400 local outgoing minutes (S$49.50) and 5GB of data (S$52.43), it will end up costing you S$129.83 – an increase of S$26.93 over your previous Combo #6 plan!
So instead of buying a cheap phone plan that clearly doesn’t fit your habits, consider the following strategies:
- Purchase a plan that fits your usage habits
- Maximise the power of Wi-Fi and use it at every possible opportunity
- Stay off your 3G/4G network so you won’t drive up your data usage
- Maximise your voice minutes by using free voice apps such as WhatsApp, Skype or Viber while tapping into Wi-Fi
#4 Hoarding Your Money in a Place Other Than a Bank
Every now and then you’ll hear about someone who saved up their cash for years underneath their mattress or in a coffee tin only to have it go up in smoke in a home fire or get stolen during a break-in.
What’s ironic about that is that some people mistakenly think that banks are bloodthirsty entities that drain your financial lifeblood like some vampires – so they think their money is safer with them than in some bank vault.
Well, that’s half-true (if you don’t understand banking products), but seriously, your money is much safer in a bank for several reasons:
- Deposit Insurance Scheme (DIS): In the event that the bank fails or someone stages a multi-million dollar heist on your bank, the DIS insures up to $50,000.
- Protection Against Inflation: Every year, inflation causes the value of your money to depreciate by around 2.5% to 4%. However, placing your money in a bank will shield your money from or at least ease the effect of inflation as you can earn interest on your savings (depending on the banking products you use to keep your money).
- Physical Protection: The best thing about putting your money in a bank is that it’s safe! You don’t have to worry about it going up in a house fire or getting stolen.
Well, there’s always the option of placing your savings into your Central Provident Fund (CPF) account, which earns 2.5% per annum. Of course, you probably won’t see that money again until you’re at least 55.
If you wish to have flexible access to your money, choose a savings account, time deposit or other investment products.
#5 Not Having a Credit Card
Believe it or not, going without a credit card can actually cost you more money than not having one, if you’re responsible.
Oh, I agree with most of you that people who can’t control their credit card spending are better off without them.
But if you can make your payment on time, pay your cards in full or at least maintain a credit utilisation ratio of 30% or lower – you’ll boost your credit score, and that’s where the savings come in.
That’s because the higher your credit score is, the more banks and financial institutions trust you.
When banks trust you – you’ll eventually benefit from better interest rates on financing for bank home loans, personal loans, and just about every other financial product out there.
And getting better interest rates from the banks can easily save you thousands of dollars over the loan term.
And that’s not counting the cashback credit cards, rewards and perks you’ll receive just for being a good customer!
#6 Doing Things Manually
“My finances and I have a really complex relationship,” said most people. Some took a few years to really master the art of managing their money in the best way, while others never really grasp the concept of good financial planning.
Good financial planning is not just about saving your money, but it’s also about spending wisely and investing smartly.
So, what’s the solution?
Well, you can turn to technology. You can set up an auto debit each time you get paid so you won’t overspend not have any money left to save. Let your bank automatically transfers a portion of your salary to your savings account.
You also use the same method for your bills payment so you won’t miss any payments. You don’t need to remember all your bills’ due dates, the system will do it for you. This is the quickest and fairly painless way to actually start saving your money and paying down your debts.
#7 Online Shopping Addiction
Maybe you fancy online shopping? Every month, you have the urge to log in to your favourite eCommerce website and need to make a purchase.
Especially on Black Friday and Cyber Monday sale, there’s massive sale and people are mad enough to score the deals. On these specific days, most websites gear up for the shopping holiday by reducing prices across their inventory.
Many shoppers tend to go a little crazy with their shopping, justifying their purchases with how much they are saving from the sale, without thinking if they actually need the products.
The biggest mistake that Singaporean always make on Black Friday and Cyber Monday is that we assume it’s the best day of the year to buy everything that’s on sale.
Though these sales are good to make purchases that we need, but when we are buying just because there was a discount, then at the end of the day, we will overspend.
#8 Free Shipping Trap
Nowadays, if you have an Internet connection, you can shop easily while barefoot in your pyjamas. This makes it even easier to spend money.
You see something online that only costs S$20, then you simply in it into your cart. But unfortunately, the shipping cost pushes the price for the item – unless you spend S$30 more. That’s easy!
Suddenly, you remember how cool your friend’s power bank was and how you don’t mind getting one. It doesn’t matter that you already have two other power banks at home. The additional power bank costs S$30, but you will get free shipping. Sounds like a great deal…
Or is it?
Ask yourself, do you really need the power bank? Spending S$30 more on an item that you don’t need just to save an additional S$2.99 on shipping sounds like the worst idea ever. Never fall for this trick.
Even when you are shopping online, stick to your shopping list so you won’t end up buying more than what you need just to qualify for free shipping.
If shipping cost is really a big issue for you, try to make a purchase with your friends and family so the total bill will qualify you for the free shipping.
First published on February 27, 2015.