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Can You Afford It? How Mental Accounting Affects Proper Judgment

Most people, if not everyone, use mental accounting on a daily basis when it comes to financial decisions. A common example would be the way a person more readily spends his year-end bonus.

Take one more example: If you were going to spend $100 on an item and realised there was a cheaper source 15 minutes away selling it for $95, would you take the effort to obtain it from the cheaper source? What if the item was $10, and the other place was selling it for $5?

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Dollar X Syndrome

Do you suffer from “Dollar X Syndrome”?

There are many people who suffer from Dollar X Syndrome which prevents them from effectively accumulating their savings. They will either consciously or unknowingly associate an arbitrary amount of savings in their bank as a comfortable figure of money to have. When their savings fall below $X, they start to become uneasy and save more to reach closer to their comfort zone. When they have more than $X, they feel comfortable to spend, usually unnecessarily, until they fall back down to X dollars.

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Changes to CPF and Medisave

CPF Board recently announced changes to CPF Minimum Sum, Medisave Minimum Sum and Medisave Contribution Ceiling to be effective from 1st July. The press release as follows:

CPF Minimum Sum

The Ministry of Manpower announced in August 2003 that the CPF Minimum Sum (MS) will be raised gradually to reach $120,000 (in 2003 dollars) in 2013. The increase in MS, which includes an adjustment for inflation, is to ensure that Singaporeans set aside sufficient savings for their retirement. In line with this policy, from 1 July 2011, the prevailing MS will be revised to $131,000, up from $123,000. Members who can set aside the MS fully in cash can apply to commence their monthly payouts of $1,170 when they reach their draw down age. The new MS will apply to CPF members who turn 55 from 1 July 2011 to 30 June 2012.

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Got an iPhone? Giving Away $2.99 App to Keep Track of Your Expenses!

There are quite a few people – friends and clients alike – I speak to who do not have an idea of how much they are spending, which translates into not knowing how much of their paycheques they are left with at the end of each month. With cash flow the basis of financial planning, such information is valuable in order for a proper financial plan or portfolio to be set up.

Even during my days as a National Serviceman I have been logging my expenses into my then non-camera smartphone. I believe that it was an important factor how I managed to finish my two-year National Service with more money than I had first entered the army despite a sub-$500 per month allowance.

Now, with smartphones – especially the iPhone – ubiquitous, it is even easier to record one’s expenses on the go.

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