Overspending. The one reason why people get into debt

One Reason Why People Get into Debt — Overspending

There are many reasons why people get into debts — gambling, falling sick, getting retrenched, etc. But in this age of consumerism, one common reason why people get into debt is overspending.

Companies has gotten so good at tempting us into spending our money that we only realised we have spent too much when we looked at our bank account at the end of the month. Here are some of the common reasons why we tend to overspend.

The Environment We Are in Makes Us Spend

Have you ever step into the supermarket with the goal of purchasing one thing but end up leaving with a whole basket of food and groceries? Don’t worry, you are not alone. In fact, supermarket are designed specifically to get you to spend more.

Here’s an interesting observation:

“So, why is the dairy at the deepest part of the stores, anyway? Underhill says it’s because almost everyone who walks into a supermarket has some sort of dairy on their shopping list, and if it’s in the deepest part of the store, you have to walk past a lot of tantalising goods to get to it.”

But layout is just one of the weapon they have under their arsenal. Music is another common strategy used, especially so during festive periods such as Christmas.

Dr Alan Bradshaw of Royal Holloway, University of London, said: “Festive jingles are force-fed to Christmas shoppers in a bid to change their mood, influence their sense of time and what sort of products they buy. In other words, this is an attempt to manipulate your shopping habits in a way that you might barely be aware of.

So, the next time you are shopping in the supermarket, one of the best way to prevent this from happening is to walk in with a shopping list in hand. This way, you can keep yourself on task, get the necessary stuff only and walk to the checkout counter.

Our Friends and Peers May Make Us Spend More

Humans have an innate desire to be similar to the people that we hang out with, it’s our nature survival instinct to want to “fit-in”.

This is what caused us to overspend at time. Some of your friends may be more well-off than you so when you are out, they may tend to choose dining or partying places that are way out of your budget.

And in your effort to continue hanging out of the group, you may choose to overspend your budget.

One way to prevent this from happening is to be upfront with your friends about your situation, and if they are true friends, they will understand your situation and choose to hang out at a place that’s within your budget.

Credit Cards Makes Us Spend More

Credit cards are both a powerful saving tool and a powerful spending tool. It really depends on how one choose to use it to their advantage… or disadvantage.

Psychology studies have shown that people are often willing to pay more for the same product when using credit than when using cash.

If you realise that you have been maxing out your cards and only paying the minimum interest rate each month, then you should probably look at getting out of the credit card game entirely as this will lead you into a debt freefall.

Rely on cold hard cash and you will have lesser margin for error.

How to Stop Getting into Debt

Take a look at these two equations:

1st equation: Salary – Spending = Savings

And

2nd equation: Salary – Savings = Spending

These two may look the same mathematically. But look at it from a financial planning standpoint and you will realise that one will more likely lead you down the path of debt and overspending than the other.

If you were to follow the first equation, you will end up with unstable savings each month. Sometimes maybe even negative savings (e.g. credit cards spending).

But if you were to follow the second equation, you can be assured of a guaranteed amount of savings each month, and you will have to budget your spending according, effectively controlling your spending.

So, if you are hoping for a comfortable retirement in the future, go for the 2nd equation and start planning your savings, and not leaving it all the way till the end of the month.

Money Express Options in Singapore

Popular Year-End Money Express Options in Singapore

It’s the jolly time of the year again! While this means tons of celebrations, awesome food, gift exchanges and long holidays, it also meant that you have to spend lots of money. So planning your finance properly will definitely help you not to hurt your pockets during this holiday season.

In 2015, a survey done by UOB showed that Singaporeans are spending close to $800 on their festive shopping trips. While it is close to the year-end bonus time but you probably wonder, how did people manage to get that extra cash before collecting their bonus?

Here are some of the money express options that might give you the answers. While it is great to have a great holiday season but always plan within your means.

Asking for an advancement from your boss.

This is the best and most cost effective money expression option out of all. It grants you a cash advancement at 0% interest rate, and best of all, you don’t even have to return it at all! However, this depends a lot on your working relationship with your boss, your working attitude and most of all, your boss’s willingness to part of that sum of money so early.

This is not uncommon as there are companies which practise early pay advancement during festive months. It also means that you need to set aside your finance for the following month since advancing your pay early.

