Emerging affluent are those who have started earning enough to start saving and investing. At the same time, this group is a major part of a rising consumer class who want to achieve big financial goals. However, it’s not uncommon for the emerging affluent Singaporeans to make certain money mistakes without realising.
We’ve listed down 6 of them.
Related: 52 Ways to Save Money in Singapore
1. Failing to leverage on a high interest savings account
One of the perks of being an emerging affluent is that banks are always knocking on your door for you to bank with them. To attract the emerging affluent, banks are offering savings accounts with a higher interest rate. Instead of putting your money with your favourite neighbourhood bank, why not just open a digital account to earn that extra interest rate? Apart from the initial paperwork to transfer bills to your new account, there’s no other downside.
Read also: Best Savings Accounts in Singapore
2. Spreading your savings into multiple savings accounts
As the old saying goes, “Never put all your eggs into a single basket”. Apparently, some emerging affluent Singaporeans take this saying so literally that they religiously split their savings into multiple savings accounts. While you might be trying to make full use of the Singapore Deposit Insurance Corporation (SDIC) to safeguard your savings or take advantage of the benefits and rewards from various banks, we think that it might be a better idea to consolidate all your savings into a single savings account.
When you do so, it becomes easier for you to keep track of your money, i.e. your income and expenses. According to a study, using a single account can help to reduce your spending by 10% compared to those with multiple accounts.
3. Relying on low yielding financial products to achieve financial goals
According to a poll done by the Standard Chartered Bank, many emerging affluent Singaporeans rely heavily on low yielding tools as a means to achieving their financial goals.
For example, 58% of those polled use savings account as the preferred method despite the low interest rates that they offer. Among the banks in Singapore, Maybank offers the highest base interest rate of 0.31% p.a. The rest of the banks offer a measly base interest rate of 0.05% per annum. This translates to $5 for every $10,000 you save with the bank for a whole year. Although some banks are offering q higher interest rate if you credit your salary with them, the interest rate is still rather low.
In addition, another 21% of those polled indicated that their preferred financial product was fixed deposit, which is another low yielding financial product. While fixed deposits (e.g. Singapore Savings Bonds) fare better than a savings account, the interest rate amount is only slightly above Singapore’s inflation rate. It is no wonder why some Singaporeans are finding it hard to achieve their financial goals.
Low yielding financial products provide safety and assurance. However, being too safe can turn risky too, especially when you’re trying to achieve your financial goals.
4. Being ignorant about investing
One out of every two Singaporean is said to have no clue when it comes to investing, according to Standard Chartered’s survey. Some of them attribute this to their lack of financial knowledge. Better to be safe than to be sorry, right?
Others attribute the lack of investment to the paradox of choice. There are just too many choices that it overloads our mind to make a decision when it comes to investing. As a result, we just give up making a decision entirely.
Being ignorant about investing can be detrimental in how we manage our money. One of the most important financial concepts that elude humans is the concept of inflation. If you do not invest, inflation will eat away your spending power. Just think about how chicken rice used to be $1.50 in the good old days. Today, you can hardly find any chicken rice that is selling at $2, let alone $1.50.
Find out more about investing from Bankbazaar’s Beginner Guides:
- Beginner’s Guide: What Are Exchange Traded Funds (ETFs) and Why Invest in Them?
- Beginner’s Guide: How to Know What Are the Right Kinds of Investments for You
5. Relying too much on salary increments
Based on a survey by Willis Towers Watson, Singapore-based employers are budgeting for a salary increment of 4% in 2019. In the Standard Chartered survey, 33% of respondents expect their salary to increase by more than 50% in the next 5 years. With the Asia-Pacific region tipped to continue on an upward growth trend, it is no wonder why many emerging affluent expect their salary to increase significantly over the next 5 years.
Yet, the reality is that only 16% of poll respondents have experienced such significant pay increment. There seems to be a mismatch between the reality and expectations. It appears that emerging affluent Singaporeans are putting way too much emphasis on salary increment. Any risk to the economy can lead to a delay in the timeline of achieving your financial goal due to over-reliance on salary increment. Thus, instead of just relying on your active income to achieve your financial goal, it is also vital to build up your passive income to diversify your source of income.
6. Falling into the pitfall of being a ‘pretender spender’
Ever met that friend who drives a nice car, wears branded clothes and offers to pay for dinner every time you meet him/her? Or maybe it is not your friend, but you who has the making of a pretender spender? A pretender spender tries to impress his/her friends by showing off how rich he/she is. From cars to expensive clothes to VIP tables, their spending list is endless!
Instead of trying to impress everyone you meet, make sure you spend your money on what is important to you. You need to know what you are aiming for financially. Are you aiming to retire early and achieve financial freedom by age 40? Or are you aiming to travel around the world? Unless your goal is to have your friends feel that you are wealthy, don’t let yourself fall into the pitfall of being a pretender spender.
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