The short answer to this dilemma is – spend less than you earn. It’s easier said than done, and once we’re plagued by money problems, it can affect our standard of living, health, relationships, and emotional well-being.
We see it happen to someone else and we go, “that’s never going to happen to me” but that’s what everyone with money problems once thought!
How can you stay away from financial issues? Here are some handy tips.
1. Create multiple sources of passive income
You know what they say about investment: don’t put all your eggs into one basket. So why should earning be any different? Depending on just your salary to meet your financial needs is a risky move. Say your company outsources your job overseas or you are unable to work due to health or personal reasons, how will you manage then? The answer lies in creating multiple sources of passive income. Since your income is spread across multiple sources, your risk is mitigated. All it needs from you is a strong financial model and you can let the money work for you.
How to earn passive income?
You may already be investing some part of your income in blue-chip stocks that have a history of paying good dividends, but that’s not the only way to earn passive income.
P2P lending, where individual investors lend money to small businesses for interest-based earnings in return, has taken off big time. You don’t even need a big capital and can start investing through some P2P platforms with sums as low as S$100. Pick the right horse and you can earn up to 14% per annum returns on your investment. Investing through reputed P2P platforms that do the due diligence and verify the authenticity of the borrower helps you minimize your risk.
Rent out a room
We know how volatile buying property in Singapore can be despite the cooling measures put in by the government. If you have an extra property, put it up for rent. If not, an extra room can work too, especially if it is close to business centres.
Not comfortable having a roommate? How about letting it out to newly incubated businesses that are always on the lookout for an office space that doesn’t burn their pockets. The best part is the room will only be occupied during office hours. You could earn anything from S$500 to S$1200 a month depending on your location and the size of the room.
Get paid for your hobby
Do you spend your weekends binge gaming on your console or whipping up innovative recipes? You can make money out of it! Put up instructional videos on YouTube, enable Google AdSense, and get going! PewDiePie, who has the most popular channel on YouTube, reportedly makes around USD 10,000 a day! Not bad, eh?
2. Take a loan if you must, but read the fine print
From personal loans, lines of credit to quick loans like payday, pawnshops, and moneylenders, there is no dearth of options when it comes to borrowing money in Singapore. But the bottom line for each of these loans is the same. Pay your monthly instalments on time and all is well in the world. If not, your financial health could receive a major hit.
For secured loans, you stand to lose your collateral, your house, or car. For unsecured loans, which are quite popular in Singapore, defaulting will mean a bad credit score making it harder for you to borrow money in the future. It might also make it difficult for you to switch to a better job as many top recruiters do not hire people with a poor credit rating.
How can you avoid getting into more trouble when you take a loan?
Compare multiple loans and getting the best quote helps. Even then, don’t forget to read the fine print. You should be aware of charges like prepayment penalties, cancellation fees, and processing charges. If you are borrowing from a moneylender, make sure it is a licensed one. And finally, don’t borrow more than you can chew!
3. Avoid co-signing or guaranteeing a loan for someone else
Your favourite nephew who has a bad credit score asks you to co-sign a loan. You say yes. He’s family after all. How bad could it be? Hear us out and then decide.
You don’t need to make any loan payments as the co-signee but if the primary borrower, i.e. your nephew defaults on the payments, you come into the spotlight. And it’s not just the outstanding debt that will bear your name. There will be compounded interest, late fees, and other penalties to deal with.
Your nephew’s bad loan will become your bad loan and will bring your debt-to-service ratio up. This will bump up interest rates and make it difficult for you to get an attractive loan for yourself.
How to avoid this situation?
Say no! It’s not easy and might hurt your near and dear ones but think of the alternative. Would you rather have a damaged relationship or a damaged relationship and bad credit score for no fault of your own? No brainer isn’t it? The best you can do is offer guidance and help them find a loan that gives them attractive rates.
4. Build an emergency fund
No matter how well you plan, life has a way of surprising you. And they aren’t always the good kind. A sudden injury occurs or you may be in between jobs and you may be in sudden need of money. Urgency throws caution to the wind and you may end up making a hurried decision to pawn a valuable, take a loan at an exorbitant interest rate, or worse, tap into your child’s education fund for the needed funds.
How to build one?
Sort your finances and allot a part of your monthly salary to your emergency fund. The fund should ideally be used for medical emergencies and living expenses for six months in case your income doesn’t come in. This is required to be a liquid fund so you can store this money in safe and easy to access avenues like a savings account or Singapore Savings Bond.
5. Avoid bad investments
The lure of penny stocks, haven’t we all been there? They sit there pretty with less than a dollar per share and like the slots at casino weekends, you bet your money on them hoping for a miracle. But remember, the gambling den always wins, and your hard earned finances may empty out in a flash.
Perhaps you are a gold person, racking up big bills at the jeweller thinking you’re making a sound investment. If so, you are making a big mistake. Jewellery comes with added labour charges and adornments that aren’t gold, cutting down your selling price drastically and making it a bad investment.
As for investments like art, crypto currencies and wine, you better know what you’re doing!
Where to grow your money?
Investment is a long-term game and the Singapore Savings Bonds (SSBs) with an interest rate of over 2% p.a. offers stability and liquidity.
Top up your CPF Special Account for a risk-free interest rate of at least 4%.
You may have heard of Exchange trade funds (ETF), investment funds that pool together money from investors to invest according to the ETFs stated invested objection. For example, the SPDR STI ETF and Nikko AM STI ETF track the Straits Times Index in Singapore, giving investors a simple way to invest in Singapore’s top 30 companies.
There are many places to invest your money and if you’re new to investing, head over to our investment section for easy articles to help you get started.
6. Never stop upskilling
Remember an era where typists and bank tellers were sought after jobs? Thanks to technology those jobs are obsolete and the list keeps getting bigger.
The Global Future of Work 2017 survey finds that automation will account for 29% of all work done by firms in Singapore in the next three years. A bot isn’t going to replace you (for now) but equipping yourself with changing skill requirements is not an option anymore in the long run.
Jobs needing digital expertise such as data mining, digital marketing, and cloud computing are recording rapid growths with the survey noting that 57% of companies expect to pay higher salaries for employees with these skill sets.
How to upskill?
You are never too late (or old) to upskill. The Singapore government’s SkillsFuture is a great way to start. Whether you are at the beginning of your career or in the middle, you can apply for the SkillsFuture Study Awards program and receive a monetary benefit of S$5000 to study and hone your skills without needing to sign a bond.
You can enrol for training programs at the Workforce Skills Qualifications (WSQ) spanning most sectors and earn a certificate or diploma at your own pace.
Want to switch careers? You can apply for the government‘s Professional Conversion Programme to help you transition into a new industry.