Using your credit card

This is the most commonly accessed money express options for most Singaporeans. Unsurprising as you can see from the newspaper to all the advertisements from banks on credit cards promotion for retail to meals and holidays travels. Not only will you be able to enjoy certain credit card promotion discounts, you will also be able to rack up points for your air miles. What a great way to kill two birds with one stone!

But spending electronic money meant that it’s harder for you to control your spending because it’s much harder to track what you have spent. So, if you are going for this option, just make sure you keep a close eye on what you have spent on.

Getting a short term loan

These that do not enjoy the perks of having pay advancement, or don’t have a credit card? Usually end up with a money express option with a short term loan from either a bank or a licensed money lender.

These loan options include personal loans from a bank, payday loans or short-term loans that are designed to help individuals tide over short period financial needs. While this option is easily available, it should be carefully considered due to the interest rates.

Yes, it is the end of year festive seasons and you are properly getting your bonuses. But we have seen examples of person over spending with their credit cards or cash advances that result in bad financial situations.

Therefore, even though there are lots of popular money express options in Singapore, you should always start to lay out your finances and evaluate the best option. The first step should be towards identifying and clearing all the outstanding bills and payments. Only through this exercise would you truly know how much you will be able to spend for the holiday seasons.

It’s better to spend lesser and have a modest celebration than to indulge in an extravagant one that leave you in debts and worries later. With this message in mind, we would like to wish everyone a great festive seasons ahead in December.

Unsecured Credit Limit New Changes in Singapore by MAS

Unsecured Credit Debt New Limits in Singapore: Find out Now

Singapore: Applied lots of credit card recently? Ever had friends who are debt-ridden by their credit cards? The Monetary Authority of Singapore (MAS) will phase in tighter limits on credit card debt and other unsecured credit facilities over four years to allow more time for borrowers to cut their debt.

This was a drastic change instead of the originally imposed idea (20 months ago) of implementing the limit at once this June. The new credit limit change offers a big lifeline to consumers who have overextended.

Unsecured Credit Limit in Numbers in Singapore

Unsecured credit is borrowing that is not backed by collateral. The borrowing limit limit applies only to interest bearing balances incurred on unsecured credit facilities such as credit cards and unsecured personal loans.

These unsecured credit limits are not applicable to loans for medical, educational or business purposes. Borrowers with annual income of S$120,000 or more, or people with net personal assets exceeding S$2 million will not be subjected with the new borrowing limits. Over-extended borrowers in Singapore total 84,000 who owe S$7.5 billion(source MAS).

What does Unsecured Credit Changes

With MAS recent annoucenment, the new limit caps on a person’s total amount of credit card and other unsecured debt will be slowly implemented in phases:

— June 1 2015, the unsecured debt limit will be 24 times the monthly income

— June 1 2017, the unsecured debt limit will be 18 times the monthly income

— June 1 2019, the unsecured debt limit will tightened further to 12 times the monthly income

How does new unsecured credit limit affect me

How does new unsecured credit limit affect me

This new time measures allow borrowers up to June 2019 to make the transition to adjust to the new credit limits. The increased time given were brought about following feedback from the public and the advice of the Association of Banks in Singapore, and Credit Counselling Singapore.

Although most unsecured borrowers in Singapore borrow within their limits, but a small portion still have significant unsecured debts.

How does new Credit Limit Affect You?

Financial institution (FIs) are no longer allowed to granted further unsecured credit to an individual whose unsecured borrowing exceed the limits. So if an individual exceeds their limit, they will not be allowed to apply for new credit cards.
Banks in Singapore are supportive of the new move as this allows more time for borrowers to repay their debts. This allowed banks more time for compliance with the new law. Unsecured Credit provides good margins for banks as interest rates goes up to 24 per cent per annum.

What if I Exceed my Unsecured Credit Limit of 12X

There is a help centre whereby one can seek help from the Repayment Assistance Scheme (RAS), a centralised debt repayment solution by Credit Counselling Singapore in partnership with the banking industry.

