NOC Advises: Saving Money

Wednesday, October 10, 2018

NOC Advises: Saving Money

I think everyone ought to be sick and tired about hearing about exams now, especially since we’ve had videos from not just us, but also Jianhao and WahBanana releasing videos about exams. So instead of that, let’s take a look at something that should rightfully concern the majority, if not all, of us – money. Regardless of whether you’re a student or an adult, or whether you’re receiving an allowance or a salary, we can all agree that money is really important regardless of our priorities in life. And while I can’t provide any tips or opportunities to earn more money (in fact, I need those tips more), but at the very least, I can advise you who are reading this on the importance and tips on how to save money.

 

So, to start things off, let’s talk about why is it important to save. To make it more generally applicable to everyone, let’s take a person’s monthly income at $2,000. And in this case, in light of the recent new release of iPhone, let’s take the retail price of an iPhone XS Max for example. It is currently retailing at $1,799 for the cheapest model. And yes, well we are all aware that it is possible to get the phone cheaper if you sign a contract at a telco but in this case, let’s try buying an iPhone XS Max without contract on a monthly income of $2,000 shall we?

 

Buying iPhone XS Max with $2,000 monthly income

With the above example, you definitely still can afford an iPhone XS Max with $201 left to spare. Not a problem. But the problem only comes after. After buying what you want/need, you are left with $201 for the rest of the month. And let’s say you are paid on the first day of the month and you immediately use up $1,799, you will have $201 for the remaining 29 days of the month till your next income. That effectively leaves you with $201 / 29 = $6.93 per day. And considering that a meal in a coffeeshop costs you about $4, you still have $2.93 a day left! Yay! That is if you only eat 1 meal a day. We still have not talked about transportation, expenses when going out with friends, etc.

 

Buying iPhone XS Max with $2,000 monthly income after CPF deductions

And note that the above example has not taken CPF contributions into account. Central Provident Fund (CPF) is basically an account that every Singaporean will have at the age of 21 where we are to contribute 20% of our monthly salary into. It’s actually a little bit more complicated than that, but for the purpose of this article, let’s simply treat it as 20% of your monthly pay will be deducted every month. Knowing this, we come back to our example again. With $2,000, 20% of it will go into CPF, so 20% of 2,000 = 400. $2,000 – $400 = $1,600. So the whole scenario earlier when you can only afford 1 meal a day can’t even happen because you won’t even be able to afford an iPhone XS Max in the first place. What do you do then if you really want that iPhone?

 

Easy Solution

Get a job that pays you better then, duh. Problem solved. Thank you for your time.

 

The Dangerous Solution

Swipe with a credit card, problem solved, and I’ll still have $1,600 cash untouched for my other expenses!

 

Easy to say, but let’s look at the math. Banks typically charge about 2% interest per month, so if you’re able to pay off the $1,799 in cash within the month, then case closed. But that’s not the situation here, isn’t it? In the ideal situation, you take 2 months to pay it off by paying half of the amount per month. So for the first month, you will be paying in cash $1,799 + 2% = $1834.98/2 = $917.49. And then all you have to do is to pay the remaining $917.49 next month. But no, the second month also incurs an interest of the same 2%, so that balance of $917.49 + 2% = $935.84. Now let’s take a look at the total amount of money you have paid. $917.49 + $935.84 = $1853.33. Out of the sudden, your iPhone XS Max became more expensive by $54.33. And that is in the ideal scenario of you taking the shortest time possible to pay it off. The longer you take, the more interest you are paying to the bank. And of a remaining income of $1,600 to be paying off more than 50% to your credit card bills is also an incredibly dangerous move as that leaves you with less than $700 for everything else for the month.

 

True Solution

Sad to say, jobs that pay you well don’t simply drop from the sky. And the fact of the matter is as much as all of us like to own the latest gadgets and live in comfort, realistically speaking, not all of us can do it just with their pay alone. Hence, you will need to manage the limited resources you have in order to attain the things that you want. And one important way to do that is simply to save. There are many different ways to save and it all depends on the individual as every person has their own priorities and necessary expenses on a daily or monthly basis. So one way to ascertain how much you should save is to first find out how much do you actually need to spend per month.

 

Example:

Taking the above example once again, a $2,000 monthly salary that is left with $1,600 after CPF deductions.

 

Income: $2000 (+)

CPF: $400 (-)

Transport: $60 (-)

Food: $400 (-)

Leisure: $400 (-)

Miscellaneous: $200 (-)

 

Here’s a rough outlook of the monthly expenses that one can expect to have if he only travels by public transport and eats outside for 2 meals a day. Leisure and miscellaneous expenses ought to be included as one needs to have a social life and there are times where one will need or want to buy new things. After deducting all the minuses, the person in this case is left with $540. Still a pretty good amount to be saving on a monthly basis. Now, let us look at the projection of the savings that one will get by saving $500 a month.

 

1 month: $500

1 year: $6,000

10 years: $60,000

 

The amount after saving $500 per month for 10 years amounts to $60,000 which does not yet include the bank interest. Now let’s add the bank interest to it. Most Singaporeans have an account with POSB Savings, which gives 0.05% interest per annum. Meaning, the amount you have in the bank will earn a 0.05% for every year it remains in the account.

 

Saving $6,000 a year:

Year 1 balance: $6,003

Year 2 balance: $12,009.0015

Year 3 balance: $18,018.006

Year 4 balance: $24,030.015

.

.

.

Year 10 balance: $60,151.50

 

So from just saving a small amount of money in the bank monthly, you will be effectively letting it grow as it earns a small interest rate, which amounts to $151.50 after 10 years. Not particularly effective, but I will cover that another day.

 

Getting Started

 

Now that you can effectively see that putting money aside is not a bad thing for you, let’s explore how you can actually start saving.

 

1.  As covered above, the first step is to correctly identify ALL your expenses.

  • Be honest to yourself, from that innocent Starbucks or Koi drink you have 3 times a week or to that dress you bought impulsively and have never worn ever again.

 

2.  Eliminate unnecessary expenses

  • For each of the item that you’ve listed down, ask yourself if it’s necessary. If you really need that Koi bubble tea 3 times a week to function then it’s your call.

 

3.  Start tracking your expenses.

  • There are tons of apps out there which can help you with this. Use them diligently.

 

4.  Have a separate bank account

  • If you don’t have a good self-discipline to save money in the only bank account that you have, create a separate one and restrict your access to it as much as you can
  • Transfer the sum that you’ve allocated for savings to that account the moment you receive your pay, in fact, automate it through online banking.

 

5.  Review your allocation as and when situations change.

  • You shouldn’t still be saving the same amount if you are now earning $3,000, for example.
  • Likewise, if you are currently having financial difficulties, you should not be forcing yourself to save as much as you were before

 

6.  Be strict yet flexible

  • Be strict by making yourself save that amount that you’ve allocated
  • Be flexible by allowing yourself to add on to the savings if you find yourself having spare cash left at the end of the month.

 

The above are just 6 basic things to take note of to start saving. There are many saving tips out there and there’s no one size fits all method. So take the time to explore, and as you can see, it takes a long time for the savings to grow, you will need to start as early as possible. Once you’ve accomplished that, the next thing to do is to actually make your money grow for you, but that will be explored on another article.

 

And before we end, a huge shoutout to Jaylene who have submitted her drawing of Ryan, Aiken and Dee Kosh making slime with Juno!

 

 

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