Most financial disasters start small. You know how it is: A bad stock pick here, an accounting slip-up there, and suddenly you’re on a three month rice-and-taugeh diet. The reverse is true for big decisions: By the time you pick a fund for your life savings, you’re so paranoid and alert your sweat could serve as espresso shots. You’re not likely to make a mistake then are you? In which case, I advise you to treat the following as seriously as a big decision:
1. Credit Card Balances
Credit cards are an accounting nightmare; tracking every cardholder is like trying to inventory spaghetti strands at a pasta festival.
Accounts also tend to be left with small balances: Tiny sums like $0.63 or $0.72. Now the bank can’t just round these off: If 50,000 people owe between $0.63 to $0.72 every month, and it’s scratched off every time, it amounts to a significant loss over the years.
So we have a a lack of individual focus, but a need to record the tiniest sums. This causes banks to track dollars and cents religiously, with little situational flexibility. So you know what might happen if you miss a repayment of $0.63?
You could get hit by the penalty fee of $50 to $60, just as if you owed $100 or $1,000.
Even worse, incurring late fees are potential grounds for a credit downgrade. Forgetting those few cents might lower your loan quantums later on. Banks might also use late payment as grounds to raise your interest, so now you have a card with 28% rather than 24% interest per annum.
A trivial mistake, with not-so-trivial results.
If this happens to you, call and dispute the entire situation. Remember, banks can’t pay you much individual attention. Their alert system is your pissed-off yelling on the phone line. Even better, review your credit card bills every week.
2. Insurance Policy Lapses
Here’s a secret to financial well-being: It’s called checking your mail. By that I mean your actual, physical mail.
This is where insurance companies like to send letters. With messages like “You’re a couple of dollars short, please pay before we have a stupidly disproportionate reaction“. You don’t want to check your mail once a month, and find such a letter dated two weeks ago.
Miss your premium payment by just a few cents, and you’ll get a reminder letter. Respond to the reminder too late, and your next letter might explain why your policy lapsed.
Trying to get it reinstated can come with a steep penalty fee (varies based on the insurer). And that’s if you’re lucky: Some insurers will assert their right to give you a smaller payout, and refuse to take you back. Remember, it provides them an opportunity to drop high-risk clients.
If you want some tips on how to find better insurers, follow us on Facebook. We’ll update you when we spot the better ones.
3. Phone Bills
I don’t know if you remember Kave Goh, back in 2011. This was a man who travelled to Taiwan, and used his smartphone there.
Now when you connect to a mobile network (as Kave did in Taiwan), it’s not like stealing free wi-fi. Anyone can connect to most mobile networks, even if they’re not subscribers. Said network just sends the bill to their service provider, who later charges the phone-user.
Now I don’t know much about Taiwan. But it seems their phone companies don’t so much require you to subscribe as to buy the actual satellite, being that Kave’s bill was about $350,000.
Fortunately(?), Kave only paid $14,000 after a discussion with SingTel. Half of which, I imagine, was needed to cover the number of stiff drinks he needed during that conversation. After that, the government set a cap on data roaming charges, and this was never a problem again.
Hah, not really, it’s totally a problem still. It’s just not as bad. The price cap is $100. So leave your auto-roam on, and you might unexpectedly pay $103.95, which is the price of your 10 year old downloading Angry Birds in Russia.
As an aside, note that overseas phone calls are also pricey. That’s another time you don’t want to accidentally switch networks; so get a prepaid card when travelling.
4. Lapsed Option to Purchase
When you buy a house, you start with the OTP (Option to Purchase). This is a deposit, making up 1% of the house’s purchase price. So it’s about $10k for a $1 million house.
The OTP has a shelf life. This ranges from 7 to 14 days, depending on the seller’s contract. During this period, the seller’s obliged to sell the house to you only, even if another buyer comes along. After that, the option lapses.
When a lapse occurs, most sellers will roll their eyes and tell you to take your time, because really, they can only get younger. Unless they’re so annoyed they sell the house to someone else. In which case, your 1% deposit gets forfeited.
Sounds stupid and careless? Well it happens for surprisingly simple reasons: The buyer thinks the OTP is 14 days when it’s actually 7. Or it’s a joint purchase and one buyer pulls out unexpectedly.
The absolute stupidest reason is not getting AIP (approval in principle) from the bank before securing the option. That’s when the buyer finds out, after paying the 1%, that the bank isn’t going to loan the required amount.
So always get AIP before securing the option. Pay attention to the dates, and never assume the seller’s a nice guy. If you’re confused by this kind of stuff, get help from mortgage specialists, at sites like SmartLoans.sg.
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