Under RAS, debt amount if is in excess of the credit limits of 12x / 18x /24x of your monthly income will be subjected to a lower interest rate of 5% per annum. This amount can be paid in a span of 8years and will certainly help to reduce debt burden. This allows highly indebted borrowers to have a assistance scheme. Borrowers who are eligible for the scheme will get letters from their financial institutions with information on their outstanding credit debt. Learn more about RAS and how it works 

How can RAS help me with my unsecured credit  debt and repayments

How can RAS help me with my unsecured credit debt and repayments

Singapore Dollar gets strong against Malaysian Ringgit

Singapore Dollar Stays Strong: Time to Travel!

With a spate of recent news, signifying that the Singapore dollar has hit historical highs against the Malaysian ringgit and Indonesian rupiah. So what does that mean for us at Empire Global? Travel!!

It’s the perfect time to hit the money exchangers and get stocked on Malaysian ringgit. It’s the year end and holidays too. Hence there is probably no greater time than to take advantage of the situation plus take a break with the family.

Singapore Dollar Strengths?

Firstly, the Singapore dollar has gained great ground on the yen due to monetary easing by the Bank of Japan.

Since the start of the year 2014, the Singapore Dollar has risen 7.3% on the ringgit with the money market currently standing at SGD 1 to RM 2.64 (time of writing). This has been extremely great news for those Malaysians working in Singapore as they enjoy the benefits of the exchange rates. Some analysts expect it to fall even further. We hope so too!

In-depth of Oil Demands

Part of the ringgit downward trend has been affected by the continuous slide in oil prices. As Malaysia has been a strong oil-exporting country, there are fears that falling oil prices will further cause declining revenues for the country. The oil price has fallen by more than 40% since June, when it was $115 a barrel. It is now below $70. This comes after nearly five years of stability.

Weak economic demand has caused oil demand to slide tremendously. Hence a great oil-exporting country like Malaysia has seen it’s export market falling. Oil-related industries account for a third of Malaysian state revenue.

How Does the Singapore Dollar Work?

The Singapore dollar is managed by the MAS against a currency basket comprised by the country’s major trading partners and competitors. The central bank established the weight of every different currency by taking into account the trade flows between the countries and the way the corresponding economy is impacting Singapore’s exposure to the rest of the world.

Being a massively export dependent economy and a crucial financial and logistics centre, the way monetary policy is conducted has proven to be an essential tool for the booming economy since 1981.

What Next for you?

This has made Malaysia a more affordable country to travel to. President of the Malaysian Association of Tour & Travel Agents (MATTA) has also highlighted his comments that Malaysia should try to take advantage of the situation as travel has weakened greatly since the attack on the MAS planes has caused strong negative sentiments to the travel industry. See more at: Travel Industry May Benefit from Weaker Ringgit
Arcade Moneychangers one of the best in town. Great Rates!

Arcade Moneychangers one of the best in town. Great Rates!

You probably have already seen moneychangers having long queues for the holidays. Now with the weaker Ringgit there are even longer queues and higher Singapore Dollar exchange needed to get the better exchange rates.

Today, moneychangers said they were still seeing long queues of people buying the Malaysian currency at their shops. However, they were not expecting a shortage in the coming days. Mohamad Rafik of Arcade Money Changers said: “Most people already bought as much ringgit as they can. I don’t think they will buy more.”

The falling value of the ringgit over the past weeks has been good news to Malaysians working in Singapore and Singaporeans who regularly travel across the Causeway for business or leisure.

Singaporeans travelling to these locations (Malaysia, Indonesia, Thailand, Australia) are going to enjoy great conversion rates and get more for their money.

Although while the Singapore Dollar is good in the asian markets, it has suffered against the Euro & the USD. Holiday makers rejoice as you can now make your dollar stretch event further especially in Malaysia or any oil-exporting country!

Word of Caution for Singapore Dollar

Malaysia Increases VEP fees. Reduces savings from  strong Singapore Dollar.

Malaysia Increases VEP fees. Reduces savings from strong Singapore Dollar.

As with all currency exchanges, do not overplay into the whole forex exchange. Exchange what you need or exchange just a little more for future needs. Currencies can change rapidly when the time comes and its seldom wise to hedge so much into currencies.

However, you might want to consider taking public transport. With VEP charges raised more than 5 times from RM2.90 to RM16.50 and with recent news that the Malaysian authorities plans to increase it to RM20 in middle of 2015 the savings from the falling ringgit might not be seen.

Meanwhile, enjoy the exchange rate!

