Brexit: How Will Singaporeans Be Affected?

The UK just voted in favour for British exit from the European Union. What does it mean for Singapore? What will happen now that British voters decided to leave European Union (EU)? The only honest answer is that we don’t know. A country leaving the EU isn’t something that happens every other month. The most we can do is speculate and play it safe – even if we’re all the way in Singapore.

 

Britain Isn’t Leaving the European Union Overnight

The United Kingdom (UK) is not leaving right after this referendum. It will probably be 2018 by the time they leave, and a lot of what happens next depends on withdrawal negotiations. That is, they need to work out what to do with the current EU migrants in the UK, and whether the EU is going to raise tariffs against British companies. All of these mean high volatility in the stock market, especially in bourses like the FTSE 100. Meanwhile, here is how Brexit is rocking the world economy, and the good and bad ways it can affect you:

 

1. Traveling to the UK Costs Less

The British pound is at a 31-year low today, making it very cheap for Singaporeans who want to visit the UK. It is not likely to stay this low for long; but with S&P threatening to downgrade Britain’s AAA credit rating, it’s likely that the pound will remain low for quite a while. That is good if you want to buy a house there, study there, or vacation there.

 

2. Investors Should Minimise Exposure to UK and EU Companies

Singaporeans should minimize their exposure to UK and EU companies to avoid volatility. This means looking into your mutual funds to see if you’re exposed, and consulting your financial advisor on rebalancing your portfolio. For example, if you have an Investment Linked Policy, you may want to make sure the various sub-funds do not hold much in the way of UK or EU based companies

 

3. Safe Haven Assets Like Gold and the Japanese Yen are Rising

Gold prices have already risen to $1,277 per ounce and can climb as high as $1,400 per ounce. Along with safe haven assets like the Japanese yen, this is likely to rise further. This is because investors will try to avoid volatility by putting money where they think it’s safe. As such, prices of gold and silver, as well as the strength of the Japanese yen, are likely to rise. It’s good news for those who already have such assets, but those looking to buy should speak to an advisor. It might be too late to do so at this point, and prices may already be too high.

 

4. Speak to Your Wealth Manager About Your Assets in the UK

If you own a house in the UK or hold other such assets, speak to your wealth manager about rebalancing your portfolio. It may not longer be wise to count on UK property holding its value if you’re nearing retirement, as the current turmoil will not be quickly resolved. It could take many years for the UK to recover, and that will affect asset values there.

 

5. Singapore Will See Fewer British Tourists

We may get fewer visitors from the UK over the next two years. This is not a HUGE deal, as British tourists only made up 3.2% of our visitor arrivals in April 2016. But we can expect to see less of them as their buying power plummets. Businesses that specialise in serving tourists from the UK may also feel the pinch from Brexit.

 

Do Not Make Financial Decisions Out of Fear

If you think you’ve just made a financial mistake after the Brexit announcement, give yourself a day or two to cool off. Do not try to “recoup” the loss by making brash and immediate investment decisions – this is akin to a common gambling fallacy, in which gamblers try to make up for a bad round by doubling or tripling the stakes on the next.
When you are anxious or distressed, you are more likely to make a mistake. Taking immediate action after a loss may compound the damage, rather than make up for it. Give yourself a day or two to reflect on what went wrong, and then carry on. 

How To Escape Living Paycheque To Paycheque In Singapore

Living paycheque to paycheque is not only stressful – it’s dangerous. Here’s how to stop and turn your finances around. If your paycheque seems to vanish as soon as it arrives, and you find yourself surviving on Maggi mee toward the end of the month – you have a problem. Specifically, you’re living paycheque to paycheque. Not only is it stressful; it’s dangerous. A single emergency, such as retrenchment, will send you neck deep in debt. Here’s how to break the habit:

 

1. Always Pay Yourself First

Before you start spending your money, make sure 20 per cent goes into your savings. We know the CPF does this for you already, but you can’t take out your CPF money easily. It’s important to have an emergency fund that you can tap into when you need. So the moment you get your pay, take 20 per cent and put it in a separate savings account. You’ll want to keep doing this until you accumulate six months worth of savings (however long that takes). Having an emergency fund means you won’t need to resort to loans in a crisis. It also gives you the confidence to make critical decisions, such as switching jobs or starting up a small side-business.

