Feeling guilty after exceeding your budget on a date night? Whatever financial problems you experience, you can improve your situation and save a few dollars once you recognize these issues and take small steps to educate yourself.
3 Unconventional Tips:
- Automated payments may not be a good habit for managing your expenses
- An extended warranty should not be more than 20% of cost price
- Appreciate the power of saving & investing
Tip 1: Weigh the Pros and Cons of automated payments
While it is important to pay your monthly bills and subscriptions on time, it is also crucial to understand your own financial habits.
Pros:
- Automated payments help to save time, and have made the payment process more convenient for customers.
- Credit score of individual improves when bills get paid on time. (eg credit card bills, loans)
- Online banking security has improved tremendously these days that it has become secure for such payments to be carried out.
Cons:
- Automation makes it hard to track expenses that fluctuate on a regular basis.
- Some service providers may make a costly mistake – a telecoms company could accidentally withdraw a monthly payment twice, or bill a wrong amount
- These companies may bill you for things which were falsely charged to your account
Hence, not all payments should be automated, especially amounts that fluctuate on a regular basis. Keep tabs on your bank account and ensure that there is enough in the account to cover your automated payments. One should also track expenses that fluctuate to have a good insight on his finances.
Tip 2: Understand if you really need an Extended Warranty
As consumers, we tend to feel the need to assure ourselves that we made the right decision purchasing a certain big-ticket item be it a car, laptop or that flat-screen television. These items usually come with an existing warranty, with an option to top up a certain amount for a longer warranty.
Under what circumstances does an extension make economic sense?
- The rationale behind a warranty is to help the customers feel better and justify his/her purchase decision.
- When a consumer forks out a hefty amount of money, they want the retailer to guarantee that the product being purchased has some sort of safety net.
However, they may no longer be worthwhile for the customer as most warranties only cover a certain period and certain damages – read the fine print of the warranty.
Before purchasing a warranty, answer these 3 questions:
- What is the likelihood of you damaging the item? This can be based on past experiences (we all know of someone who is always dropping his phone).
- If the item is broken, will the cost of repair much higher than the cost of the warranty?
- Is it too expensive? (As a rule of thumb, the cost of warranty SHOULD NOT be more than 20% of the item’s price.)
Tip 3: Appreciate the Power of Saving and Investing
Building your savings nest is part of becoming a (responsible) adult. With your steady stream of pocket money no longer an option for you, it’s time to understand that saving at least 20-30% of your income is the norm these days with the pay-yourself-first principle.
Throw in the options of buying your own house and wanting to buy a car, savings become more pertinent than ever. A typical Singaporean will potentially spend up to $422k by age 35. Often overlooked is the aspect of compound interest when you channel your income into your savings, as seen in the chart above with the savings and wealth accounts.
While leaving your money in your bank account is generally better than someone who saves less, it is not the best option. You can make your money work for you by investing in different financial instruments. These could range from buying government bonds to stocks or even fixed deposits.
Read also: Step-By-Step Guide To Invest In Your First Singapore Savings Bond
Unconventional but useful
It is essential to avoid an “out-of-sight, out-of-mind” approach when it comes to managing your personal finance. By understanding these 3 simple tips, we will continually be able to get better at our finances to strike a balance and work towards financial freedom.
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