This week, the Qotion team is here to debunk 3 myths on the role of savings in finance management. These are problems we notice to be especially evident in Singaporeans, and thus should be looked out for.

Like all consumers, we like our purchases cheap and good. Many of us, however, judge our purchases by how value-for-money a purchase is, as opposed to what we need from the purchase. This hurts us in 2 ways. Firstly, we go to great lengths to compare the relative benefits of each alternative product. Marketers are aware of such behavior, however, and a common upselling tactic is to bundle products with other services or offerings to increase their attractiveness for a modest increase in price. As a result, many of us end up with a whole bunch of stuff we don't really need but somehow paid for. Secondly, this mentality often comes with a tendency to decide based on upfront cost rather than total cost of ownership. For instance, a printer might be selling for a ridiculously cheap price at an IT fair, but this cost does not factor in your time and effort spent traversing the fair, the transportation cost, the higher cost in ink cartridges etc. In the long run, money may be wasted rather than saved. Sometimes, spending less does not translate into savings.

Myth 2: Saving More Is Always A Good Thing

As Asians, with our cultural background, we tend to believe in saving for a rainy day. This is a good virtue... but it may impede our ability to make more money in the process. As any finance management book will tell you, the key to becoming rich is not through saving, but through earning more and spending less. Between the two, earning obviously takes priority, since there is theoretically no limit to how much we can earn while we can only save so much on our expenses before experiencing a deterioration of our living standards. Over-emphasis on savings causes mental and physical stress when we deny ourselves of basic pleasures or amenities. This may impact the more important decisions that we make. As the phrase goes, 'penny-wise but pound foolish'. We should always aim for a comfortable but not extravagant lifestyle and actively allocate a portion of the savings to fund activities that may boost earnings e.g. investments, education etc.

Myth 3: Saving Is A Matter Of WillPower And Common Sense

Many of us still approach savings with an ad-hoc attitude, treating it as a matter of common sense and willpower. Any finance professional will tell you that savings without a goal is fruitless. Without a goal, you will not have a gauge of how well your savings are growing, and how well they can fulfill their intended purpose. There is also no way to know the period for investment, and there is no way to plan ahead. Even if you diligently put aside a portion of your earnings every month, ultimately these savings have no meaning to you because they were not meant for something specific. This means the savings can be used for anything, and often are, when you convince yourself that something you want is actually what you need. In order for proper investment and savings to take place, a set of goals are required to guide our spending and saving decisions.

So after reading about these myths on personal finance, do you feel that we Singaporeans are knowledgeable about saving money? Share your thoughts with us in our question of the week!