More reading articles: 

Smart Ways to Spend Your AWS or Year-End Bonus

Everyone’s counting down to 2015. In just a couple more days and we are headed towards a new year. And everyone is looking forward towards AWS or Year-End Bonus. It’s time to maximise your hard-earned bonus. We at Empire Global had a good year and would like to dish our some sound financial advise for our readers.

What is Annual Wage Supplement (AWS): Demystifying AWS

Definition of AWS:The Annual Wage Supplement (AWS) is commonly known as the 13th month payment. It is a single annual payment to employees that supplements the total amount of annual wage earned by them.

Common Idea// Misconception: It’s compulsory for employers to award employees AWS.

The Truth:An annual bonus is an optional, one-time payment given at the end of the year. It is usually paid to motivate employees who have performed well. It can also be drafted in employee’s contract.

Read more on Annual Wage Bonus from the MOM

What to do with your Bonus

Worst thing to do? Rack up credit card debt in advance of your bonus and expect things to pay off eventually. That’s a big No-No! Use your bonus to treat your family members extravagantly.

Avoid making sudden big ticket purchases. Splurge spending and not checking out the best deals.

Best thing to do? Pay off high interest credit card debts and loans first. Clear as much liabilities as much as possible before the interest piles up. Clear all the bills! That’s your number one priority.

This is the best time to improve your credit score if you previously had some bad records. Having a clean sheet, void of debts would be most advisable. It helps in terms of future loan application especially for houses (it’s really tough to get a new BTO HDB flat).

Make that money work harder for you. You can channel some of that money into your CPF account and make your CPF work harder.

Learn more about how to Make Your CPF Funds Work Harder 

Don’t Forget Taxes

An old saying is to sound your chickens before they hatch. Even if you know your bonus amount, don’t assume its something extra. It is still taxable under Singapore’s IRAS. Save some of the bonus for the year’s taxes (set aside 10-40%) based on your income bracket. Those annual pesky taxes will make your bonus smaller. Which is why you should not be blowing off the extra cash that easily.

If your taxes are on the higher end, donate some of your bonus and receive a  250% tax rebate (http://www.iras.gov.sg/irashome/page04.aspx?id=1274)! Most people would not think about donating. Perhaps it’s time for you to donate some for a good cause plus you can some tax savings. Of course you need to check whether the charity is a registered IPC (Institutions of a Public Character).

Check out the charities on https://www.charities.gov.sg/

Fund Financial Goals

Plan your finances for the year ahead with this added bonus. Add some of that bonus money to your emergency savings. You can use that bonus to pay a small lump sum towards your housing loan. Any bit helps in the long run as the amount of compounded interest is equivalent to getting another house from HDB!

Put that entire bonus amount in a retirement fund. If you’re really ambitious and wish to retire early, a compounding interest with regular lump sums added can go a really long way.

Save for the Fun Things Your Like

Save that Bonus into your Piggy Bank

Save that Bonus into your Piggy Bank

We all love to treat ourselves to something nice. Firstly add a portion of that bonus to your piggy bank. As long you are financially stable, have some of the savings stashed up somewhere, well spend it! Not all of it of course. We suggest a good 20% will do.

Look out for really good deals for the items on your watch list. It’s the year-end and companies are going all-out to give you the best sales ever. Doing online shopping? Look our for coupon codes first before hitting the checkout button.

Rakuten(popular e-commerce in Singapore) for example has a great social following and regularly holds great sales. So check out companies Facebook pages, websites and surf around (sometimes bloggers are sponsored to give out coupon codes). All these can amount to great savings, not to forget, use the correct credit card for your purchase.

Summary: Spend or Save?

Everyone of us have had small windfalls or bonuses in our course of work. More often than not, that bonus money can be spent very quickly. Bonuses by nature are infrequent and is something we aren’t used to.

So treat that bonus as something separate to your regular income. Ideally, stash that bonus into your savings. This way, it allows you to keep your lifestyle and spending the same.

