Feeling the heat from rising prices? Here’s what you could do

inflation

04 May 2022 | 3 min. read

Cutting back is an obvious step to cope with inflation. But belt-tightening need not mean living without comfort. There are other (important) ways to shape up your finances.

Key takeaways

  • Telling between needs and wants is key to coping with inflation.
  • Focus on cutbacks that will have a significant impact on your budget.
  • Use the opportunity to thoroughly assess your retirement plan: Can your retirement kitty withstand many years of corrosion from rising prices?

Consider refinancing your mortgage loan early

When it comes to belt-tightening measures, focus on cutbacks that will have a significant impact on your budget.

Your home loan is one prime example. Even a small increase in interest rates can affect your monthly instalment and the effective interest rate that you will end up paying for your loan.

A small interest rate hike could undo all your austerity in everyday spending.

 

Here’s what happens to the monthly instalment for a S$800,000 30-year loan at different interest rates using monthly rest method:

Interest rate 1.24% 1.42% 1.61%
Effective interest rate (EIR) 1.5% 2.5% 3.5%
Monthly instalment $2,760 $3,160 $3,592

You should review your home loan to see if you can save money by refinancing, especially if you are out of the lock-in period. Consider loan packages that offer stable rates or the flexibility to refinance early.

Tip

Refinancing usually means switching from your existing home loan to a new lender with lower interest rates. Refinancing at your current bank is often called repricing, or conversion.

You may incur fees if you are still within lock-in period. Find out more here.

Even if you are not, start finding out the available options early as the refinancing process takes time.

Note: HDB flat buyers are not allowed to refinance their existing bank loan with an HDB loan.

Tip

Find out more about how home loans work here.

Learn about different types of loans and what factors affect how much interest you’ll end up paying.

Tip

Use our Mortgage Calculator to work out your sums.

Review your budget and make plans for cuts

When things get more expensive, most of us instinctively think of how to cut back on spending because we feel the pinch, or it makes us feel like we are getting a raw deal.

Managing your expenditure starts with being able to tell between needs and wants.

Needs are things you can’t live without, like food or utilities.

Wants are the things you desire. They could be more expensive (but not necessarily better) substitutes for your needs or just non-essential items, like a new pair of shoes to add to your collection.

Does it mean you need to give up all your wants? Not necessarily. Perhaps you only need to adjust the way you consume your indulgences.

 

You may not have to stop dining out; choosing more economical venues or cuisines might do.

Cabbing can still continue, but you may have to share a ride.

Dropping the daily cuppa is not necessary; you could mix and match between buying cold brews and kopi peng.

By making adjustments to your lifestyle, you can cope with rising prices without compromising on other aspects of your well-being – financially and overall!

Tip

Expense trackers help you see where you are spending your money. Check out ours at mymoneysense.gov.sg!

Want more tips on shaping up in budgeting?

Put off large purchases

Large purchases, when your cashflow is under strain, are a bad idea.

Do you really need to renovate your house now or can you wait a few more years? Can you postpone buying a new mobile phone?

Instalment payment plans and "buy now, pay later" options may make big-ticket items appear affordable by spreading out payments.

However, they do not reduce the cost of your purchase. If you miss any payments, you may incur late fees or other charges, making the purchase even more expensive.

Tip

Find out the real costs of instalment payment plans here.

 

The key is to keep your purchases to what you can afford because instalment plans are loans and do not reduce the cost of your purchases.

 

Why inflation matters

All the money that we save will be eroded over time by the effects of inflation – that has a major bearing on our retirement planning.

Put simply, you will not be able to buy as much in the future with the same amount of money that you do today.

If you haven’t started, when’s a better time than feeling the heat of rising prices to make plans for your retirement?

Tip

Try to work out how much you will need per month when you retire.

Last updated on 06 May 2022