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Extremely Wrong Reasons To Buy A Home

If you are updated with the latest in property, you will know that Singapore housing prices are trending down. In fact, the private residential property index decreased by 3.83% (or 3.45% when adjusted for inflation) in Q1 2015. However, the downward shift in pricing does not automatically mean that it is a good time to buy your own space.

Buying a home is one of the greatest financial commitment for most Singaporeans. It is a long-term commitment and responsibility that you must carefully plan for. Start by determining what you can afford as well as what you need to pay for. What you can afford depends on your total income, existing debts, savings on-hand, and loan eligibility.

Upon figuring these things out, examine if you are committing to a home for the right reasons. Otherwise, you will be a victim of these extremely wrong decisions…

1. TO EXHAUST ALL THE CONTENTS OF YOUR CPF ACCOUNT

If you are thinking of purchasing a home because you can simply deduct almost all the expenses from your CPF savings, think again! You can use your CPF savings to pay for a part of the home and to service the loan but not for the monthly expenses (e.g. mortgage insurance or conservancy and management service fees). You need to have sufficient cash to pay for these ongoing payments in addition to meeting your current monthly living expenses (e.g., rent and telecom bills).

A better reason to purchase a home is the fact that you already have savings to cover for the upfront payments such as the down-payment, agent’s fees, and stamp fees.

2. TO SUPPLEMENT YOUR “STABLE” JOB

Are you fond of your current occupation? How long have you been in the organization? Are you confident that your position is stable for the next couple of years?

The truth is, you can never be 100% sure that your job is secure. You can argue that CEOs or founders of the company can keep their jobs for the longest time but then again there’s the case of the Lehman Brothers. When deciding on whether or not you shall buy a flat, consider your current job situation as well as the workplace climate. To be sure, hold off a few years and grow your savings first before making this important investment.

3. TO SATISFY YOUR NEED TO MOVE

If you love the thrill of moving to a fresh nest and constantly changing your neighborhood, you will realize how difficult it is to sell your relatively new home in a short period of time without encountering a big loss. This is because most people prefer homes with better home equity. You cannot build a high value of ownership for your flat overnight!

4. TO COHABITATE WITH YOUR CURRENT PARTNER

As Nelly’s song goes: “Lovers to friends…why do all good things come to an end?”

With relationships, you have little to no certainty about what happens in the future. You may be in the best terms now but who can really be sure that you will end up together forever?

If purchasing a flat together is your solution to fixing an unstable relationship (even if you are engaged), what will you do if your partner suddenly vanishes? Or perhaps if he or she goes unemployed after a few months? You will have to carry the burden of the mortgage and all the monthly costs on your own. This poor reason for housing commitment will affect your credit.

Sources: 1 & 2

Stop Worrying About Making Ends Meet, Know Where Your Money Goes

Living barely within your income is not a laughing matter! When you are living from paycheck to paycheck, your life is filled with constant stress, worry, and dread. It is a struggle to gain control of your money and your commitments.

How did you end up like this?

For starters, you not be planning for your future and only thinking about the current situation. With this attitude, do not be surprised if you will be working beyond the retirement age! Another reason maybe due to your history of overspending. Perhaps you were spending too much before that you fell into an avalanche of debt and can never move pass it.

In order to cease your worries, a huge turnover can be money flow management. You must give conscious effort to know about where your money flows in and out. Once you have control over your money flow. Then, you will be able to create a systematic financial operating system that consists of: money flow management and budgeting.

Start by identifying your fixed expenses (essentials), variable expenses (non-essentials), and savings (investments) first. Organize these items in a physical ledger or a budgeting App such as EXPENSIFY, MONEYWISE, POCKET EXPENSE PERSONAL FINANCE, and MINT.

Allocating your money to fixed expenses shall be your top priority. Fixed expenses include the goods and services that you cannot live without. Your rent, utility bills, school fees, and transportation costs fall under this category. Since our spending habits and personal needs are different, you must include the categories that are relevant to you. For example, a hand phone is a necessary means of communication. However, the type of hand phone that you bought makes all the difference.

Do you really need the latest Smartphone released by Apple when your current hand phone is working just fine? If you are purchasing it for vanity’s sake then it becomes a non-essential.