 

2. Reduce Your Loan Interest

If you find that almost all your money goes into repaying loans, it’s time to reduce the interest rates. One simple way to do this is to use a balance transfer to pay off a credit card completely, or to use a personal instalment loan to pay off higher interest debts. For example: Say you owe $5,000 on a credit card, which has an interest rate of 24 per cent per annum. You could take a personal instalment loan for S$5,000, at just six per cent per annum. You then pay off the credit card with the personal loan. This would effectively reduce your interest rate from 24 per cent to just six per cent. If you use a balance transfer, you might be able to get deals that reduce your debt to zero per cent interest for six months. This makes it considerably easier to pay off the amount owed. You can find the best balance transfer options on SingSaver.com.sg. You should stop using a credit card or credit line after making a balance transfer to pay it off, or using a loan to do so.

 

3. Find an Expense Tracking Method That Works For You

What gets measured gets managed. If you track your expenses, you are less likely to overspend. Here’s the tricky part: the same tracking method won’t work for everyone. For some of us, having an Excel spreadsheet does the trick; the rest of us need methods such as sticky notes or phone apps. Experiment with the methods available, from writing things down to using phone apps. Stick to the one that feels most intuitive. This is the first step to developing a functional budget. Which leads to the next issue.

 

4. You Need a Budget, But Forget the Rigid Methods

The easiest and most effective way to budget is to deduct 20 per cent of a particular expense. For example, if you spend S$1,200 a month on food, see if you can cut it down to S$960. Do this by setting aside $960 in your food budget, and then storing the excess S$240 in savings. You are free to spend the S$960 on food any way you choose – but when you run out, you’ve run out. No cheating and tapping your savings to pay for more. This method is usually more effective than trying to plan out the dollar value of each and every meal. Because we are human beings and not companies, it is not natural for most of us to stick to corporate-style budgets, where the exact amount of each expense is predetermined. Try to use this method for two or three categories in which you spend the most (e.g. food, travel, and clothes). If you fail to keep the budget in one, you may still succeed with the others.

 

5. Stop Automating Payments

If you have automated payments, such as for gym memberships, MMORPG subscriptions, or clubs, we suggest you cut them off. You should always be aware of what you’re paying, and how much you’re paying for them. This will remind you to stop forking out money for services or goods you don’t actually need. On the other hand, you do want to automate your savings if possible. The reason your CPF seems so huge is because the 20 per cent is deducted for you – out of sight, out of mind.

 

6. Tighten Your Belt the First Week You Receive Your Pay

Make a pledge to do minimal to no shopping, on the very first week you receive your pay. The only thing you should do that week is transfer money into your savings account and repay any due debts. This will help to break the habit of overspending in the first week, and then needing loans or credit to get you through the rest of the month. It will also prevent you from needing an advance, something that employers look on negatively as it affects their payment process.

 

7. Let Someone Else Do the Shopping

As a last resort, if you truly cannot control your spending, consider letting someone else do the shopping. Get a spouse, parent, or close friend who is willing to help, and give them a fixed shopping list. Pass them the cash to do the shopping for you, so you don’t get tempted. You can still indulge in the occasional bit of shopping. During the LAST week of the month, if you have a surplus, you may take the money and go shopping yourself. However, you should not bring any credit cards, lest you be tempted to rack up debt.

