Right now, it’s tough to put aside as much money as we used to for our goals. For some of us, it’s a battle to even put food on the table and meet ongoing financial commitments like mortgage payments, school fees, groceries and utility bills.
Meeting our immediate needs is of utmost importance but that doesn’t mean we should neglect our future goals.
To be #RecessionReady, we need to adopt a 360-degree approach to our finances. By taking care of how we spend, save, grow and protect our money, we can better brace ourselves for financial impact and become more resilient to any financial adversity that may come our way.
In this final instalment of our 4-part series, here are some personal finance tips to help you spend, protect and grow your money wisely during these volatile times:
Relook at your liabilities
Simply put, your financial liabilities are what you owe someone else.
This includes credit card debt (and you may have multiple cards) and interest payable, unsecured loans and their repayments, and so on.
It’s even scarier if you total up your assets and liabilities, and find out that your net worth is actually lower than you think.
If you find yourself with a negative net worth due to an existing property loan, don’t worry! Simply update your property value under your assets.
Hence, the first order of business is to relook at your liabilities. Have credit card debt? Pay it off as quickly as possible. Even if you have other debts, you should pay off the one with the highest interest first before it snowballs to an amount that you cannot handle.
Keep in mind that credit card debt has one of the highest interest rates at about 20-25% p.a.
If you have multiple credit card debts and unsecured loans, one way to avoid paying for multiple fees and interest charges is to get a Debt Consolidation Plan (DCP) if your unsecured debt is more than 12 times your monthly income.
Just as its name suggests, a DCP consolidates your debts — you just need to make 1 payment each month and do not have to manage multiple statements from different banks. In addition, the interest rate of a DCP is much more manageable than that of a credit card.
Another thing to do is to KonMari the number of credit cards in your wallet… Cancel all the cards that you rarely use (you signed up for the free luggage, right?). In light of the Covid-19 pandemic, review your spending patterns and keep the cards that can offer the benefits and privileges you need (i.e. rebates).
Having fewer credit cards also helps prevent you from racking up out-of-control debt as each card has a spending limit that’s based on your monthly salary.
Lower your monthly HDB housing loan payments by refinancing
We can also aim to reduce our fixed payments and loans. For most of us, our mortgage is probably the biggest loan we will ever take, which means reducing fixed monthly payments in this area will reward you with the biggest savings. So it’s pertinent to try to spend wisely in this area as much as possible.
In short, refinancing from a HDB loan means to switch to a bank for a lower interest rate. Over time, this can help save you money in the long run.
However, do note that once you refinance your HDB home loan with a bank’s home loan, you won’t be able to switch back to the HDB home loan.
While there are also other fees payable when you refinance, such as legal charges and valuation fees — do consider the long-term view of the interest savings over these fees (but also ensure that you’ve done your sums and it works out for you!).
The good news is that some banks such as POSB will offer subsidies for these amounts if your home loan amount is large enough (with some terms and conditions attached, of course).
Here’s a quick run through of what you would need to pay if you refinance with a POSB home loan (promo rates as of July 2020).
Based on a $300,000 home loan with a remaining tenure of 20 years:
|Loan type||Interest rate||Monthly repayment amount||Total repayment (first 5 years)||Projected total interest after 20 years|
|HDB concessionary loan||2.6% p.a.||$1,604.36||$96,261.60||S$85,047.40|
|POSB home loan||~1.5% p.a.||S$1,447.64||$86,857.80||S$56,989.24|
This means that you can potentially save about $156.73 on mortgage payments every month, which saves you almost $40,000 in interest payments over 20 years.
Taking POSB’s home loan packages as an example, there could be other perks to enjoy when you refinance. These include:
- 1 FREE conversion after 12 months from 1st disbursement; giving you the option to reprice your home loan at no cost
- Waiver of commitment fee if you are selling your property during the lock-in period; allowing you to worry less about additional cost when you are selling your property
Boost your savings for retirement
These days, the base rate of most bank’s savings accounts is about 0.05% p.a. Taking into account the average inflation rate of about 1.5-2% p.a., you’ll slowly but steadily be losing out over the years — you might as well be stashing the cash in a biscuit tin under your bed.
You may have $100,000 today, but 20 years later, due to rising costs, it might only be able to buy $60,000 worth of the things you can get today.
And it’s not prudent to let money be stagnant in your bank, when it could be working much, much harder. Grow your extra cash by investing it, so that you can build up a retirement nest egg to live out your golden years in style and comfort.
Start by comparing savings accounts and stash your money where you can get better interest rates. For example, the POSB/DBS Multiplier Account offers one of the highest interest rates in the market.
You can even upsize your savings when you channel your extra cash into POSB’s Regular Savings Plan — from just $100 a month.
Here’s a scenario: If you start saving $100/month from 25 years old, when you reach age 65, you could end up with over $70,000. Assumptions: You’re getting about 2% p.a. returns, without taking into account other fees and charges.
You can also open a Supplementary Retirement Scheme (SRS) account with POSB. SRS contributions are eligible for tax relief and can be invested. Although you can still take it out before your retirement age, there will be an early withdrawal penalty. In addition, the earlier you open an SRS account and make a contribution of at least $1, the earlier you can “lock in” your retirement age with the bank. This means that even if the government raises the official retirement age in the future, your funds can still be withdrawn at age 62.
Taking advantage of the attractive interest rates (up to 6% per annum) in our Central Provident Fund accounts is another way of maximising our retirement savings. So do consider topping up your CPF accounts and that of your loved ones. For cash top-ups, you may stand to enjoy up to S$14,000 in personal income tax relief each year.
Get adequate insurance protection for yourself and your family
It’s also important to get adequate insurance protection to protect you/your family against financial uncertainties. The right insurance coverage can help defray medical expenses and loss of income.
Make sure the basics are covered for comprehensive protection:
- Health insurance
- Life insurance
- Critical illness insurance
You can also get insurance protection that helps you grow your money, such as:
- Endowment plans
- Investment-linked policies (ILPs)
Manage your personal finances with a financial planning tool
If you haven’t done so already, get a good financial planning tool to help you manage your personal finances and keep you on track. Is your spending within budget, are you saving enough, are you fully protected, are you investing enough, and are you on track for your retirement?
One such tool is the POSB NAV Planner, which can be easily accessed via the Plan tab once you’re logged in to POSB digibank. POSB NAV Planner provides a good overview and control of your money; it allows you to easily track and monitor your savings, insurance and investment plans (even if they are not with POSB) all in one place — on digibank.
POSB NAV Planner also shows users their net worth; plus, it has helpful suggestions and friendly alerts to let you know if you’re doing okay, what else you can do to improve your financial standing and offer you investment ideas. If you hit a financial milestone, there’s a fun celebration prompt too!
If you’re looking for ways on how to get started on making your financial portfolio more resilient, POSB can help take care of your financial wellness with its Financial Health Kit.
The POSB Financial Health Kit offers useful tools and solutions to help you
- Reduce your monthly mortgage
- Boost your savings
- Get protected
- Manage your personal finances
It’s a well-rounded, 360-degree solution to help you spend wiser, save more, grow your nest egg, protect your finances and invest smarter.
When it comes to personal finances, always plan ahead to ensure that your financial health is in tip-top shape and #RecessionReady.
Check your financial wellness with the POSB Financial Health Kit here.
Disclaimers and Important Notice
This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability. All investments come with risks and you can lose money on your investment. Invest only if you understand and can monitor your investment. Diversify your investments and avoid investing a large portion of your money in a single product issuer. This advertisement has not been reviewed by the Monetary Authority of Singapore.