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20-11-2011, 08:18 AM
The Straits Times
Nov 20, 2011
Look beyond the here and now
There's credit in prudent financial planning for the long term - and sticking to the plan of action
By Dennis Chan
If there is one important lesson I have learnt about financial management, it is about pre-empting one's needs.
This was underscored recently when some retirees wrote to The Straits Times to complain that they had had a hard time obtaining credit cards from banks because they no longer have a job-derived income.
This was despite the fact that they have adequate savings and a history of paying their bills in full, and on time.
Simply put, they pose little risk of defaulting on their credit card bills, so why are the banks rejecting their business?
Some have claimed to be victims of ageism.
The banks, on their part, say that credit card facilities can be granted to retirees (individuals above 55 years old) based on one of two qualifying criteria. They need to:
Earn an income of at least $15,000 a year. This is lower than the $30,000 minimum requirement that applies to other applicants; or
Deposit with the issuing bank cash of at least $10,000 as collateral.
Naturally, the first criterion is the better option.
However, if the retiree does not qualify for a credit card under the income category, the alternative is to put his money with the bank.
But as the spending limit is collateralised by the amount deposited, a credit card obtained under this facility is not as attractive. One might even argue that a secured card is not a credit card at all but a pre-payment card since it requires one to tie down cash upfront before the first swipe of the card.
So how to pre-empt this dilemma?
The straightforward answer is to get a credit card or two during the income-producing years, even if you have no use for one.
I'm a firm believer in looking beyond the immediate horizon.
When I turned 18, there was never a doubt in my mind that I had to get a driving licence even though it seemed that owning a car might be forever out of reach.
Likewise, I got myself a few credit cards once I became eligible for one.
Although I'm not a spendthrift, I have found the credit card to be very useful. As the world accelerates towards an Internet-dominated, cashless system, the credit card has become more of a necessity than a luxury.
And if you are wondering if carrying credit cards will lead to greater temptation to spend or overspend, I'd say no, provided you remain grounded in financial prudence.
As long as you see a credit card for what it is - a means to make payment and not as a licence to chalk up debts - there is no harm carrying a few cards from different financial institutions.
I have done so for years.
Having multiple cards allows you the option of giving up those from issuing banks that do not meet your needs.
You can do this only if you guard your financial standing jealously.
That means maintaining a clean bill of health with the Credit Bureau of Singapore.
This is because the bureau is one of the first places a bank will tap to check on how reliable you have been in managing your borrowings the next time you seek a loan.
So never be in arrears with your credit card or other bank repayments.
Do not roll over your balance because credit card interest rates are among the highest that a bank can impose.
With a good credit standing, you will find that banks are quite willing to lend you money at far lower rates.
Recently, I received an invitation from a bank to take up an unsecured credit facility at an annual interest of 1.88 per cent for six months. There were no additional charges either, in the form of a processing fee. In contrast, credit card debts usually attract an annual interest rate of 24 per cent.
In other words, cheap money is available to those who are prudent in their financial management.
Beyond credit cards, long-term planning must include insurance coverage.
Do not leave this till too late because when you are no longer young or in good health, you will find it difficult to obtain personal insurance coverage, whether it is for medical, critical illness, term or life.
Thinking long-term also requires you to set aside regularly a portion of your earnings to invest for your retirement needs.
Perseverance is key here.
You will need to work out a plan and have the discipline to stick to it.
Retirement planning requires monitoring and updating at regular intervals, preferably at least once a year.
Having a financial planner you can trust would be a great help. But finding the right one is often a big question mark.
While there are many dedicated financial planners around, there are just as many who are more interested in selling you a product. Furthermore, building a long-lasting relationship with your planner may prove elusive.
According to my bank mailers, I have a relationship manager at two - or perhaps three - banks. I'm not sure, as I rarely hear from them.
Maybe it's the frequent change in relationship managers because of high staff turnover at the banks. Or it could be that I'm not a high net-worth individual.
It doesn't matter. I'm a DIY guy when it comes to financial management, so less is more as far as I'm concerned.
Of course, all this planning will come to naught if it is not executed diligently. Shackling one's spending today to achieve financial freedom for the future is rich in irony but wholly necessary.
It demands sacrifices and delayed gratification. Think of the squirrel which stores food for the winter.
