Sim Wei Ping, professional certified coach, Executive Coach International
Keon Chee, financial expert and co-author of Bringing Up Money Smart Kids
1. Paying in instalments
Solution: Spacing out payments is useful for big-ticket items like appliances, gadgets and furniture. But it can get you into trouble if you fail to keep track of your spending and continue to sign up for one instalment plan after another, says Sim Wei Ping, a professional certified coach at Executive Coach International.
Even if you are only paying small amounts every month, these can all add up, especially if the interest rates on the instalment plan are very high. “Of course, if it’s a zero-interest instalment plan, and you are capable of keeping track of your payments, then go for it, as this can be a good way to leverage the amount of money you have to finance big purchases,” she adds.
2. Emotional spending
Solution: Hands up if you’ve ever gone on a shopping spree after a stressful or upsetting week at work, when you’re bored or after an argument with your spouse. Wei Ping warns that emotional spending can cause your financial situation to spiral out of control – this habit may be one of the reasons many women are living from pay cheque to pay cheque, with little savings.
She says: “Ask yourself, what is it that you’re trying to hide or avoid when you go on a shopping spree? Look at the emotions or issues that drive you to shop needlessly and address the root cause of them.” Resolve to handle those problems instead of resor ting to an outlet like shopping. Alternatively, find other non-costly ways to channel your emotions, such as exercise or taking a long shower.
For a healthier bottom line, Keon Chee, a financial exper t and co-author of Bringing Up Money Smart Kids, suggests planning your purchases and withdrawing cash to buy what you need.
3. Debt swopping
Solution: Debt swopping is when you consolidate all your debts to multiple banks or transfer all outstanding balances to just one bank, explains Wei Ping. This is a good way to maintain your overall financial standing and keep track of what you owe.
However, don’t debt swop just to allow yourself to spend more as this puts you at risk of accumulating more debt if your spending gets out of control.
4. Not refinancing your mortgage
Solution: If interest rates are going down and you are on a fixed mortgage scheme, Wei Ping recommends refinancing, after taking into account the refinancing cost of the mortgage. “Refinancing costs refer to the penalties and fees you have to pay for refinancing your mortgage, which can outweigh the amount of money you save from refinancing.” But don’t refinance if you are on a floating mortgage scheme.
However, if interest rates are going up and you are on a floating mortgage scheme, then you should refinance; but not if you are on a fixed mortgage scheme.
5. Not paying your bills on time
Solution: Late payment fees can really add up, so don’t let them eat into your funds. If you have trouble remembering what needs to be paid and when, set up reminders on your phone or write them down in your diary. Better yet, arrange to have your bills paid through an automatic deduction system like GIRO, so you never need to worry about missing a payment deadline – and being penalised for it.
6. Using your credit card to earn reward points or discounts
Solution: There’s nothing wrong with wanting to take advantage of the various loyalty privileges offered by banks, but it makes no sense to spend money on things you don’t need, just to earn some points every month.
“Credit cards make it too easy to spend beyond our means,” says Keon. “Credit card debt is a growing problem in Singapore. According to a recent Credit Bureau Singapore report, the number of consumers who missed two or more months of payments on their credit cards, overdrafts or personal loans, was over 85,000 – a 32 per cent jump from 2011.”
The smartest way to reap credit card rewards is to get one card that suits your needs and use it for all your monthly necessities, from household bills to groceries and petrol, Wei Ping advises. This makes it easier to manage your spending and payments; plus, it earns you points and rewards faster.
7. Entrusting someone else to manage or advise you on money matters
Solution: Engaging a financial advisor to help you manage your money and buy financial products or invest, is no guarantee of a secure financial future. Wei Ping points out that most of us do not know enough about financial products or markets to make intelligent decisions about investing. “There is blind faith in the financial advisor to make the best investment decisions. Unfortunately, while he may have the best intentions for you, markets are unpredictable and the money you invest can be lost.”
She advises you to acquire some basic knowledge first. You don’t have to be an expert but you should know enough to be able to evaluate your own investment decisions. “There are many weekend crash courses that deal with basic investing,” she adds. “The hassle of making time to attend one far outweighs any potential loss of your hard-earned retirement funds.”