I discovered a common trend among Singaporeans I meet, and that is the lack of some very important financial habits while living in Singapore. Some of these may be familiar to some, but hardly ever done on a regular basis. The reason I concluded is a lack of practice.

When we don’t do something on a regular basis, we tend to forget about why and how it is done.

Financial knowledge fades quickly.

These are often financial decisions we are expected to do on a regular basis living in Singapore but often put little thought in.

What I discovered is that many Singaporeans are not aware of a few key things that can be better managed to reduce exposure and costs.

Here are some of the more common ones.

Mortgage

The mainly two types of mortgage we get are either HDB’s Housing Loan or a bank loan.

HDB’s housing loan interest rate is 2.6%. While not fixed, it rarely changes.

Bank Interest rates are much more confusing. Depending on the type of rate you are using, it can range between 1.3% to 3%. (Nowadays 4% rates are common)

If you’re on an HDB housing loan, your interest rate is no likely to see any changes. But one consideration to make is whether a bank rate might suit you better. This can be easily analysed by seeing how much you will pay monthly on a bank loan compared to an HDB loan.

Taking my personal bank loan as a comparison, over the past 3 years, my interest rate has gone from 1.3% to 2.4% and back to 1.4%. On average, still lower than HDB’S housing loan.

Savings may not be much in the short term but every penny counts especially seeing that mortgage loans can typically go on for more than 20 years.

Mortgage interest rates are highly correlated to the markets and certain information can help forecast the direction rates will go.

In fact, in 2020, we can see mortgage rates go in a certain direction for the next 2 years and there is good opportunity to make use of these information to reduce your interest rates over the next two years.

Get in touch with me if you’re interested in knowing what I do for clients’ mortgages during this period.

Bank SIBOR rate from 2006 to 2020. While it is easy to be fixated to the potentially higher rates around 2006, a little understanding of how the rates work and market conditions can help you manage this through refinancing or repricing.

Taken from https://www.moneysmart.sg/home-loan/sibor-trend

Insurance

Singaporeans have one of the highest rates of protection in the world. Most Singaporeans have their insurance needs covered to a certain degree.

But one thing most Singaporeans fail to do is to ensure their insurance costs are managed and kept at its most efficient.

With the increase in competitiveness in the insurance industry, comes new and competitive product offerings which may provide either lower cost or better benefits to the consumer.

While I am a proponent of getting your insurance needs covered as early as possible, regular review helps you discover new offerings from the industry that may address your needs better than before.

As always, once your objectives and needs are identified, consistently look out for products that help add to your portfolio by lowering your costs or adding to your benefits.

Same goes with accumulation/retirement products. Here’s an example of a retirement income product that a client had which i was able to improve on with better solutions.

Client had paid $5,900 a year for 2 years before the review. Despite that, in comparison, other solutions allowed her to stop paying at age 53 instead of age 60 (7 years lesser premiums) but still get more guaranteed income per month at age 60.

Bear in mind that many insurance agents are limited in their product offerings to one or few insurance companies. So try to work with financial consultants instead that have access to several providers.

Central Provident Fund

CPF.

We love it or hate it.

But we cannot escape from it. Even as a self employed individual, I am obligated to contribute to CPF.

No matter what we think about CPF, it is compulsory but we can always make it work to our benefit.

As a retirement fund, CPF is an awesome way to accumulate our retirement funds. However, the limits of withdrawal can restrict those with a bigger appetite for growth.

While the rates in our Retirement (RA) and Special (SA) accounts can be considered by many as attractive being a near risk free rate, we may need to consider investing our Ordinary Account (OA) to better maximise our returns while keeping the option to utilise the funds for future property purchases open.

Thankfully, we have the option to invest a portion of our OA funds in various investment instruments. The challenge is consistently generating an annualised return of more than 2.5% until retirement.

Creating a portfolio that will on average return higher than 2.5% while limiting the downside risks requires thoughtful asset allocation and analysis. Something which an investment consultant will be able to help you with.

Tax

There are only two things in life that is certain… you get the drift.

When tax season comes, how much do you know about the tax you pay and the reliefs you are entitled?

Have you considered taking certain steps to minimize your tax bill?

In doing some tax planning prior to submitting your taxes, you can find out how much your taxable income is and where you fall in the tax bracket. By using some of the eligible tax benefits, you could potentially lower your tax bracket and reduce your tax bill.

Take note that some tax benefits are better used over the long term.

As a financial consultant, i help people make smart financial decisions through knowledge sharing.

If you are keen to enhance your financial literacy and get your financial life in order, have a chat with me. There are no obligations in the consultation.

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