There are certain personal finance areas that is extremely popular among Singaporeans. This can be seen from the popularity and prevalence of websites dedicated to finding
and shilling the best ‘insert financial product here’. We Singaporeans lap all these information up as we love a bargain.
5% off my credit card spend? Awesome! Sign me up!
2% interest if I jump through a whole bunch of hoops? Sweet!
While these websites provide good information about products that is of interest to everyone, I feel that it causes us to fixate on these things. It also distracts us from what is truly important in building wealth.
In today’s article, I hope to convince you to optimise your time and refocus your efforts on the right Personal Finance areas.
How to get Rich
Firstly, we have to focus on the overall end goal – becoming financially independent and getting rich.
The formula to getting rich is actually very simple. Kyith from InvestmentMoats expresses this in his Wealthy Formula. It involves 3 main elements:
- Earning More
- Optimise and reduce spending
- Use the difference to invest wisely
By doing these 3 things right, given enough time, you should be set for life. Nothing fancy, just math.
2 illustrative areas to stop focusing on
Now let’s take a look at 2 personal finance obsessions Singaporeans have that I feel should be stopped.
Hacking Savings Accounts
This is probably the single largest area Singaporeans focuses on, probably because we have large cash allocations in our portfolios.
Hacking savings accounts involves finding the best savings deposit accounts that pay the best interest rates. These accounts usually come in the form of salary crediting savings accounts. Examples include the DBS Multiplier account, OCBC 360 account and UOB One account. Each of these accounts have unique conditions that if satisfied, earns you enhanced interest for the month.
As a result of the existence of these accounts, there is a whole movement about finding ways and means to game these accounts for maximum interest.
The DBS Multiplier SSB Ladder
Personally, the most elaborate hack to come out of this relentless focus on hacking savings accounts is the DBS Multiplier SSB Ladder. It also serves as a great example of why your effort is misplaced.
If you have not heard of this, it is essentially a hack that involves constructing a 6 month ladder of Singapore Savings Bonds (SSBs) with interest credited into your DBS Multiplier account. The interest credited into your account satisfies one of the qualifying conditions for higher interest. As the bonds pay out semi-annually, you essentially satisfy this condition for the entire year.
The level of effort required to make this work is truly staggering. You essentially need to take the time to apply for SSBs monthly for 6 months just to set this up.
Hacking Credit Cards
This is probably the second largest obsession Singaporeans have in personal finance. Hacking credit cards is essentially finding ways to maximise the rewards on your credit card spend. These rewards usually comes in the form of Cash Back or Miles.
Every credit card has its unique hook by offering enhanced cashback or miles for specific types of credit card spend. Enhanced cashback for dining spend or Grab transactions anyone?
Similar to savings accounts there are whole movements about finding way the most optimised way to earn rewards from your credit card. There’s even arguments over Team Cash Back or Team Miles.
Why you should stop focusing on them
Poor Return on Effort
What most people fail to realise is the poor return on effort.
In the DBS Multiplier Bond Ladder example, the historical impact of this move increases your interest rate anywhere between 0.15% to 1.42%. If you apply that to the $50,000 cash balance cap, that is only a bonus interest of $710 per annum. However, for most people, they are not even eligible for the 1.42% increase, with the actual increase closer to 0.30%. This represents a bonus interest of $150 per annum.
Imagine if you’re like me, someone who has minimal cash reserves as I deploy almost all my cash into the markets. The return on effort will be even more abysmal. Hardly worth the effort.
As for credit cards, let’s say you are trying to optimise your spending and looking for areas to save. You start by cutting discretionary spending. This is usually where you save the most money as 100% of what you cut goes into widening the Gap.
If you’re doing this right, you are often left with very little expenses. If you charge all these expenses to your credit cards, you are only saving a very small sum for the effort you put in. In the illustration, you are only saving $7.50 per 1% of Cashback managed to hack.
Ever shifting Terms and Conditions
Banks and companies are not stupid. They exist to make a profit. If they give what people perceive to be a good deal, there is always an ulterior profit driven motive. As such, don’t expect good things to last.
This is exactly what happened on the DBS Multiplier account recently as it was nerfed to oblivion.
This problem also affects miles credit card especially hard as there are 2 moving goalposts involved:
- Miles per dollar spent
- Miles requirements for flights
It is no secret that these conversion rates are constantly being adjusted downwards.
Making the effort optimise your miles only to have them devalued when you actually want to use them is just a waste of effort to me.
Areas we should actually focus on
This is easy – go back to basics and look at the Wealthy Formula.
Improving your income
From personal experience, the speed at which you build your initial pot of gold is usually highly correlated to your income level. As such, we should spend our time on investing in your human capital and building your income.
Depending on your chosen field, this may involve acquiring valuable skills through additional training and qualifications. This may involve reading widely and keeping up to date with industry trends in your field. Or it may involve taking on more responsibility to learn new things at your work place.
If there’s limited scope for growth in your industry, building your income may involve doing a small side business, becoming a part time freelancer or getting involved in the gig economy.
Proactively spend your precious time and effort on growing your income and you should see better return on your effort.
Reduce your discretionary spending
Eliminating discretionary spending gives you the most bang for your buck in this category.
For further optimisation techniques like credit cards, I personally choose the card that is most straight forward so that you don’t need to jump through a ton of ever shifting hoops for minimal benefit. I like fuss free cash back cards like Standard Chartered Unlimited Cashback for this.
If there is a card out there that satisfies your necessary spending pattern, go for it. However, don’t be surprised if the terms and conditions change with time.
Once you settle into an optimised spending habit, you’ll find that you don’t need to focus on this area anymore.
Improving your investment skills
This is an area Singaporeans tend to not put much effort into, choosing to either sit on Scrooge McDuck levels of cash or outsource this knowledge through expensive methods. Between seeing your money erode due to inflation or your returns eaten away by high costs, these 2 choices are not the best.
The truth about investing is that it involves effort, even if you choose to outsource it to fund managers.
Not matter which investment method you choose, you will still need to put in the requisite effort to educate yourself in that area. Here’s an illustrative list of things you need to put your time towards:
|Investment Method||Required effort|
|Unit trusts / Funds||Research on returns, expense ratio, turnover ratio, choosing the best funds|
|Robo-advisory / Digital Advisory||Research on funds offered, investment methodology, costs|
|Index Investing||Research on underlying ETF composition, tax efficiency, rebalancing|
|Stock Picking||Research on stocks fundamentals, macro-trends, anything and everything about the markets|
|Leveraged / Unleveraged Bond ladder||Research on creditor financials, bond ratings, interest rates|
|Property Investing||Research on market trends, supply and demand, property fundamentals, etc|
|Crytocurrencies||Research on each coin’s risks and purpose|
Use your precious time to read investment books, websites or news. Attend talks or courses like Dividend Machines (referral link) as necessary. Engage like minded individuals on this. All these activities are way more productive use of your time and effort.
Final word – Focus on Return on Effort
The 2 personal finance obsessions I talk about is certainly not an exhaustive list. You can apply it to a whole range of other financial products and services including:
- Fixed Deposits
- Endowment plans
- Brokerage accounts
We all lead busy lives, any activities we put time towards should give the most bang for our buck, the most Return on Effort.
Chris from Tree of Prosperity probably says it best in his call out on his blog:
Focus on the right personal finance areas, readers.