Read more related articles:

6 Tips to Help you Manager Debts & Finances

Spend Bonus Wisely This Year End Holidays

Spend Your Bonus Wisely this Year End Holidays

Christmas is coming! All the streets and shopping outlets are getting into the festive mood as we await the new year 2015. We at Empire Global  are none the wise too. Some of us have gone on long vacations to soak in the holidays we needed. Most of you are awaiting the year-end bonus or AWS or some would call it the thirteen month bonus.

iPhone6? Holidays in Europe? Can’t wait to spend on those items you want? Let us give you some advise before you think about spending them away.

Review Your Budget

Budgets are important if you want to get your finances in order especially now it’s the year-end frenzied shopping happens when big sales goes on in festive seasons. Take advantage of your bonus, all you need is 4 simple tips from us.

1. Don’t count your chickens before they hatch

Your bonus might be a sure thing, but  don’t ever go spending until it’s yours. You won’t want to land yourself in debt and hate yourself when you don’t get your bonus.

2. Factor in income tax & Chinese New Year
Save Your Bonus for Income Tax in 2015

Save Your Bonus for Income Tax in 2015

When you receive your bonus, you have to account for the following year’s income tax amount. Set aside a sum of the bonus for income tax. Not to forget, the annual CNY festival can amount to large spendings for the family. Ang baos, family dinners, visiting all are unforeseen costs.

3. Formulate a plan and stick to it.

If you had worked out a budget in the earlier part of the year, now’s the best time to look at it again. Have you stuck to your goals and savings policy? Look at the financial goals you have made, the bonus can be used as a boost on your goals.

4. Pay off debt

Pay off outstanding debt, whether its credit cards, renovation loan or personal loan, especially if they attract high interest. Have a bigger bonus, consider putting it on your home loan or car loan.

Spending on Year End Bonus

Rather than squandering the cash in needless new devices or luxury items and accruing more debt, because you’ve overspent on the bonus, consider investing in a hobby, an experience or a charitable course.

Considering travelling? Travel tight on a budget, stay in a hostel. Experience the culture right from within.

Learn from billionaire Li Ka-Shing to build up your network and savings using your income. We feel the article is more weighted towards business owners however the common salaryman should saving at least 30-50% of his salary.

Invest in long-term investments to get the compounding effect. Compounding goes a very long way and works most effectively when you are consistent.

Set up your new financial goals for 2015. Write them down and use your bonus as the baby pot of gold for your new plans. A little bit can go a long way.

Making purchases Online: Avoid online cyber scams!

Online Shopping Scam: Be aware of your money

Online Shopping Scam: Be aware of your money

$50 for a camera? Too cheap to be true? Although most of us would have forego such deals, but some of us will still take the bait. There have been several reports of people getting scammed online by deals that seemed too good to be true.

The number of cases in reported crimes have risen from 96-504 and the amount involved has tripled. Singapore Police Force has ramped up on educating the public through various media outlets.

Our advise?

Always buy from authorised retailers or known platforms. Check out the seller’s profile and ensure that you are confident of receiving the product too. Start by being aware by checking out this video by SPF New Media Team
If you are intending to purchase a device online from digital marketplaces, second hand sellers or resellers, you can do a quick check on the product’s imei number on the SPF SPEX platform. http://www.police.gov.sg/epc/spex_info.html
Here’s a musical video on online scams (#criminalwatch) to lighten the mood:

Spending on Year End Bonus: Bottom Line

Ultimately, the bonus is yours. Use your bonus in a way that you feel good about and do something that gets you enthusiastic about your overall financial life. And of course, it’s best to clear as much debt as possible and living a debt-free life is one of the best feelings that you can have.

Confused By Interest Rates in Personal Loans? Empire Global teaches you

Confused by terms used in Personal Loan? We teach you!

All these financial terms! Frustrated?

Getting a personal loan? Stumbled by the many jargons used by banks and money lenders? Heard of “Effective interest rates (EIR), Annual interest rate (AIR)” Well, let us at Empire Global take you through the many different terms used in personal loan and how you can get the appropriate loan type.

Rule of thumb: BE SMART and careful when you apply for a personal loan, you would not know when the interest rates hits you hard.

As money grows tight in a rapidly growing economy, people starts to take up loans for themselves. Personal loan, payday loans, home loans. However, it is often common that borrowers take up the wrong loan type for themselves or signed off a loan too early which they can’t repay well. Well, today we talk about personal loan and how you should really be careful about the terms spelt out.

What Borrowers Should Learn about Effective Interest Rates (EIR)?

