6 Avoidable Mistakes When Saving Money

Here are some common mistakes when saving money

There’s a saying that goes like this, “save your money today and it will save you tomorrow”. It sounds easy right? Just two simple steps: 1) put money somewhere, like an account, 2) repeat step 1. While simple in theory, saving effectively is monumentally hard. More so when there are so many things to pay for, like bills, leisure, travel, etc. In this article, fundMyLife shares avoidable mistakes when saving money, and how you can avoid them.

#1 Not having a goal and a plan

One of the most common mistakes when saving money is you do it without a goal and a plan. It’s one thing to know that you must save, but it’s another to know what you are saving for.

The goal is a destination, whereas the plan will help you to get there. For example, you want a car that costs $100,000 in 10 years. We know it’s not that cheap, but bear with us. Not counting inflation, you will need to save $10,000/year, and $833.33/month. To put it simply, the goal is getting the car, getting it there by saving $833.33 is your plan. By the way, this is for illustration’s sake – typically you’d take a loan for your car anyways.

Without a goal to work towards to, you’ll eventually question why you’re saving in the first place. Without that motivation, you will soon fritter away that money. Saving towards retirement is a good goal, as is saving towards a possession that you wish to have. The important thing is to have a goal to work towards to, and a plan to help you get there.

As Friedrich Nietzche would say, “he who has a why to live can bear almost any how”.

#2 Lacking the discipline to save

Now that you have a goal to work towards to, it’s time to put it into action. If you don’t summon the discipline to start, you will never get anywhere despite the best of plans. In addition, if you don’t summon the discipline to regularly save after starting, it is hard to maintain it over a long period of time.

Make it a habit to save regularly. Habits can be a powerful thing – as the saying goes, “we first make our habits, and then our habits make us.

#3 Not tracking your expenditure

Tangential, but equally important. To have enough to save every month, you’d need to be aware of what you’re spending on. Imagine, if your spending is uncontrolled, you’d be unable to have enough at the end for savings.

There are apps available to help you track your expenses so that you have enough for savings. We highly recommend the Seedly app – it’s been around for a while, together with strong community support online on their website.

#4 You spend as soon as you see a pile of money

After a while, you’ll soon see a pool of money in your account. Delighted, you think it’s okay just to take a little bit for some expenditure. Say, a vacation to reward yourself for that good job accumulating your money. While we advocate living life well, being able to take a little means you are also able to take a lot out of the account. Soon, you might find yourself in square one.

There are two ways people save in general. Firstly, spend first then save. Secondly, save first then spend. The former allows you to get your expenses settled, whereas the latter way lets you meet your saving goals first. To avoid finding yourself in square one, regardless of how your save, make sure you split your money further into different pots. Instead of just two pots, i.e. expenses and savings, you can split your savings category further into travel, retirement, etc. That way, you keep your savings pots separate and do not risk overspending.

#5 …or you are just really terrible at saving

What if, despite all of the methods described above to avoid the mistakes when saving money, you still have trouble with it? When you’re terrible at saving money, it’s time to consider savings plan, or an endowment. The tenure period of an endowment fund means you won’t be able to touch any of the money that you put. However, it’s important to not lock up ALL your money in there, lest you need the money for unforeseen emergencies in the future. This requires the help of a good financial adviser.

Alternatively, you can consider a fixed deposit – the fixed deposit usually has a decent interest rate, depending on how long you decide to lock up your money. In addition, the account penalizes you for prematurely taking the money out by removing the interest rate. This forces you to think long and hard before withdrawing from your fixed deposit.

#6 Forgetting that inflation exists

Last but not least of the many mistakes when saving money, people often forget that inflation exists. In fact, it is one of the deadliest mistakes when saving money. At best, if the interest rate of your savings account is the same as the inflation rate, you’re just keeping up and not growing your money. On the other hand, if you happen to pick a low interest rate savings account, the real value of your money will decrease over time. Imagine saving up money that decreases in value over time due to the difference in interest rate and inflation.

To avoid this, you will need to save additional money just to adjust for inflation. Alternatively, you’ll have no choice but to invest a portion of your money so that it grows.

Connect with fundMyLife financial advisers today!

Hopefully, you are more acquainted with the most common mistakes when saving money. A lot of these problems can be avoided if you have a good financial adviser. He/she can serve as a sounding board and a friend as you travel in your journey to achieve sound finances.

Haven’t found a good financial adviser? Worry not – fundMyLife has your back. You can connect with our panel of experienced and awesome financial advisers, curated by us. If you want to engage more financial advisers, or if you haven’t found the right one, why not consider advisers of fundMyLife? You can head on over to fundMyLife and ask our awesome financial advisers questions. Alternatively, you can check out our curated pool of individual advisers and ask them questions directly.

Been doing lots of research, but not sure who to engage to take the final step? Look no further! fundMyLife connects you to credible and incredible financial advisers privately and anonymously, based on the financial planning questions that you ask. We aim to empower Singaporeans to make financial decisions confidently.

