Inflation, income, house, car, and healthcare. That’s what every discussion with a taxi driver involves. They’re where the real opposition party is: Not Dr. Chee having a rage-gasm, but the guys threatening to run half the traffic into the nearest longkang. Well, I’ll raise those issues in this safer forum. Here they are, the main money issues you’ll face, and some possible solutions:
1. Inflation and Retirement
Our inflation rate seems to waver between 4% – 5%. Your CPF special account can sort of keep pace, at 4% interest. But your ordinary account grows at 2.5%, which means your money’s losing value.
Add to that the constant depletion of your CPF (for your home loan), and your retirement comes in the form of a padded box. A box about your height, and easy to fit into the furnace at Mandai.
In March 2012, Labour Economist Hui Weng Tat raised the fact that tertiary educated people are unlikely to sustain their lifestyles past retirement, if they count on CPF alone. I’d argue that’s true for most people, not just graduates.
So if you’re hoping to retire, you’d better have something besides CPF to fall back on. You need:
- An investment portfolio
- A willingness to downgrade, when the time comes
Your investment portfolio will need to grow at about 5% per year. That means fixed deposits are out of the question (often under 1%), as is life insurance (about 3%). If you’re not risk averse, you can look for some structured deposits, which may yield around 4%. But structured deposits are one to five year gambles, not retirement security.
Your best bet is an index fund. That could net you growth of about 5%, if you don’t mind doing your homework, and learning about it.
Alternatively, be willing to downgrade your home when the time comes. You probably won’t need as large a place in your old age anyway.
What’s that? It’s not fair that you have to sell after you worked so many years for it? Then learn to invest, before it’s too late. Attend talks from educational bodies like FISCA, which charges just $36 a year.
2. Competitive Labour Market
Have you seen our job market lately? We’re like stray cats fighting over a half-eaten char siew pau. And the problem gets more pronounced as you move down the pay scale.
There’s talk that Singaporeans are picky and “don’t want” blue collar jobs. More like we can’t take them, unless there’s ways to live on bottled rainwater and grass. Singaporean companies are prefer cheap foreign labour: Bus drivers, cleaners, construction workers, etc. are high on our list of imports.
This influx of cheap labour will keep blue collar wages depressed. So if you’re doing manual labour, you need to run to WSQ right now. Work towards getting at least a Diploma. Beg, borrow, or steal to get it. Education is not an option any more.
Foreign workers can survive on wages that would starve you out. You cannot compete. Upgrade or die.
3. Increasing Property Prices
There’s a property cycle, and prices drop and rise. Problem is, when the bubble rises again, the next peak is always higher than the last.
Because we keep attracting rich foreign buyers, the problem keeps worsening. Our property is affordable to wealthy investors from China, Indonesia, India…but not so much to us.
Nor are foreigners the sole cause.
Locals believe that property should always appreciate at insane rates. Our expectations regarding capital gains mean we expect increasingly unaffordable prices. Hence, the rising cash-over-valuation for resale flats.
The solution? Get in early, before the next peak prices you out of the market. Perhaps not now, when prices are at a high; but the very next time prices slide, dive in.
Oh, and that “housing oversupply” on the horizon? Yeah, that might dent prices a bit in 2013. But don’t expect the drop to last. So what if we have 20,000+ new homes, if we’re going to bring in 50,000 foreigners and PRs?
Also, get a manageable home loan. Use loan comparison sites like MoneySmart to lower the monthly repayments.
4. Transport Costs
Private transport is very expensive, so you shouldn’t use it. You should instead use the very expensive public transport.
Seriously, any alternative hurts. The best way to deal with transport in Singapore is time management. It’s all a timing trick: Getting cabs on off-peak hours, waiting for ERP gantries, and finding cheap parking where possible. If you can, get a job that allows telecommuting.
But you can take steps beyond that:
Your mandatory car insurance, for example, is open to some negotiation. You can try to raise your excess (the amount you’re liable to pay in an accident) in return for lower premiums. Unless you’re one of those drivers whose life is like a Looney Tunes episode, this will cost less.
You can also source cheaper car insurance rates, from free sites like MoneySmart.
If you use public transport, ask if your company can reimburse you. At the very least, they should be able to subsidise part of the costs. Remember, in most companies, it’s a case of “you don’t ask, you don’t get”.
5. Medical Costs
I’m not a believer in insurance as an investment policy. I think the distribution costs are too high, and the growth too low. But that doesn’t mean the main purpose of insurance is useless; protection-only plans are an important addition to MediShield.
Due to population density, hospital bills will keep rising. There are so many patients, and so few beds. Also, illnesses often require specialized medication, which cannot be mass produced. As there is no central distribution for medicine in Singapore, expect prices to always remain high.
For younger Singaporeans (age 35 and below), it is important to have a protection plan. This is because less of their loans have been paid, and their investments haven’t had time to grow.
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