How to To Save Free Money

Happy Chinese New Year! It’s that time of the year when the malls play annoying “dong-dong-dong-dong-chiaaanngggg” music, when Singapore gets a 2-day holiday (and China gets like 14), and we get to stuff our faces with pineapple tarts and abalone and those awesome prawn rolls. Oh, and single people get to receive some FREE cash money, handed to us in red packets (Singaporeans call those ‘ang pao’) by nice relatives, accompanied with the inevitable question “So… when are you getting married?” Oh, Asian relatives. Gotta love ’em. That awkward question aside, it’s helluva awesome to be getting free cash just for not being married.

Funny thing about free money – there’s been research in behavioral economics showing that people have a tendency to do something called “mental accounting” – meaning we tend to be less cautious with our winnings than we would with our earnings. That’s also the reason why lottery winners tend to end up bankrupt. Couple that with the tradition of 2 to 3 days of partying and informal gambling (Some explanation here – Chinese New Year turns the most frugal Singaporeans into hardcore highrollers, yelling ‘HUAT AH!!!’ while playing blackjack with their ang pao cash) and it’s no wonder that your newfound wealth disappears faster than a delicious plate of bak kwa. In fact, there was one year I found myself poorer than what I’d started out with, even though I’d been sitting on my ass receiving money all day. How the hell did that happen?

It’s simple – easily accessible money is easily spent. Transfer cash from your red packets to your wallet, and it’s gone. Think about another similar scenario: You’re out with your friends at dinner and it’s time to split the bill. You realize you don’t have any cash on you, so you card it and have everyone else pay you back in cash. You leave the restaurant with $200 bucks in your pocket… and promptly spend it all within the next 3 days. Sound familiar?

Easily accessible money is easily spent. Which is why I always advocate transferring your savings into a separate bank account so you can’t touch them. This year, don’t take the money out of your red packets. In fact, shove all your red packets into some deep dark corner (just make sure you can find them later). Keep ’em in there till the end of Chinese New Year, and chances are you’ll be helluva surprised at how much you managed to accumulate. Then take your newfound wealth to the bank and deposit it that same day. Think about it – it’s the perfect chance to boost your savings or use it as an initial investment into your stock portfolio (more on that later).

If you’re going to gamble, decide beforehand how much you’d be comfortable losing, draw it from an ATM, and go wild with it – but no more than that amount. Just like what you would do in a regular casino. That practice also gives you an unintended psychological advantage – Drawing your gambling funds from your bank account forces you to acknowledge that every bet affects your net worth, thereby making you less reckless, and more strategic (definitely a good thing for poker). Conversely, gambling with the ang pao money that literally fell into your lap makes you value it less, and hence more likely to lose it. (Again, notice that I’m not saying you should NEVER gamble. Part of being rich means that you can kick back, have fun, and blow some cash if you want to. Just be smart about it :)).

Sound like common sense? Of course. Everyone knows what they should be doing, but surprisingly few people actually go and do it. If you want to achieve anything great, like building up your hugeass bank account, start with the baby steps first. Once you get the small habits down, it becomes way easier to manage the larger sums of money that’ll be coming your way. Here’s wishing you an awesome (and wealthy) Year of the Dragon. HUAT AHHHH!!

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