Follow us on our fundMyLife Facebook page to get exciting updates and your dose of finance knowledge! Alternatively, the Insurance Discussion SG Facebook group is a good place to discuss insurance-related topics with fellow Singaporeans.

Is Time Really Money? The Real Cost of Excessive Spending

fundMyLife explores the opportunity cost of money

Written by Kartik Goyal, edited by Jackie Tan.  

Opportunity cost! Most of us know it, almost everyone has heard about it – that feeling of wasting money never sinks in completely. It all seems like a wild claim that an excessive spending of just $10 a month is really a $74,000 loss for your retirement fund. In this article, we find a new way to put things into perspective.

Let’s do some (simple) math!

An average person’s lifespan is 82 years in Singapore. On top of that, assume that an average person spends 22 years acquiring his/her education. Additionally, another simple assumption is that a person spends 8 hours a day sleeping, another 8 hours to themselves that do not account for working hours – meals, chores, entertainment, and other activities – and retire by the age of 65. 

After taking everything into account, we are left with just roughly 15 years’ worth of working hours in our entire lives. To put that number in perspective, it’s 5,475 days or 131,400 hours.

At this point, you are probably thinking that that’s a lot of time. Well, the answer is both yes and no. Ideally, the financial aim of an adult is to live at a similar lifestyle after retirement, if not more luxurious which unequivocally depends on your current lifestyle and the one you will adopt in the coming years. This also means you’ll require 17 years’ worth of cash and investments by the time you are 65 to live to the ripe old age of 82.

Let’s maths even more

Deriving from Singapore’s GDP per capita, 3% increment of salary per annum, and a significant promotion and salary bump every 5 years, we estimate that a person will make an average of $51 per hour throughout their career. That’s around $8 million in total (absolute value, not adjusted for inflation or interest). Reading the last sentence would have made you proud of yourself already. You are already tempted into a little celebratory splurge on yourself, with perhaps an ice-cream?

Say a tub of ice-cream tub costs $5 – that’s around 10 minutes of your working life. Now, if you estimate that you buy one such ice-cream every month throughout the course of your working life, the total would be $3,060. If you were to put all that money and its subsequent returns in savings each month, you would accumulate around $19,000 by the time you retire. To put that number in perspective, it’s almost 610 hours of your working life or around 25 days in ice-creams.

To put simply, a single $5 deposit will turn into $53 over 40 years; that’s 62 minutes worth of earnings (assuming 6% interest rate and biannual compound interval). It might not seem like a lot but, if you think about it, spending $5 might cost you 10 minutes but saving $5 dollars will salvage more than 60 minutes of your work time, by the time you retire.

mindblown

There’s more! A $30 dinner with friends each month eats roughly 3,600 hours or 153 days of your time. If you drink alcohol, especially in restaurants and spend $50 a month, you’re pouring away almost 6,000 hours (not including the hangovers). Love those $500 pair of Louboutins? Average price, ladies! Don’t shoot the messenger. That’s walking away from 36 weeks in total, assuming you’ll need a new pair of them every year.  

A graph showing the opportunity cost of buying unnecessary things

To appreciate the impact of purchases, we plotted common activities against two things: average cost of activity, and the number of working hours eaten away throughout your life. For example, if you look at the “Restaurant” example from the previous paragraph, it costs $30/meal and 3600 hours of working life.

We understand that scrimmaging expenses is tough, saving as little as a $100 a month can shave off 1.5 years of extra arduous work towards your retirement fund. By all means spend on yourself to stay motivated, happy and content, however a stitch in time saves nine.

fundMyLife is a platform that aims to empower Singaporeans to make financial decisions confidently. We also connect consumers to the right financial planners in a private and anonymous manner, based on their financial planning questions.

Follow us on our fundMyLife Facebook page to get exciting updates and your dose of finance knowledge! Alternatively, the Insurance Discussion SG Facebook group is a good place to discuss insurance-related topics with fellow Singaporeans.

DBS Multiplier Account: Hare-Raising or A New Hop(e)?

DBS Multiplier Account: Is it truly as hare-raising as it sounds?

Written by Jackie Tan. Jackie is a part of fundMyLife, the platform that connects financial planning questions to the right advisers.

DBS Multiplier Account: A Closer Look

Go forth and multiply with the new DBS Multiplier Account
I wonder if those are CGI or real rabbits. Source.

No doubt you’ve been seeing ads recently by DBS, involving a well-groomed man (presumably rich) who is surrounded with lots of bunnies. In the ad, he talks about the new DBS Multiplier Account where the more one transacts on the account, the more one multiplies his/her money. Besides the “aww” factor, the rabbits double as a metaphor for multiplication.

There are three value propositions in the advertisement for the account:

  1. no minimum salary credit (hurray)
  2. no minimum credit card spending (no way)
  3. one can earn up to 3.5% (omg)

Of course, the last value proposition is seemingly the most impressive one and many blogs have extolled the benefits of the account. We here at fundMyLife are a curious bunch so we took a closer look at it and see what the fuzz is all about.