5 Smartest Things To Do With Your Pay Raise In Singapore

There’s a good chance your income will increase in the coming years – but don’t waste your pay raise on expensive things. With the Progressive Payment Scheme in full swing, some Singaporeans can expect to earn more in the coming years. In fact, even though job growth has slowed, real wages in Singapore are up around seven per cent. Even labourers see a wage hike from the Progressive Wage Model, with median wages up by 20 per cent. So there is a very good chance that you will see your income rise this year. Before you rush out to splurge on a new tablet or shoes however, see if you can do something smarter with that money:

 

1. Pay Off Your Debts

There are many reasons to pay down your loans* early, if you can. Loans apply compounding interest to the amount owed. The longer the loan tenure, the more you end up paying. For example, your credit card debts grow at 24 per cent interest per annum. Assuming you owe S$5,000, and pay back S$200 a month, you would take 35 months to fully repay it. That’s a total repayment ofS$7,000, for a debt of S$5,000. Yes, credit card debt is very expensive. This is why we suggest you repay the full amount every time, and never owe anything. In addition, paying down your loans will help your Total Debt Servicing Ratio (TDSR). When it comes time to buy your flat, your loan repayments are capped at 60 per cent of your income. This includes all your loans, including the intended home loan and your car loan, credit card loans, etc. So if you pay down these other loans early, you are more likely to be able to buy the house you want. *An exception is if you have a personal instalment loan, with fixed repayments. There may be a prepayment penalty if you try to pay off these loans early – these penalties might mitigate any savings you get. Compare the cost of prepayments to the amount you would save.

 

2. Expand Your Insurance Coverage or Payouts

Insurance policies provide protection and can also act as savings plans. If you don’t like to invest yourself, you may want to consider enhancing your insurance. Even a S$100 increase to premiums can result in significantly better coverage. You may be able to upgrade to a policy that covers hospital stays in a better ward, for example. You may also be able to add riders that cover you in the event of accidents, or include riders that mitigate the need to buy travel insurance in future (e.g. a rider that makes your insurance apply even in places you travel to). If your insurance plan has a savings component (it grows your money), raising the premiums can mean a much bigger payout for an endowment policy. The exact amount will vary based on your plan, but it’s worth speaking to your financial planner about. Investing an extra S$100 or more can be enough to cover your children’s tuition fees, or provide for a more comfortable retirement.

 

3. Build Your Emergency Fund Sooner

An emergency fund consists of about six months of your income. Emergency funds are used to pay for unexpected costs, or to provide for you in the event of illness or retrenchment (remember, even insurance policies may take some time to give you a payout). Having an emergency fund removes the need to use expensive loans when you need cash urgently. The sooner you finish building the emergency fund, the sooner you can put more into retirement planning. Alternatively, if your retirement plans are well in place, building the fund sooner means you will have more discretionary income for vacations and shopping.

 

4. Enhance Your Retirement with Passive Investments

Now that you have more cash, consider passive investments, such as savings bonds (appropriate if you are older), or blue chip shares and index funds. These are simple investments, which do not require you to trade (i.e. You do not need to time the market, and buy and sell to make a profit). Singapore Savings Bonds (SSBs) provide savings at a higher interest rate than the bank, with the flexibility to withdraw at any month. Blue chip shares and the Straits Times Index Fund can be acquired for as little as S$100 a month – this service is available from participating banks such as OCBC and POSB. But remember not to buy anything with advice from a professional – you can get help if your bank offers wealth management services (this comes with certain types of bank accounts, or premiere banking). Alternatively, speak to an Independent Asset Manager (IAM), or a licensed financial planner.

 

5. Upgrade Yourself

With the Skills Future programme in place, you already get S$500 to buy training courses. Don’t settle for your current raise – aim to get another one. Combine your new income with the government freebie, and get certified in the right skills. Remember to check with your employer first though. You don’t want to waste money on a course that isn’t relevant to your career, or that will have a minimal impact on your job prospect. Ask your boss what skills the company most values or needs. You should also consider building soft skills, such as leadership or expression skills, which are often needed in higher management.