Mythbusters – The Personal Finance Edition
There is a majority of people who are not interested in finance despite the fact that it makes the world go around. It’s not like they deliberately enjoy basking in their ignorance, but the world of finance is perceived to be just too complex and monotonous by people.
This attitude often snowballs into a superficial interpretation of personal finance and a dearth of unfounded assumptions and rumors perpetuated by people with the same kind of attitude.
What we need to remind ourselves constantly for better finances are two facts:
- Every person’s financial needs are different and are derived out of a unique set of circumstances they go through and facilitated by their own individual preferences
- Banks are running a business at the end of the day and selling products that meet their interests is a higher priority for them.
Not everything is negative though. There are certain benefits as well that we might or might not be aware of. It’s all about rationalizing and contextualizing the financial data correctly to help us convert information into insight.
So today, let us debunk some personal finance myths perpetuated by manipulators and the financially ignorant that Singaporeans need to be wary of:
- “Don’t Bother With Savings When You’re Young”
While you might have heard a lot that you do not need to save for your retirement too soon, say till you are 40, you would mostly not be able to save as much as you could have, had you started saving as soon as you started earning. This holds true even if you plan to save a bigger amount later.
For example – if you are 25 years old and choose to allocate $500 in a mutual fund that fetch you an annual ROI of 8%, then you add just $100 each month. You would wind up with more than $335,000 by the time you are 65.
However, if you wait until you are 35, invest $2,500 (five times as much as our hypothetical 25-year-old initially invested) and then add $100 a month, you would only have $167,000 by age 65.
Therefore, it is best to start saving as soon as you start earning.
- “Tax Breaks Are The Joys Of The Rich”
Another myth is that tax breaks is only for the rich. It is just that only the rich are aware.
The middle and lower class tax payers often overlook legitimate tax deductions and credits. Thus, stop paying the government more than it needs by becoming aware of how you can save on taxes, especially when it comes to your personal income tax.
Here are a few efficient exemptions that you can take advantage of to lower your personal income tax in Singapore:
- Contribute to the Supplementary Retirement Scheme
- Making a voluntary contribution to your CPF Medisave Account
- Making Cash Top-ups under the CPF Minimum Sum Topping-UpScheme
- “Warren Buffet Loves to ‘Buy and Hold’, You Should Too”
Let’s just say financial advisers playing the Warren Buffet advice too often is a gross understatement. Preaching the ‘buy and hold’ concept to everyone is rather frivolous because it may not meet their personal financial goals.
Singapore has a couple of very accessible financial platforms like Fundsupermart and DollarDEX, which allow you to trade mutual funds. In many cases, many professionally managed funds without a verified CRISIL rating manage to lure in growth-hungry investors and leave them stuck with poor performing investments even for the long term.
- “Gold Shall Always Glitter”
Although gold is a good investment, it is not wise to invest just in gold. Yes, it does rank number two after real estate, but it’s better to treat it for what it is – a hedge. Gold prices can be quite volatile.
In fact, global market trends show that 70 percent of the time, the price of gold to rises or falls by nearly 15 percent in a 12-month period. The prices are heavily dictated by central bank policies and speculative trading, which are both out of your news reach unless you’re an insider. This is why it’s better to dedicate a small pie of your investment portfolio to gold investments instead of allocating a significant chunk to it.
- “Once You Buy A Home, You’re Set For Life”
Buying a home is not a shortcut to wealth because buying a home and owning it are two different things. You might have bought a home worth millions but it is yours only after you are done with all your mortgages.
Thus, a home is not an investment unless you make sure you are not drowning in its debt.
- “Credit Cards Are Fortune Fruits That Will Always Bail You Out”
Even though credit cards can be a bit dangerous as they tend to make a person get carried away so much that they land up in a lot of debt, yet they can be of much help if used wisely.
They can build a solid credit history and boost your credit score. This will help you score a lower borrowing rate when you apply for an HDB mortgage, or any other personal or business loan. All you have to do is make sure that you pay your dues within each billing cycle.
- “Finalize A Will When You’re On Your Deathbed. Don’t Worry About It Now!”
The will is not just for the rich. Everyone must have a will, irrespective of how much money or assets they have. One must have a will even if they do not have much to leave behind. It could even help finance their funeral from beyond the grave without shifting the burden on your relatives.
If you do not do so, your financial legacy could dwindle down to a nightmarish legal purgatory that creates a wedge between those who are ideal inheritors of it.
Breaking these notorious myths is essential in helping you identify your real financial priorities and set you on the path to plan your finances better and lead a good post-retirement life.
Finally, whatever you do, make sure you are well informed about it because the best decisions are the well informed ones!