The Interest Table

Multiplier Account Interest Rate
The interest table shown on the website, with numbers added on the left side to number the various tiers. Figure adapted from DBS and modified for clarity.

With reference to the table above, we see six different tiers of interest rates, with two separate sets of interest rates depending on how many components of your money are transacted (thereon known as 1-cat and 2-cat for transactions involving 1 and 2 categories respectively).

fundMyLife Does the Maths

Obviously, the more you transact the higher the interest rate is. At the lowest, it’s 0.05% for both sets. However, as you transact higher amounts, the difference between 1-cat and 2-cat becomes more apparent. Obviously, the purpose is to encourage you to perform 2 or more categories of transactions with DBS.

An interest-ing (geddit?) point to note is that the jumps in rates are quite uneven. More specifically, the jumps between Tier 1 and Tier 2 and between Tier 5 and Tier 6 are very dramatic.

A chart that shows the increase in interest rates between one tier and the next tier. Black bars show the tiers in 1-cat and red bars show the tiers in 2-cat.

To illustrate this point, we calculate the difference in interest rates between tiers. Not surprisingly, the difference between the first two tiers is staggering – by transacting between $2,000 to $2,499/month (Tier 2), you enjoy 1.5 and 1.75% more interest rate for 1-cat and 2-cat respectively than if you had transacted $1,999/month and below (Tier 1).

As mentioned, the 3.50% is the last tier (Tier 6) and it is only when you transact a total of $30,000/month across 2 categories. It’s also a huge jump from Tier 5 for 2-cat, where it’s a 1.2% increase. On the other hand, if you transacted $30,000/month across only one category, i.e. 1-cat, the maximum interest rate you’d get is 2.08% and is only a 0.08% increase from the previous tier.

$30,000/month transaction to reach the 3.5%!

What if you transacted between $15,000 to $29,999/month with 3 categories (Tier 5)? You’d get 2.3%, which is only a 0.1% increase from the previous tier (Tier 4). The difference between tiers for both 1-cat and 2-cat seems to be very little in between.

Difference between 1-cat and 3-cat Interest Rates of Same Tier
A chart that illustrates the difference between 1-cat and 2-cat for each tier. As mentioned, there is no difference between the two sets in Tier-1.

We also looked at the difference in interest rates between 1-cat and 2-cat for each tier, and it is the largest for Tier 6. On the other hand, the consumer does not benefit too much from making the switch from 1-cat to 2-cat in most tiers.

Transaction Amount to Cross Tiers

We also observed something interesting as well in the table. If you haven’t noticed it yet, the range in the amount of transaction increases across tiers as well.

Transaction Range in Each Tier
A chart that illustrates the transaction range for each tier. Tier 1 has no range because it has no minimum whereas Tier 6 is not shown because it has no maximum.

Simply put, the transaction gap increases as you move from the first tier to the last. It also means it’s relatively challenging to cross over to the next tier from your current tier.

Fur real? What does it mean?

Given the irregular distribution of interest rate increase, we think that it’s meant to capture two very specific demographics – the ones in the first two tiers and the ones in the last tier. One very good thing that we note is that there is no minimum amount required in the account which means students, fresh graduates, and young working professionals will benefit from a decent interest rate, i.e. 2% for 2-cat. The account also rewards consistency so those who with low risk appetites can benefit from this. Those who do not mind transacting everything under DBS, e.g., loans, credit cards, insurance, should give it a go as well.

The DBS Multiplier Account will also benefit big ballers who can afford to transact $30,000/month and yet still have enough savings in the account to reap the benefits of the increased interest rate.

That said, for someone who can afford to transact $30,000/month, we think that person can afford better financial instruments to grow his wealth anyways. 3.5% as a form of interest rate is nothing to scoff at…if one doesn’t mind committing all that money with one financial institution. Moreover, it’s for the first $50,000 in the account.

We don’t love it, but we don’t hate it either. Its low requirements and flexibility to combine different categories are refreshing additions to their competitors’ tiered interest rate type of savings accounts (we’re looking at you guys, OCBC 360).

Our Verdict

Pros:

  1. no minimum amount in account
  2. no minimum credit card spending
  3. flexible combinations

Cons:

  1. interest rates apply only to the first $50,000 in the account
  2. challenging to reach the 3.50% interest rate as advertised
  3. once you’re stuck in one tier it’s challenging to move to the next one

Conclusion: You need to commit your money with DBS Multiplier Account to reap the most reasonably tiered benefit. Also, you’ll need to transact >$2000/month to obtain a meaningful interest rate.

That’s All Folks!

We hop this article helped you make an informed choice before leaping into signing up for the DBS Multiplier Account. If you want to know more about personal finance and would like to ask questions, head on over to our main site and ask away!

 

fundMyLife is a platform that aims to empower the average Singaporean to make financial decisions confidently. We intelligently connect consumers to the right financial planners in a private and anonymous manner, based on their financial planning questions. Follow us on our Facebook page to get exciting updates and your dose of finance knowledge! Let us know what you want to know about finances or something that you wish your friends knew!