5 Idiotic Ways People Try to Save Money in Singapore
Nobody blames you for wanting to live like a total cheapskate in Singapore. After all, it’s the most expensive city in the world according to the Economist Intelligence Unit’s (EIU) 2014 report.
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.
Here are five boneheaded ways people try to save money in the most expensive city on earth:
#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 easily earn 5% to 10%+ on your investments. That means you don’t just beat inflation – but grow your wealth too!
If you’re new to investing, you can start off small by investing as little as S$1,000 so you can get the hang of it (read our S$1,000 Investment Guide here).
#2 Not Purchasing Enough Insurance
Far too many people lack sufficient insurance coverage. According to a MONEYSENSE survey in late 2013, more than 50% of Singaporeans lack adequate insurance coverage. Why is that?
It’s usually because of one or more of the following reasons:
- 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 realize is that the prime purpose of insurance is to protect your wealth in the event of 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 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.
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 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 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 vampire – so they think their money is safer with them than in some bank vault.
Well, that’s half-true (banks can be vampiric), 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.
- 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%. Of course, you probably won’t see that money again until you’re at least 55.
Though, if you wish to have flexible access to your money, choose a savings account.
#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 money saving credit card rewards and perks you’ll receive just for being a good customer!
If you are guilty of any of the above money mistakes, it’s time to stop and look and the big picture. Is saving a cent now costing your more more in the long run? Don’t just save for the moment, but create a long-term financial plan that is sustainable, and will reap you rewards in years to come!