The spending and money management patterns of Singaporean men and women are intuitively different. But, if you surveyed people around on your own, you would realize that there are distinct differences between how these genders approach money. With that in mind, here are the common money mistakes women make and the essential financial steps they must take:
COMMON MONEY MISTAKES
1. OVERSPENDING ON CLOTHES AND MORE
According to a study by Boston Consulting Group, women take control of about 73% of the household spending. The control the wives have over the budget can lead to overspending. Overspending can occur in shopping for clothes, cleaning supplies, home decorations, bags, and more. This is why knowing when to save and when to splurge is an important distinction for financial security. Overspend only on products that are useful and long-lasting.
2. BEING FINANCIALLY DEPENDENT
Although more and more women are breadwinners nowadays, there are still a good number of women who are totally reliant on their husband’s income. This is bad because unforeseen events such as unemployment, divorce, and death can happen to anyone. Which is why women need to create and secure a financial future for themselves by having a career or skill they can depend on.
3. NOT PREPARING FOR LONGER RETIREMENT
Let us face the facts. Women outlive men on average and often remarry. This is why women should prepare for their additional years and long-term elderly care. It is always a good idea to be prepared.
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Financial independence starts by talking about finances comfortably. This will create a community of friend who can turn to each other for advice on money issues and investments. Also, getting comfortable in the S$ topics should be applied when you are talking to your financial advisor.
3. UNDERSTAND YOUR INVESTMENTS
Prepare for your retirement and emergency fund by prioritizing your investments. Save money on near term needs such as the emergency fund first then, move on to the long-term investments such as retirement fund. Since most women tend to be risk-averse, the more you are comfortable with talking about money, the more you will be able to take calculated risks.
Money gives people, of all ages, the decision-making opportunities they need. Unfortunately for elderly parents, research has shown that financial decision-making ability declines after age 53. This maybe attributed to the 2013 survey done by National Endowment for Financial Education which found that 7 out of 10 adults have difficulty discussing to their families about who will make the financial decisions on behalf of their elderly family member.
Talking about the aging parents’ finances is a good idea but that does not mean people actually do it. Some people avoid the subject because it raises uneasy situations (e.g., quarreling over the estates or feeling “extra” sensitive toward the elderly). Resolving this negative mindset will help your aging parents to organize their financial life. And, that is the most important thing right now.
So, here are 5 Helpful Steps To Talk To Your Elderly Parents About Money…
1. DO YOUR RESEARCH
You have one goal – to organize your elderly parents’ financial life. Know what issues or topics to discuss that will aid this goal. Due to the declines in someone’s body as they age, topping the list is healthcare. Also, you must consider their life insurance, medical insurance, or long-term care coverage policies. Then, talk about estate and other assets. Having a last will and testament ready is a crucial thing.
2. GATHER DATA
After researching the topics to discuss, you must prepare the documents needed. These documents are the banking statements, credit card bills, tax records, insurance policies, and so on. Put these documents in one safe place such as a relatively small safe deposit box at home. Grant access only to the people who are really trusted (e.g., the lawyer or immediate family member).
3. CONVERSE TO THEM STRATEGICALLY
Before talking to your parents, build a strategy that will work for your family dynamics. For instance, some families are more comfortable with having everyone around while other feel that they are being ganged up by their children. Another tip is to talk to them as if you are talking to your adult peers with objectivity and compassion. Do not make them feel that you are treating them as young children.
4. START THE DISCUSSION
All your homework led you to this moment. Emphasize on the benefits of the talk and speak with love. Delaying the talk will only be more expensive because as health declines, premium prices increase. Ease the flow of the conversation by adding real-life experiences as examples.
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5. LEARN FROM THE EXPERIENCE
Traditional financial advisors suggest that parents save for their own retirement first before saving for tertiary education. This is because you only have one shot at retirement while there are many ways to get student loans. With this experience, you must realize that it is necessary to save as much as you can for retirement during your peak years (i.e., aged 20-35) in order to age gracefully.
Many Singaporeans look to their CPF to provide for retirement. As the General Election draws close however, some critics have panned the retirement scheme, saying it no longer suffices. Have a look at some of the realities of the CPF, and decide for yourself:
What is the CPF?
The Central Provident Fund (CPF) is a mandatory savings scheme for Singaporeans. This fund is used to provide for a range of crucial financial needs, such as healthcare, retirement, and home ownership.
