Navigating the Financial Crossroads: A Guide to Loans and Financial Decision-Making in Singapore

Explore borrowing and saving in Singapore with insights on loans, urgent expenses, and choosing between banks, friends, or family. A guide for wise financial decisions.

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In life, we all encounter moments that require a significant outlay of cash, be it for a home, an education, medical needs, or other substantial life events. If you’re anything like me, and you weren’t born into wealth, these moments can present a complex financial puzzle. Should you save meticulously for it, take the path of borrowing, or even evaluate whether the expense is necessary at all?

And if borrowing is the choice, the dilemma extends to whether to approach relatives or seek professional avenues like banks. I’ve been down this road, navigated these decisions, and learned valuable lessons along the way.

In this article, I’ll share insights and experiences to help you think through these important financial decisions, just as I had to.

Distinguishing Necessary from Unnecessary Expenses

blue and white concrete building during daytime

Living in a first world country like Singapore presents us with a unique blend of necessary and discretionary expenses. Pivotal investments like education, medical care, a home, essential renovations, and life events such as weddings or welcoming a newborn often justify careful financial planning or even borrowing.

Contrast these with the discretionary expenses: the allure of fine dining, designer brands, and luxurious holidays. While enjoyable, these are choices, not necessities. Borrowing money for such indulgences? That’s a path that can lead to financial strain.

Recognizing when to borrow and for what purpose is a skill we all must hone. It’s about aligning with life’s real necessities and avoiding the pitfalls of living beyond our means. This understanding becomes our guide, steering us towards wise decisions that resonate with our genuine needs and aspirations.

Necessary Expenses
Unnecessary Expenses
Education (school fees, tuition)
Fine dining at luxury restaurants
Medical care (surgery, medication)
Designer brands and luxury goods
Home purchase and essential renovations
Extravagant vacations and getaways
Wedding (within budget)
High-end gadgets and electronics
Expenses for newborn (diapers, formula)
Upgrading to the latest car model
Some Examples of Necessary & Unnecessary Expenses

Should You Save & Wait or Borrow?

Facing substantial and necessary expenses, we all find ourselves at a critical crossroads: Should we patiently save, or is borrowing the wiser option? Each choice has its merits, and the right path often hinges on the specifics of the situation.

Imagine an urgent medical need or a time-sensitive opportunity to purchase a home. In such cases, the luxury of time to save may not be available, making borrowing a practical solution. But this approach must be guided by caution and wisdom.

Your earning power—whether from a stable job or entrepreneurial endeavors like side hustles—becomes a vital consideration. If you have a strong income stream and a sensible repayment strategy, a loan might align well with significant life investments.

Conversely, if borrowing seems like a financial stretch, the more secure route might be saving, even if it takes longer. Earning through side hustles, freelancing, or other creative means can supplement your savings, making that large expense more attainable without the burden of debt.

Expenses That Can Be Saved For:

These are expenses where time is usually on your side, allowing for a planned and patient approach to saving:

  1. Non-Essential Home Renovations: Upgrading your living space can be done over time.
  2. Moderate Wedding Plans: While important, weddings can be planned with a budget in mind.
  3. Purchasing Non-Essential Vehicles: If public transportation is available, a new car can wait.
  4. Elective Educational Pursuits: Courses or degrees that aren’t urgently needed for career advancement.
  5. Luxury Items and Vacations: These are enjoyable but can be postponed until funds are available.

Expenses That May Justify a Loan:

These are often time-sensitive or substantial investments where waiting to save might not be practical:

  1. Urgent Medical Care: Timely medical interventions often can’t wait.
  2. Critical Home Purchases: In a hot market, waiting might mean missing out on a good deal.
  3. Essential Educational Opportunities: Such as pursuing a degree that could substantially increase earning potential quickly.
  4. Major Home Repairs: If something crucial breaks, you might not have the time to save.
  5. Starting or Expanding a Business: If market timing is vital, a loan may provide the needed capital

Considering the Source: Borrowing from Friends & Relatives vs. Personal Loans from Banks

When contemplating borrowing money for significant expenses, two common paths emerge: turning to friends or relatives, or seeking a personal loan from a bank. Both avenues come with their own set of considerations and potential challenges.

Borrowing from Friends or Relatives:

  • Personal Relationship: Unlike a bank, borrowing from a friend or family member involves an emotional connection. This can complicate repayment terms and potentially strain relationships if not handled with care.
  • Flexible Terms: Often, friends or relatives might offer more flexible repayment terms, without interest or with a more lenient repayment schedule.
  • No Formal Agreement: Without a legal contract, misunderstandings can occur. Clearly communicating expectations and even putting them in writing can mitigate this risk.

Personal Loans from Banks:

  • Professional Relationship: Borrowing from a bank maintains a professional distance. The terms are defined and legally binding, minimizing personal conflicts.
  • Interest Rates: Banks will charge interest, and rates can vary widely. It’s essential to shop around to find the best terms for your financial situation.
  • Impact on Credit Score: Taking out a personal loan will affect your credit score. Prompt repayment can boost your credit, while late or missed payments can harm it.
  • Eligibility Criteria: Banks will assess your creditworthiness, earning power, and other factors before approving a loan. Not everyone will qualify.

A Delicate Decision in the Singaporean Context

Life’s financial landscape is as complex and multifaceted as the choices we make every day. The intent of this article isn’t to dictate a right or wrong answer or provide a one-size-fits-all solution. Instead, it’s an endeavor to facilitate thoughtful reflection on the concept of borrowing money, particularly in the diverse and dynamic context of Singapore

Navigating the Financial Crossroads: A Guide to Loans and Financial Decision-Making in Singapore 1
My Own Thoughts

I personally prefer to borrow money from banks as it is more straight-forward. I just have to think about earning more money through my job or side hustles. Borrowing money from relatives or friends may create unexpected emotional situations that make things more complicated than it should be.

Whether it’s deciding between saving and borrowing, choosing the type of expense to prioritize, or evaluating the source of a loan, each decision intertwines with individual circumstances, values, needs, and aspirations.

By presenting these insights and considerations, this article aims to assist you in navigating these intricate decisions with greater clarity and confidence. In the end, the wisdom lies not in adhering to a prescribed path but in aligning your financial choices with your unique life’s journey

Remember, borrowing is not merely a financial transaction; it’s a decision that intertwines with your life’s goals, relationships, and future stability. Approach with caution, clarity, and respect for both the personal and professional dynamics at play.

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