Non-essentials or variable expenses include the goods and services that do not compromise your survival. This category includes your clubbing costs, shopping sprees, and overseas vacations. Always save your non-essentials fund for last to prevent becoming broke.

The last category is your savings. Your savings not only protect you from unwanted events but it also prepares you for the future. It includes your investments in stocks, bonds, properties, or mutual funds (items that generate profit). Once your done with your fixed expenses, come up with a well-thought-off amount for your savings that you can consistently maintain.

Some people believe that purchasing a car is considered as investment but in respect to the categories of the “money flow management”, it is not. You see, every time you drive your new vehicle, its value depreciates. It is more of an asset that can sometimes be used as a collateral when you take out a loan.

Image Credits: www.pixabay.com

Always ensure that pay your bills on time, otherwise it will defeat the purpose of the above system. With a smart way of prioritizing your expenses and budgeting your money, you will find yourself in a more stable position in no time!

Alternative to Surrendering Your Insurance Policy

Imagine buying a brand new car and the sales contract has a repurchase clause which states that the car dealer has sole exclusive rights to buy back the car if ever the owner wanted to sell it. Since the owner is unable to consider any competing offers, it is unlikely the car dealer will offer a competitive price for the car.

Thankfully, such anti-competitive practices in this hypothetical scenario are not true – no such clause can exists that prevents the owner from selling his car for a better price to other buyers. The rights to sell the car to a wider pool of buyers will ensure that the owner will always get a price that is equal to or better than that offered by the dealer.

Now imagine that car was a life insurance policy. Like cars, it is a financial asset owned by most people, and yet few consider comparing prices when they feel the need to sell it.

Insurance companies are always willing to buy back and then terminate a policy. The amount the insurance company is willing to offer is called the policy surrender value. However this surrender value may not reflect the true worth of the policy. Similar to the used car example, the policy owners may be able to get a higher price for their policies in the resale insurance market.

The resale insurance market is where the policy owner can choose to sell (the technical term is assign) their policy to a third party. Unlike surrendering to the insurance company, the assigned policy will continue to exist under the new owner. The rights of a policy owner to assign their policy are enshrined in the policy documents and it is permissible under Singapore laws.

While this concept may be new in Singapore, the resale insurance industry has been part of the United Kingdom financial landscape for many decades and it has proliferated in the last twenty years in United States, Australia, and Germany. In Singapore, the resale insurance industry started in the last few years and awareness of the service has not been firmly established. Regrettably the general public and even most financial practitioners are still not aware that insurance policies can be bought and sold like any financial asset.

Giving up one’s insurance policy is a serious decision as it may mean that the person would be under protected against adverse life situations. Surrendering should only be taken as a last resort when the owner has sufficient insurance protection or has no other means to sustain the policy.

If giving up one’s policy is unavoidable, then the owner’s best alternative is to get an independent offer and then make an informed decision on whether to sell the policy in the resale insurance market or surrender it to the original insurance company.

Obviously some people might feel queasy about the resale market. The strongest objection about selling their policy to an unrelated person is that someone else would benefit from the insured’s death. While it is certainly true that the new owner would receive the death benefits, the primary investment consideration is actually the policy maturity value. The new owner will tend to hold the policy to maturity and collect the maturity payment.

While the decision to sell a policy in the resale market is highly personal, it is important to have this option available to the life policy owners who will ultimately have to decide for themselves. After all, it is always beneficial to have all options laid out so as to make an informed financial decision.

According to the 2014 MAS Insurance Statistic, there are more than 13 million policies in force at the end of 2014 and the average value of all surrendered life policies from 2010 to 2014 exceeded S$900 million per annum. Given the enormous sum of the surrendered policies, policy owners are unknowingly missing out of millions dollars of potential financial gains.

Given that most readers of this article are financial practitioners whose unbiased advice is crucial to your clients’ financial success, it is important to include the resale insurance option when it comes to reviewing your clients’ insurance needs.

Useful Financial Tips For Bread-winning Wives

Over the past few decades, the workplace culture has shifted towards equality of genders. Gone are the days when every woman stay back to take care of their children and the entire household.