Your CPF is automatically deducted from your wages, and your employer is also required to pay a portion into your CPF. Compulsory CPF contributions are as follows:
Age
Your contribution
Your employer’s contribution
Up to 50 years old
20% of monthly income
17% of monthly income
From 51 to 55 years old
19% of monthly income
16% of monthly income
From 56 to 60 years old
13% of monthly income
12% of monthly income
From 61 to 65 years old
7.5% of monthly income
8.5% of monthly income
Above 65
5% of monthly income
7.5% of monthly income
Your CPF is divided into an Ordinary Account (OA), a Special Account (SA), and your Medisave account. The interest rates for these accounts (as of 2015) are:
OA – 3.5% per annum
SA – 5% per annum
Medisave – 5% per annum
You do have the option to invest your CPF money in other schemes, based on an approved list. However, the returns are not guaranteed, and the government will not replace any losses you incur. You can see further details on allowable investments here.
Once you reach the age of 55, you will be able to withdraw all the money except for a required Minimum Sum. The Minimum Sum is placed in a Retirement Account (RA). From the age of 65, savings in your RA are disbursed to you in monthly payouts, which should ideally last till you are 90.
The Minimum Sum (as of 2015) is S$155,000. From the age of 65, this should provide monthly payouts of around S$1,200.
Is the CPF Alone Enough to Retire On?
The answer for most Singaporeans is “yes, but…” Here are some of the factors you need to consider:
Your CPF depletes very quickly when used to pay for your flat
The CPF rate barely keeps pace with inflation
A lot depends on how comfortable you want your retirement to be
1. Your CPF Depletes Very Quickly When Used to Pay for Your Home
Buying a home is one of the ways Singaporeans use their CPF. When you take out a HDB concessionary loan, the entirety of the down payment can come from your CPF*.
(*This does not apply to private bank loans, in which only 15% of the down payment can be made with CPF.)
CPF can also be used to pay for certain fees, such as the legal paperwork for the purchase. Mortgage repayments can be taken from your CPF rather than your bank account.
But this means that, if you use too much of your CPF money purchasing a house, there is a real possibility of it running out.
If you use HDB loans, the interest rate is 0.1% above the prevailing CPF rate (3.6% at present). If you use a private bank loan, the rate fluctuates according to an index, such as SIBOR or SOR. Both options can wipe out your CPF, and leave too little even for the Minimum Sum.
So if you want CPF to provide for your retirement, never overreach and buy a property beyond your means. If you buy the biggest house you can possibly qualify for, be aware that you could be forced to sell it to fund your retirement.
2. The CPF Barely Keeps Pace with Inflation
Singapore’s core inflation hovers at around 3%, which is on par with most developed countries. This means that the general cost of living goes up by 3% with each passing year, and your wealth is being depleted if it can’t grow as fast.
Given the CPF’s return of 3.5% and 5% (for OA and SA respectively), your real returns are only around 0.5% for OA and 2% for SA. This means that relying on CPF alone will provide for a very modest retirement.
Should you have plans after you stop working (e.g. travel the world, look after your grandchildren financially), it may not be a good idea to rely solely on CPF. You should speak to a financial advisor or a wealth manager about different investment products, which can complement your CPF.
3. A Lot Depends on How Comfortable You Want Your Retirement to Be
A pay out of S$1,200 a month is comfortable for some people, but painful for others. We are all used to different standards of living. If you enjoy a high income of S$15,000 a month, for example, switching to S$1,200 a month will be extremely painful.
As such, it is important to work out your desired Income Replacement Rate (IRR). This can be done with holistic financial planning, which also takes into account the amount you will need at retirement, and how long you have to get there (your investment horizon).
Do not believe any arbitrary “rules”, such as sayings that you must have a million dollars to retire in Singapore, or that S$500,000 is enough to quit your job. Such figures are not grounded in your specific needs. Speak to a qualified wealth manager or financial advisor to identify the sum you need.
A Note on Debt
Personal loans range from 6 – 8% per annum, and credit card loans reach around 24%. Your CPF interest rates (or the rates of even the most phenomenal financial products on the market) will never “outgrow” your debt. It is almost impossible.
If you want to retire well, you must pay down your debts early. Be an extreme miser with loans. Make comparisons every time you need money from the bank. You can find the best loans on SingSaver.com.sg.
In Summary:
The CPF is enough to provide the bare basics, when it comes to retirement. However, your retirement will not be lavish if you rely on CPF alone, especially if you are used to a more expensive lifestyle.
In 2014, a survey by DBS bank showed that over 76% of the participants said that their key long-term financial goal is to have sufficient for retirement. Why are these people not ready? Perhaps time and awareness are the factors.
Majority of people think that saving for retirement can wait until you are more stable later on in life. Some may get caught up with their spending patterns and life events such as celebrating weddings and raising children.