It's been tough and I hope I'm doing enough to pre-empt my future financial needs. If not, I may have to write to The Sunday Times 20 years down the road to lament where I have fallen short.
dennis@sph.com.sg
Nov 20, 2011
Look beyond the here and now
There's credit in prudent financial planning for the long term - and sticking to the plan of action
By Dennis Chan
If there is one important lesson I have learnt about financial management, it is about pre-empting one's needs.
This was underscored recently when some retirees wrote to The Straits Times to complain that they had had a hard time obtaining credit cards from banks because they no longer have a job-derived income.
This was despite the fact that they have adequate savings and a history of paying their bills in full, and on time.
Simply put, they pose little risk of defaulting on their credit card bills, so why are the banks rejecting their business?
Some have claimed to be victims of ageism.
The banks, on their part, say that credit card facilities can be granted to retirees (individuals above 55 years old) based on one of two qualifying criteria. They need to:
Earn an income of at least $15,000 a year. This is lower than the $30,000 minimum requirement that applies to other applicants; or
Deposit with the issuing bank cash of at least $10,000 as collateral.
Naturally, the first criterion is the better option.
However, if the retiree does not qualify for a credit card under the income category, the alternative is to put his money with the bank.
But as the spending limit is collateralised by the amount deposited, a credit card obtained under this facility is not as attractive. One might even argue that a secured card is not a credit card at all but a pre-payment card since it requires one to tie down cash upfront before the first swipe of the card.
So how to pre-empt this dilemma?
The straightforward answer is to get a credit card or two during the income-producing years, even if you have no use for one.
I'm a firm believer in looking beyond the immediate horizon.
When I turned 18, there was never a doubt in my mind that I had to get a driving licence even though it seemed that owning a car might be forever out of reach.
Likewise, I got myself a few credit cards once I became eligible for one.
Although I'm not a spendthrift, I have found the credit card to be very useful. As the world accelerates towards an Internet-dominated, cashless system, the credit card has become more of a necessity than a luxury.
And if you are wondering if carrying credit cards will lead to greater temptation to spend or overspend, I'd say no, provided you remain grounded in financial prudence.
As long as you see a credit card for what it is - a means to make payment and not as a licence to chalk up debts - there is no harm carrying a few cards from different financial institutions.
I have done so for years.
Having multiple cards allows you the option of giving up those from issuing banks that do not meet your needs.
You can do this only if you guard your financial standing jealously.
That means maintaining a clean bill of health with the Credit Bureau of Singapore.
This is because the bureau is one of the first places a bank will tap to check on how reliable you have been in managing your borrowings the next time you seek a loan.
So never be in arrears with your credit card or other bank repayments.
Do not roll over your balance because credit card interest rates are among the highest that a bank can impose.
With a good credit standing, you will find that banks are quite willing to lend you money at far lower rates.
Recently, I received an invitation from a bank to take up an unsecured credit facility at an annual interest of 1.88 per cent for six months. There were no additional charges either, in the form of a processing fee. In contrast, credit card debts usually attract an annual interest rate of 24 per cent.
In other words, cheap money is available to those who are prudent in their financial management.
Beyond credit cards, long-term planning must include insurance coverage.
Do not leave this till too late because when you are no longer young or in good health, you will find it difficult to obtain personal insurance coverage, whether it is for medical, critical illness, term or life.
Thinking long-term also requires you to set aside regularly a portion of your earnings to invest for your retirement needs.
Perseverance is key here.
You will need to work out a plan and have the discipline to stick to it.
Retirement planning requires monitoring and updating at regular intervals, preferably at least once a year.
Having a financial planner you can trust would be a great help. But finding the right one is often a big question mark.
While there are many dedicated financial planners around, there are just as many who are more interested in selling you a product. Furthermore, building a long-lasting relationship with your planner may prove elusive.
According to my bank mailers, I have a relationship manager at two - or perhaps three - banks. I'm not sure, as I rarely hear from them.
Maybe it's the frequent change in relationship managers because of high staff turnover at the banks. Or it could be that I'm not a high net-worth individual.
It doesn't matter. I'm a DIY guy when it comes to financial management, so less is more as far as I'm concerned.
Of course, all this planning will come to naught if it is not executed diligently. Shackling one's spending today to achieve financial freedom for the future is rich in irony but wholly necessary.
It demands sacrifices and delayed gratification. Think of the squirrel which stores food for the winter.
It's been tough and I hope I'm doing enough to pre-empt my future financial needs. If not, I may have to write to The Sunday Times 20 years down the road to lament where I have fallen short.
dennis@sph.com.sg
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/