8 common pieces of money advice you would be better off ignoring

The people in your lives will always have opinions about how money should be used and spent. Whether you're hearing this from your financial advisors or from your friends, you should always take their advice with a pinch of salt. Not all their advice is going to work for you.

Here are eight common pieces of money advice you would be better off ignoring, or at the very least, assess thoroughly for yourself before you follow it.

1. Don't spend using your credit cards

This one is an evergreen. People always advise you to only use your credit card in emergencies. Or they say that credit cards are like drugs; Evil things that only the desperate would use often.

We object to this advice. The only circumstance when you should not use a credit card to make a purchase is if you are incapable of self-control and will definitely rack up debt that you cannot afford to pay.

Other than that, credit cards are great - they give you interest-free money for a month and reward you in the form of points, rebates, discounts or air miles.

8 common pieces of money advice you would be better off ignoring

  • People always advise you to only use your credit card in emergencies, but the only circumstance when you should not use a credit card to make a purchase is if you are incapable of self-control and will definitely rack up debt that you cannot afford to pay.
  • Other than that, credit cards are great - they give you interest-free money for a month and reward you in the form of points, rebates, discounts or air miles.
  • Buying your whole home on interest-free loans from Courts when you just get married is something we don't advocate.
  • This habit of buying on credit may get out of hand very easily.
  • Buying in bulk seems intuitive. You buy more, you pay less per piece of product. But the merchants do not mind this as they earn more profit per customer.
  • If you're going to buy things that you won't use often just because they're cheaper in bulk, what will happen is that 70 per cent of it will get lost in storage and become junk after a while.
  • Just investing in blue-ship stocks seems like very smart advice financial experts may give you.
  • But doing this will severely harm your portfolio, because you need to rebalance your portfolio to ensure you're taking on risk that you are willing to be exposed to.
  • Top up your (CPF) Special Account from your Ordinary Account could be great advice, but you need to assess whether doing this will suit what you are aiming for in life.
  • If you're planning on buying a home or a residential property for investment in the near-term, then you need as much money in your CPF Ordinary Account as possible so you don't have to fork out more in cash.
  • GIRO is one of the most convenient ways to settle all your payment responsibility hassle-free. However, using GIRO also means you may slowly lose track of what you're paying for.
  • On surface, paying off a mortgage as quickly as possible seems like a well-intended piece of advice that should be a no-brainer.
  • But with your mortgage loans at 2.6 per cent, we think it is quite possible to find investment opportunities that beat this rate.
  • You can't take money with you when you're gone from the world, but not saving will catch up with you, and like any other bad habit, it will always cause some havoc in your life.

2. Buy interest-free household items

Buying your whole home on interest-free loans from Courts when you just get married is something we don't advocate. This habit of buying on credit may get out of hand very easily.

Apart from this, there are also some very real problems you have to deal with including:

1) you lose track of your monthly expenditure requirements as you rack up more debt;

2) your credit card limit will be reduced by the amount of your purchase;

3) you probably won't enjoy any reward points on such payment plans;

4) you have to pay administrative fees even if you think it's interest-free; and

5) you'll probably be stuck with the annual credit card fee as you can no longer threaten to cancel your card.

So think twice when you're decided to buy anything interest-free again in the future.

3. Buy in bulk to save money!

This is intuitive right. You buy more, you pay less per piece of product. But the merchants do not mind this as they earn more profit per customer. Win-Win.

Wrong!

If you're going to buy things that you won't use often just because they're cheaper in bulk, what will happen is that 70 per cent of it will get lost in storage and become junk after a while.

So only apply this rule to products that you use very regularly or can buy with friends and family to enjoy the bulk discount.

4. Just invest in blue-ship stocks and forget you even have them for the next 25 years

This seems like very smart advice financial experts may give you. But doing this will severely harm your portfolio. Here's why:

You need to rebalance your portfolio to ensure you're taking on risk that you are willing to be exposed to. You can be investing in index-linked ETFs rather than one blue-chip stock. This will expose you to less risk and just about the same amount of returns.

5. Top up your (CPF) Special Account from your Ordinary Account

This advice could be great…for other people. You need to assess whether doing this will suit what you are aiming for in life. If you're planning on buying a home or a residential property for investment in the near-term, then you need as much money in your CPF Ordinary Account as possible so you don't have to fork out more in cash.

Some advice can make a lot of sense and be really great for other people. That doesn't mean it works for you.