As a borrower, one should be concerned about EIR for your personal loan. When analysing a loan, it can be difficult to get a clear idea of the loan’s true cost based on everything the bank provided.

There are several terms used to describe the interest rate, including effective rate, nominal rate, and more. Amongst all these, the effective interest rate (EIR) is perhaps the most useful, giving a relatively complete picture of the true cost of borrowing (which is why at times its seldom advertised too!)

To calculate the effective interest rate on a loan, you will need to understand the loan’s stated terms and perform a simple calculation. In short, effective interest rate attempts to describe the full cost of borrowing.  It takes into account the effect of compounding interest which is usually left out of the nominal or “stated” interest rate.

For the mathematical inclined!

Effective Interest Rate Formula for the Mathematically Inclined

Effective Interest Rate Formula for the Mathematically Inclined

A typical case scenario is when you have a loan with 10 percent interest compounded monthly. But in face, it carries an interest rate higher than 10 percent, because more interest is accumulated each month.

Interest Rate = 10% monthly
Actual Interest Rate > 10% monthly
 
 

Let’s Break Down Effective Interest Rate Further

1. Determine stated interest rate & number of compounding periods

Firstly, determine the interest rate that is quoted to you and the number of repayment periods. Stated (nominal) interest rate will be expressed as a percentage.

Compounding periods will typically be monthly, quarterly, annually, or continuously.

Stated interest rate = ___%

Compounding periods:

monthly = 12

quartely = 4

annually = 1

2. Making use of the Effective Interest Rate Formula

The effective interest rate is calculated through a simple formula: r = (1 + i/n) ^n -1.

r = effective interest rate

i = stated interest rate

n = number of compounding periods per year

3. Performing calculation of Effective Interest Rate

For example consider a loan with stated interest rate of 5% that is compounded monthly.

Based on the formula yields: r = (1 + 0.5 / 12)^12 – 1, or r = 5.12%

Example of Effective Interest Rate calculation for monthly repayment

Example of Effective Interest Rate calculation for monthly repayment – Credits Wikihow

Another example if it was compounded daily.

Based on the formula yields: r = (1 + 0.5/365)^365 – 1, or r = 5.13%

Note: Effective interest rate will always be greater than the stated rate

Considering home loans? Read more on: http://www.stproperty.sg/articles-property/financial-guide/home-loans-how-to-compute-their-effective-and-nominal-interest-rates/a/119694

2 Main Factors to Check before getting a Personal Loan

1. Compare before you borrow. Be paranoid about it!

Singapore has a huge range of banks and lending companies to choose from. It’s little wonder with the intense competition that personal loan interest rates sway greatly every time. Hence it’s best that you do your research and shop for the best persona loan at the time you need it.

Beware of marketing gimmicks
Free luggages a norm in Bank Marketing Gimmicks

Free luggages a norm in Bank Marketing Gimmicks. Beware of such gimmicks before taking up a personal loan!

One of the basic reason why interest rates fluctuate so much? Banks make money from charging interest rates. Depending on the popularity of personal loan in the market, they can charge lower or higher. You remember those free gifts and luggages when you sign up for a personal loan?

Well, that’s a marketing perk that banks try to get you to signup with their personal loan and take your attention off the high interest rate on offer.and banks can get desperate.

2. Show me the money

As a borrower you would want to pick a loan type to best suit your financials and repayment ability. Some companies will include additional fees such as processing fees, insurance fees which will unknowingly add to your total repayment.

Hence be a smart financial shopper. Be savvy about it. You want to borrow when the the banks are low on clients.

Enough of bank interest rates & terms!

Interest rates. Just show me the money.

Interest rates. Just show me the money.

There are many ways out of financial problems. All that is required is to seek professional advice from the right people. When you are shopping for a loan, be mindful of the different rates that a bank or institution quotes. Always ensure you understand which rates they are quoting and then compare the equivalent rates between alternatives.

These article is just an overview of effective interest rate. Look out for our next article when we go in-dept on personal loan and all the interest rates terms. Leverage on the proper loan by picking the one that suits you best for your situation. In short, do your research well!  

Empire Global is a licensed money lending company in Singapore. We place great emphasis on dishing out proper financial advice to our customers before they sign on the dotted line.