So, you think you’re smart. You don’t gamble, you save and invest a large portion of your salary, and you didn’t spend your last bonus on a car. By most people’s standards, you are a sensible person. Congratulations. Unfortunately, there are a couple of things you might be doing that just aren’t that smart, and that might put you in a worse financial position than your less meticulous peers.
Investing too conservatively
If you identify as a saver rather than a spender, you’re definitely better off than people who use their credit card like it’s a ticket to free money. But chances are, you’re so afraid of losing your hard-earned cash that you’re investing a bit too conservatively.
Too many Singaporeans tend to have the mindset that property is the safest and most reliable form of investment. And true blue Singaporeans love whatever’s “safest”. As a result, I have too many friends who haven’t invested a single cent despite having been in the workforce for more than 5 years, on the off-chance that they will “one day” be ready to afford a downpayment on a property.
To be honest, the real reason these people haven’t invested their money is not that they’re “saving it for the right property”. It’s that they actually have no idea how to invest it. Stocks aren’t the only alternative to property investment, and there are low risk investments like treasury bills or government bonds for even the most risk-averse investor. That doesn’t mean you should necessarily be aiming for the safest investment, though. If you want to get started, head on over to the MoneySmart Learning Centre to learn the basics of what you need to know.
Paying for everything in cash
I don’t know where so many people seem to have gotten the idea that it’s “best” to pay in cash. Unless you’re the sort of person who goes bankrupt at the touch of a credit card, you’ll know that cash is actually the worst way to pay for anything. When you pay in cash, the money leaves your hands without giving you anything. No rewards points, no air miles, no cash rebates, no improved credit score when you pay your bills on time.
To be fair, there are some Singaporeans who are crazy about analysing the benefits of various credit cards. These are the guys you’ll see debating the finer points of miles accrual on the Flyertalk forums.
But there are way too many people who sign up for credit cards based on the prestige or the cool appearance of a card and then have no idea how to use it. Use MoneySmart’s Credit Card Comparison Page to pick cards that give you the right mix of benefits for your spending patterns.
Using the wrong bank account
The fact that so many people use the POSB eSaving Account as their one and only bank account speaks volumes about how much research Singaporeans have done on banking interest rates. This very popular bank account gives you a measly 0.05% interest on your first $250,000. This means every $10,000 you deposit gets you $5 a year. Oh, wow.
If you haven’t already, check up our roundup elsewhere on MoneySmart of the best bank accounts of 2015. I personally hate having to maintain an emergency fund because I’d rather invest the money than let it languish in a bank account, but at least I feel a little less bad when I know I’m getting an interest rate that beats that offered by fixed deposits.
For example, if you have $30,000 worth of savings and can consistently qualify for the maximum interest rate on the OCBC 360 Deposit Account, even with the revised interest rates, you’d be getting $615 free every year. You’d have to be stupid to pass on that.
Are you guilty of any of the above mistakes? Let us know in the comments!