Based on a study by Prudential Company in 2012, approximately 53% of the sample were women breadwinners while only 22% were married or living with a partner who made more than them. Aside from these numbers dual-career bearer households have increased globally. The fact that women are working more nowadays is something that society is beginning to accept – regardless of gender stereotypes.

When women earn more than their husbands or when they solely provide for their families, there can be an unwanted tension between the household and the finances. Here are some useful tips to handle it:

1. EMBRACE YOUR CURRENT SITUATION

Psychotherapist Olivia Mellan shares that many new-age women are not raised with the expectation that they need another person who earns more than they do. This empowered attitude may be difficult to adopt especially if the people whom you interact with (e.g., your peers) are opposed to this idea.

They might not be ready for a modern-aged Superwoman but here you are! Accept and embrace the reality that you are an accomplished breadwinner. All your hard work and ambitions led you to this moment and there is nothing to be ashamed. Your capabilities allow you to provide a comfortable life not just for yourself but for your children.

2. GET PROPER INSURANCE COVERAGE

To help secure the financial security of your family, get a proper insurance coverage for both you and your beneficiaries (i.e., your spouse and children). You may consider purchasing a life insurance policy to secure your dependents’ future after you die. However, you must consider your current financial situation as well as your standard of living in order to maintain the lifestyle of your dependents.

If you are single, purchase a life insurance policy and designate a close family member as your beneficiary. He or she will pay off your expenses and other issues should something happen to you.

3. SAVE MONEY FOR EMERGENCIES

It is always a good idea to save some money for the rainy days. No matter how long you work or how many jobs you have, you are limited by the uncontrollable factors. These factors include age, time, economy, and incentives. Since you are the primary provider for the household, it is important to save in case these said factors are negatively affected.

Experts suggest to have an emergency savings amounting to least 6 times your monthly salary. This will help ease abrupt unemployment.

4. HANDLE THE BUDGET TOGETHER

Working your body to its limits will eventually bring more harm than good. Understand that it is acceptable if you cannot do it all. Enlist your husband’s help as much as possible. It will not only give you breathing room but it will also make him feel that he is not dispensable.

Couples shall work together and communicated openly on financial decisions in order to share the responsibilities and keep the balance in order.

Image Credits: public-domain-image.com/free-images/people/mother-securing-her-young-daughter-into-her-back-seat-of-car-725x482.jpg

Image Credits: www.public-domain-image.com/free-images/people/mother-securing-her-young-daughter-into-her-back-seat-of-car-725×482.jpg

Sources: 1, 2, 3, 4, & 5

How To Create And Follow Your Financial Goals

Reaching for something you really want to have takes hard work, determination, realistic expectations, and savings. All these are vital to achieving your financial goals. The first step that you must take is to organize not just your financial documents but also your time. Commit at least 30 to 60 minutes per week to financial planning including your goals.

Planning for your goals start by making them specific. Identify what you really want and how much will it cost. Do you want a flat at an expensive condominium or at an affordable HDB? The more transparent your financial goal is, the more realistically you can save.

When making a financial plan as a married couple, it is paramount that you share the same financial goals. Discuss it together and make sure that you each contribute to achieving them.

Once your financial goals are all set, categorize each one in terms of the length of time you will spend to accomplish them. The categorization includes short-term, mid-term, and long-term financial goals. Short-term financial goals (SFG), such as purchasing a microwave, are achievable in less than a year. Mid-term financial goals (MFG), such as an expensive family vacation to Europe, can take up to 5 years. Lastly, long-term financial goals (LFG) are achievable in more than 5 years. This includes your retirement plan.

After you categorized your financial goals in terms of time, it is time to prioritize each one of them so you can concentrate better. For instance, if you prioritize on saving for your children’s tertiary education (LFG) and a new microwave (SFG) rather than spending for a new car (LFG) and a new phone (SFG) then, save for it first.

The last step you must take is to figure out how much you will need to achieve each one. Do not be discouraged if the total amount seems overwhelming. What is important is the fact that you have realistic and tangible financial goals to work toward to. Revisit these goals every month and continue to refine your financial plan. If there is a difficulty in keeping your goals, analyze your budget and see if there are any areas that you can reduce or eliminate. This will increase your savings.

Image Credits: pixabay.com (CC0 Public Domain)

Sources: 1, 2, & 3

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