What you should buy with a credit card

  • Air tickets cost between a few hundred to thousands of dollars, and if you buy them with a credit card it can help you accumulate points/miles or cashback substantially, depending on the type of rewards credit card you have.
  • It is especially beneficial if you use a travel credit card that lets you earn air miles, since miles generally have better value for money than points or even cashback when you redeem them for plane tickets.
  • Similar to the purchase of air tickets, hotel bookings usually range from a few hundred dollars to a few thousand for a single vacation.
  • Many third-party sites such as Agoda.com allow consumers to find and book hotels directly through their sites. Riding on the increased popularity of such websites, many banks are also tying up with these merchants to offer cardholders discounts.
  • The great thing about using your credit card to buy expensive items is that you do not need to worry about withdrawing a huge amount of cash from the ATM machine and grapple with the fear of carrying a large quantity of cash with you.
  • Other than being convenient, most furniture or department stores selling household electronic appliances allow you to pay with interest-free instalments if you use certain credit cards.
  • For those of you who don't have the benefit of claiming petrol expenses from your company, spending on petrol is a necessary evil if you are a car owner.
  • If you want to save a huge amount at the pump, the best way to do so is with the right credit card. There are many credit cards in Singapore that give you petrol savings.
  • Many Singaporeans buy luxury products overseas, especially the bag-loving office ladies when they travel to Europe.
  • Using a credit card for these purchases can really save you a lot of money, by giving you cashback or rewards points/miles.

6. Automate all your bill payments through GIRO

GIRO is one of the most convenient ways to settle all your payment responsibility hassle-free. However, using GIRO also means you may slowly lose track of what you're paying for. Some repercussions of this may be continuing to pay for a useless magazine subscription you applied on a credit card you don't use anymore or losing track on how you're spending your money in order to rejig your lifestyle to suit your current requirements.

7. Pay off your home mortgage as fast as you can. Save up extra money and repay in bulk every few years

On surface, this seems like a well-intended piece of advice that should be a no-brainer. But with your mortgage loans at 2.6 per cent, we think it is quite possible to find investment opportunities that beat this rate.

In fact, the STI ETF has returned an annual average of 4 per cent per annum, beating the 2.6 per cent mortgage loan rate.

8. You can't take your money with you when you go, so why worry so much about saving?

I bet all of us have heard this from a friend or family member who's always travelling or shopping. These people also like using the hastag #YOLO (You Only Live Once). And they use it against you like you don't possess an ounce of logic and are bereft of sense.

We're not saying that we've found a way for you to take money into the next life. You can't take money with you when you're gone from this beautiful world, but this habit will catch up with you, and like any other bad habit, it will always cause some havoc in your life.

We're also living to ripe old ages of 80 to 85 now, and we don't want to be left in a situation where we've planned to have money till 65 but continued living broke and reliant on our family members for another 20 years.

Worst money mistakes to make in your 30s

  • By the time you are 30, marriage plans, having a child and paying for a home loan all require careful financial planning. Here are five of the worst money mistakes to avoid during your 30s.
  • 1. Not having an emergency fund.

    Why would you need an emergency fund? Well, with increased financial responsibility, you need to be prepared for circumstances where you might find your regular income source being cut.

  • Most financial experts advise setting up an emergency fund that amounts to about 6 months worth of living expenses.
  • 2. Spending to keep up with appearances

    Living beyond our means is a common money mistake a lot of people make - from buying luxurious watches to branded handbags, who hasn't been tempted to do it?

  • This is especially true if your peers are living it up with their appearances as well.
  • While you might be asking yourself how your friends are able to afford these luxuries while you struggle to buy them on credit, here's the sober truth - they might be in debt as well.
  • 3. Borrowing to finance your wedding

    While weddings in other countries are usually simple affairs, a Singaporean wedding is quite the opposite, involving spending on elaborate ceremonies and dinner banquets, rentals of multiple gowns and luxurious photoshoots.

  • It's pretty common for the total cost of a wedding to come up to an average of $30,000, and many couples resort to incurring credit card debt or taking out a personal loan to finance the wedding.
  • 4. Neglecting insurance

    Insurance in general - health insurance, life insurance, home loan insurance and critical illness insurance - often gets put on the back burner. Although in Singapore we have our Medishield Life that provides basic insurance coverage, it's not enough, given the high cost of healthcare here.

  • During your 30s when you have more financial responsibility, it is prudent to get insurance so that in case of any medical crisis, you will be able to continue paying for other important things.
  • There's always room to do some planning for your retirement now, even if it looks far away. Start to think about your retirement and make appropriate plans for it.
  • This should not just include savings, as the value of your money in the account will not beat inflation rate.

Summary

In essence, we're telling you to think about the suitability of any advice from friends, family and experts out there. Advice that you get from anyone else will most likely be something you can ignore or not catered to your situation. After all, it is you who are going be responsible for your decision.


DollarsAndSense.sg is a website that provides bite-sized and relevant articles to help Singaporeans make better financial decisions.

SERVICES