The Cheat Sheet’s Out!

Just spent the weekend working on the Singapore Savings Account Cheat Sheet PDF. Here’s a little preview of it – isn’t it beautiful?

I’ve done a little more than throw a bunch of interest rates together. I’ve also characterized the bank accounts into 3 types: Convenience, Monthly Savings, and High Interest-Low Access accounts. They each have different purposes – so I described which are more suited for your day-to-day transactions, Big Play account, and Long-Term Savings Account.

A huge THANK YOU for those of you who took 5 minutes to answer my survey – you’re awesome! Reading through your answers over the weekend has given me a whole new perspective on how to structure some of the chapters in the upcoming book. I’m super psyched indeed. 🙂 If you did the survey AND signed up for my VIP List, you should be receiving the full Singapore Savings Account Cheat Sheet in a couple of days.

If you haven’t answered the survey yet and would still like to do so, here’s the link: http://www.surveymonkey.com/s/T9BTPYS. Share it, forward it, re-post it. The more answers I get, the better the material I can push out for you.

Thanks again 🙂

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The Lowdown on Low Rates

An amendment to my previous post (thanks Sharon!) – just found out that DBS/POSB slashed their interest rates to a pathetic 0.05% for their regular savings accounts, and 0.2%-0.25% p.a for a MySavings account. To give you an idea about how painful that is, consider that $1,000 saved at a 0.05% interest rate, compounded monthly for 10 years, would give you a grand total of …. $1,005. Owtch.

It’s actually hardly surprising that banks are cutting their rates to pretty much zero in light of the current economic environment. And while I could bore you with my thoughtful analysis of why interest rates are near zero, (peppering my speech with words like “current economic environment”), I’ll just give you the lowdown on what you should, and should not do.

What you SHOULD do:

1. Stick to your guns. You’re not going to get rich just by saving, but good saving habits are the first step to getting your ass out of the poor house. Just like how the first step to losing weight is to STOP EATING THOSE DAMN TASTY MCDONALD’S BURGERS, the first step to getting rich is to stop spending your money on useless crap. Your account, while not earning very much in interest, serves as a protective commitment device to prevent you from making stupid spending mistakes. There’s a certain psychological advantage in keeping your saved money separate from the account meant for your daily expenses: you’re less likely to spend it.

2.  Use your account as a short-term savings account, saving for large expenditures that are less than a year away. This is actually what I primarily use my POSB MySavings account for – so I always have a stash that I can spend on vacations, parties, gifts, weddings (not mine), and random weekend trips, absolutely guilt-free.  Get your system to keep shoveling $100 into your savings account every month, and at the end of the year you’re likely to have enough moolah to spend lavishly on Christmas, or reward yourself with a trip.

3. If you’re a savvier saver, you could possibly look into some insurance-linked savings plans, CDs, bonds, etc. But I’ll blog more about those another day. But if you’re going down this route, be damn sure that you don’t need the money within the next 5 – 20 years. (what about your house? or wedding? or investments?)

(Side note: I have a separate long-term savings account, earning a higher rate of interest where I park most of my money that’s not meant to be splurged within the year. But I’ll talk more about why the hell I bother to maintain three bank accounts in another post)

What you SHOULDN’T do:

1. Don’t be tempted to switch to another bank offering an interest rate that’s 0.02% higher than the one you’ve got. Honestly, it’s not worth the trouble. Your subway ride to the other bank is probably going to cost you more than the additional interest you’re going to earn. Interest rates are constantly adjusted by banks. They’re low now because all the other banks’ rates are low. When the Federal Reserve in America decides to raise their interest rates, the rest of the world will follow suit and your bank will be forced to raise its rates in order to keep its customers. So hang in there.

2. Don’t be tempted to dump all your savings into some foreign currency term deposit. I’m seeing lots of ads these days touting everyone to convert their Singapore dollars into Australian dollars, offering interest rates of 5% and above. Sure, you could possibly make some money if you’re willing to take some risk, but don’t be fooled into thinking it’s risk-free just because it’s a term deposit. If the Australian dollar falls against the Singapore dollar, you could actually lose more than what you earned in interest. I learned this the hard way back in college when I transferred most of my savings to my US bank account, only to see the Greenback fall spectacularly by like 30% or something. (Luckily, I was too drunk to notice).

In short, it sucks for savers that interest rates have fallen, but don’t let that steer you away from your plan. Saving is just one part of the equation – it prevents you from spending on dumb things, and it’s a necessary prerequisite for all that other good stuff that WILL make you rich. Keep it steady!

How to be Awesome at Saving

It’s the day after Christmas and everyone’s trying to figure out their resolutions for 2012. Funny thing about resolutions – why the hell is it so damn HARD to stick to them? We all know they’re good for us, we all know they’re not physically impossible to do, yet time and time again we fail to accomplish them, with a billion excuses: “I was too stressed this month to go to the gym, my fat cousin at my sister’s wedding shoved a piece of cake into my hands when he knew I was on a diet, I really really meant to save $1,000 this month but I completely forgot it was my anniversary… etc”

Resolutions are so hard to stick to because they’re essentially a battle between our present selves and our future selves. Future self wants to be slimmer, stronger, healthier, richer, kinder, more generous, less lazy, while present self wants to be fed, pampered, pleasured, excited, stimulated, and less stressed. (That’s what she said!!) And here’s the kicker – future self is absolutely powerless when he or she is up against present self. Present self has all the tools: your arms and legs and mouth and brains and muscles, which is like a friggin Juggernaut up against future self’s scrawny Peter Parker before he got bit by a spider. Essentially, present self has absolutely no incentive to make any sort of sacrifice today so that future self can be improved. And that’s the biggest problem. We all know we should be doing something, but psychologically, we just can’t. Willpower can only get you so far – we’re all weak pathetic humans. Psychologically, it’s a wall that’s seemingly impossible to climb and it affects us in all areas – including saving.

