If you haven't already burnt through your red envelope money, perhaps you should consider how to wisely utilize this extra cash. In this article, we outline a few great options for using this disposable income.
Pay Off Your Credit Card Debt
If you have credit card debt, it would be sensible to make an effort to begin repaying this debt as soon as possible. Credit card companies tend to charge about 25% of interest on unpaid card balances, which can quickly snowball into a financial disaster. Hopefully, your credit card debt is small enough to pay off with cash from your Ang Bao gift or personal savings. If not, you might consider getting a balance transfer loan, which typically offers a few months 0% interest that you can use to pay down your credit card debt. While saving money on interest rate payments through a balance transfer loan is certainly attractive, it is also important to be able to pay off the balance transfer loan before the end of the interest free period, because afterwards its interest rates tend to be even higher than that of credit cards.
Save for Future Health Care Expenses
It is generally a good idea to have a buffer of personal savings for unexpected future costs. Health care coverage is a great example. The cost of health care in Singapore has been rapidly rising for years. AON, a consulting firm, estimates that in 2017, health care costs rose 8.7% (after accounting for inflation), and is expected to rise by 8.2% in 2018.
Additionally, The Ministry of Health announced that, starting in 2019, full riders for Integrated Shield Plans, which allow individuals to pay nothing for hospital bills, will no longer be sold by insurers. This means that individuals will increasingly be charged copays of at least 5% of their total hospital bill. While there will be caps to these copays (S$3,000 annually), it would be prudent to set some money aside for health care expenses.
Invest in the Stock Market or in Crowdfunding
Opening a brokerage account allows investors to purchase shares of stock, also referred to as equities, of public companies. These ownership shares are priced based on the market's estimated value of each company. The average returns of the stock market (tend to be around 8-10%) are typically much higher than those of government bonds or personal savings accounts. It is important to note, however, that these investments are also riskier than bonds or personal savings.
Before diving into the stock market, it is essential to fully understand the basics of trading. For example, it is important to choose a brokerage firm that charges low fees. This is especially for investors making smaller trades, as the commission fee for smaller trades can represent a larger percentage of each transaction compared to larger trades. It is also important to have a general strategy before launching into trading.
Crowdfunding platforms allow individuals to contribute to a fundraising goal set by an organization or individual. There are several crowdfunding platforms that allow individuals to invest in debt or equity shares of Singaporean businesses. These platforms offer investors exciting opportunities from loaning money to a local small business or purchasing an ownership share of a high-growth startup. Additionally, you can invest through these platforms with as little as S$100. Finally, these platforms offer annualised returns as high as 25-30%, making them an exciting way to use your spare cash. These investments also pose risk, so it is important to conduct thorough due diligence about each platform and investment and consider diversifying your portfolio to spread out your risk.
Donate to a Good Cause
If you want to use your gift to help others, consider donating it to a charity of your choice. Besides making a positive impact on the world, scientific research indicates that donating can increase one's happiness, sometimes more than buying physical goods for yourself can. An added financial benefit of donating to charity is that cash donations are tax deductible, as long as the charity is approved by the Institution of a Public Character (IPC) or the Singapore government. This makes donations a generous and savvy way to use your extra money.
Book a Flight
Research indicates that a well-planned vacation can make you happier, healthier and more productive upon your return. These factors indicate that using your spare cash for a trip could offer a great ROI. If you do decide to book a vacation, you can stretch your budget further by using a travel credit card to pay for your bookings. Many of the best miles cards come with 10-15% discounts on travel websites like Agoda and Expedia, while also providing miles for every dollar you spend. Some cards also provide additional benefits such as free access to lounges and complimentary travel insurance coverage.
Get Into a Gym
Joining a gym can be a cheap way to improve your health and wellbeing. The average big chain gym membership costs S$133 per month. Using your gift to become a member of a gym can be an easy way to stay in shape. Furthermore, economists have found that exercise has a positive impact on wages. Employees that exercise tend to earn 6 - 10% more than employees that do not.
Treat Yourself to A Good Meal
If you love eating out, consider taking a night off from cooking and hail a ride to go eat at your favorite restaurant. You can even save money on these activities by using a good credit card. For example, the Citi Cash Back Card offers awesome rewards (8% cash back) for both dining at restaurants and Grab rides.