There is never a “great” time to start planning for your retirement. But, there are good advantages if you started early. However, if you are starting late today then, you will have to work harder to grow your retirement fund. Moreover, you cannot afford to lose money anymore so; you must avoid investments with higher risks.
After shedding a light into the importance of retirement planning earlier on, here are the best yet free resources for retiring in Singapore (aside from the fantastic Money Digest) :
1. RETIREMENT CALCULATOR BY AVIVA
Aviva is a British multinational insurance company that provides services across 16 countries. Since they have a branch in Singapore, their website features a retirement calculator that tells you how much money you need to live comfortably in your golden years. Also, it takes expected inflation into account. Personally, I found Aviva’s Retirement Calculator as easy and user-friendly but I still want to get more information out of it.
As I said, I seek more functionality from the above retirement calculator. Which is why I continued my search. In my conquest I found a comprehensive retirement calculator that is validated and created by Central Provident Fund (CPF).
CPF is a social security savings plan that has provided the working Singaporeans with confidence and a sense of security for their retirement years. A part from this, they offer online guides and resources such as the Retirement Savings Interactive Calculator. This calculator allows you to assign values for your current age, desired retirement age, desired retirement income, return of investment, and so on. The results will show the number of years you need to save and the cumulative savings necessary to age gracefully. Furthermore, it provides charts and graphs to enable you to understand the numbers more.
A premier international website for retirement information is owned by the Vanguard Group – an American investment company. Vanguard’s retirement resources are divided into three categories namely: saving for retirement, nearing retirement, and living in retirement. They provide tips, guidance, and advice using simple terms that would not require a genius to understand. Additionally, it offers retirement planning tools such as creating a realistic retirement budget.
Going local, you may browse through the articles by HSBC Singapore. These articles feature detailed information about the future retirees in Singapore, 8 steps to have a confident retirement, and a guide to retirement planning. Also, it includes localized researched statistics, charts, tables, and graphs. But, I cannot deny the fact that it advertises HSBC’s own retirement services too.
In order to make your dream of retiring early a reality, you generally have two options: to spend less or to earn more. If you are an avid reader of personal articles, it is no surprise that spending less is included in “Ways To Save For Retirement”. But, when you want to focus on maximizing your earning potential then, you will have to do several measures to earn more.
SPENDING LESS
Pros:
Spending less gives an a more instantaneous result compared to earning more due to its direct nature. It is easier to accomplish because of money management and budgeting techniques.
Cons:
There is a limit to when you can spend less before you hit a boiling point. For instance, some people restrict their way of life to the point that it is extremely uncomfortable and unsatisfactory.
Tips:
Lower your utility bills by unplugging cables, turning off the lights, and minimizing the air conditioner temperature.
Cancel your hand phone plans and switch to prepaid in order to regulate your telecom bills.
It is important to track where your money is going through the last month’s bank statements and receipts. Notice what you have spending too much on and reduce it.
Cut down your T.V. bill by canceling your cable subscription and opting for watching at Toggle.sg. Toggle.sg lets you watch episodes of your favorite shows at Channel 5, Channel 8, Channel U, Okto, Suria, and Vasantham – for free! But, viewing of premium content is on a subscription basis.
Lastly, if you are buying a new appliance, make sure that it is an energy efficient model. Smaller appliances not only help you save more on space but on bills also.
EARNING MORE
Pros:
The ways you can earn are endless. Ultimately, it is based on your good financial choices, a ton of effort, and a sprinkle of luck. Additionally, here is no limitation in the amount you can possibly earn.
Cons:
Making more money takes time and effort. You will need to find a better job or to work more hours in order get a start-up capital for your small business. The flow of profit after the initial business launch takes time too.
Tips:
Increase your earnings by upgrading your skills. To upgrade your skills, you can enroll to workshops or courses. Consider going down to your community centre (CC) and find out the affordable courses they offer. Transform the awesome skills you learned into viable freelance businesses or part-time occupations.
Start your own small business such as an online clothing shop. Online business allows you to sell your product or service at the convenience of your own home and your own time.
Lastly, contemplate on proposing a salary increase or a leaving the company for a better company.
WHICH ONE WEIGHS MORE?
On your way to save for your retirement fund, frugality or spending less is the first step. Once you are financially stable, it makes more sense to seek for higher income.
You can earn millions of dollars but if you are spending irrationally, you can get into financial problems. And, even if you are cutting down your spending, you may not reach your goal if you do not earn a decent amount of money. So, the best way to reach your retirement goal is to have a combination of both options.