All of us “know” we should be saving more. Some of us probably do save a little every month. (no, I don’t count CPF as savings – that’s cheating, you cant use that money until you’re retired anyway, and there’s always a risk that GIC or Temasek is gonna blow it all investing in the next Lehman.) But are you consciously aware of how much you’re saving every month? When you withdraw money from your ATM and catch sight of your balance after a month of hardcore Christmas shopping, do you simply shrug your shoulders and say, “Guess I spent that much”? It’s a terrible way to live, and you are sure as hell not going to save as much as you could potentially could be.

That’s why I’m going to teach you how to be absolutely friggin awesome at saving. After I’m done, you’re gonna be consistently paying yourself every month, with absolutely no effort on your part. You’re not even going to notice that you spent less, yet your savings account is going to grow bigger and bigger every month. Are you ready? Let’s go.

Step 1: Decide how much you want to save every month. Don’t get too worked up over this part – If you’re not sure, decide on some low number like $100. You can always change it later at no additional cost. In fact, it’s better to commit to some low number initially and meet your target easily, rather than be all overambitious and fail to meet your promise… again. I can hear some of you whining, “Ohhhh Lionel… I couldn’t possibly save anything at all.. I just bought a car.. or I just got a boyfriend.. I don’t get paid enough… sobsobsob” Shut up and go jump into some curry. If $100 is too high, can you commit to $50? How about $10? If so, then that’s $10 more than what you saved yesterday.

Step 2: Find a savings account that earns you a respectable interest rate. If you’re like me, or the majority of Singaporeans, you’re using a standard POSB savings account that you got as a kid to store your “ang pao” money. That pays you a measly 0.125% 0.05% interest rate, which is pathetic. It’s more exciting to watch a snail crawl than your money grow. Sadly, most Singaporean ubanks pay crappy ass interest rates and get away with it, but you can still find some banks with better rates than what you’re having right now.

If you have a POSB account, the easiest way is to set up a MySavings account, which pays you a 0.4% 0.2%-0.25% interest rate – still pathetic, but still more than three times that of a regular POSB savings account. And it’s absolutely free, doesn’t incur any charges when you transfer money or fail to transfer during a particular month (bad you! Go stand in the corner). With a little bit of shopping around, you can find other banks that pay a better interest rate. Full disclosure: I personally have three accounts: a regular POSB savings account, a POSB MySavings account, and a CIMB Starsaver account. More on why I have three accounts in a later post, but let’s start with two first.

Step 3: Set up your savings system. Most banks will let you log on to their internet banking portal and set up a system for automatic transfers for a certain date every month. Say for example you get paid on the 21st of every month. Leaving 2 days to allow for any contingencies for failed salary transfers, you can then set your system to transfer money on the 23rd of every month. So after you get paid every month, your system automatically goes into your account, takes the money that you want to save, and plonks it in a separate account earning you a higher interest rate, without you having to do anything at all. It’s like having an awesome invisible personal assistant.

There’s actually a Step 4 to the whole process, but it’s not really something to do, it’s more like something you shouldn’t do. You must absolutely, never, ever touch the money that you saved into that additional savings account. That money is NOT for you to blow it on a new couch, or a vacation, or your dog. That money is for retirement, meaning that you are only allowed to touch it for things like purchasing a house, financing your kid’s college education, or safe, long-term investments. (And no, a car isn’t considered an “investment” – I don’t care if you think you can make a few extra dollars by selling it off). This step is probably the most important, and requires a little willpower on your part. But there’s something psychologically advantageous about splitting your savings away from your spending money. It actually gets harder to spend that money once it’s locked into a separate account somewhere. If you have a problem keeping to this, I recommend that you tell your bank not to give you an ATM card, cheque book, or internet/telephone banking access or whatever, so that the only way you can transfer money out of that account is for you to visit the branch. It’s gonna be so much trouble that you’re just going to end up not wanting to spend that money. (Imagine telling your friends, “Yo! Butter factory this Friday? Sweet – it’s on! Wait let me first take leave from work to drop by my bank during office hours so I can transfer some money into my spending account.” – yeah, that’s unlikely.)

That’s it, you’re done! When you’re done with the above 3 steps, you are now automatically paying yourself every month, with no additional “willpower” on your part. Best of all, you won’t even notice that you’re spending less. Humans have an incredible ability to adapt to whatever situations we find ourselves in, so your mind will gloss over the fact that you have $X less to spend every month. In fact, you won’t even change your lifestyle all that much, yet your savings account will be silently growing and compounding, thanks to that better interest rate you discovered. When you check your statement after a year, you’ll be damn surprised at how much you saved, with absolutely no effort whatsoever. And then you can pat yourself on the back for finally keeping to one of your resolutions.