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18 Apr 2022
SOURCE: CPF Board

 

Portrait of happy young asian woman showing credit card and using smartphone while shopping at mall.

Online shopping is easy. With just a few clicks of the button, you can purchase any item that you need/want whenever and wherever. At the same time, the rapid growth of e-commerce has also resulted in the increasing number of payment methods.  From credit cards, e-wallets to e-commerce payment gateways, buying things online has never been more convenient.

 

But with great convenience comes great responsibility. Buying things on a whim and not tracking your expenses is certainly a potential hazard. Therefore, it’s important to understand your spending habits and the options available to you.


Buy now, pay now

You buy, you pay. If you have the means and budget to pay instantly for the things you want, that’s ok.

 

But if you can’t resist a sale, and find yourself making too many impulse purchases on credit? Perhaps it’s time to pause and reflect before clicking on that checkout button again.


Buy now, pay later

This is a type of short-term financing option that allows consumers to make purchases and pay for them at a future date, often without interest. It is not the same as paying for items using a credit card, as different terms and conditions might apply.

 

Buy now, pay later (BNPL) is increasingly popular and available amongst online retailers, although it’s currently only available amongst selected retailers. On the surface, this option offers affordability and convenience as you don’t have to pay interest for stretching your payments across a period or submit a proof of income to be eligible.

 

Thus, it makes it tempting to go all in on your wish-list. But should you?

 

An advantage is that it may ease your cash flow at a certain time when you need to make several necessary purchases. For example, buying household items for your new place. BNPL might offer you the flexibility to stagger your payments and ease that financial burden.

 

But this might create a false sense of affordability, causing you to spend more than you planned if you’re not careful.

 

Something that caught your eye could be just $50, but you could have forgotten your previous purchases. As your spending starts to accumulate, you might have already over-committed your salary.

 

This might affect younger consumers especially, as receiving your first salary can give one a feeling of increased spending power. Being disciplined in one’s spending habits can be challenging even for the most prudent of us, and BNPL might encourage more purchases, thereby falling into the trap of instant gratification.

 

More and more people these days prefer shopping online over the conventional method of going to the physical shops. This means that it is quicker and easier to make commitments that can add up to quite a hefty sum. And if you have not properly planned for your monthly expenses, you may not have enough to pay for the necessities or might even incur debt. As everything adds up, the eventual danger is that you will not be able to even afford the minimum payment.

 

BNPL providers charge a penalty fee when you miss payments. In a scenario where these costs snowball, coupled with you running into cashflow problems especially in the onset of the pandemic, that will be a huge problem.


Think first, buy later

Planning your finances is crucial, no matter your age or spending power.

 

The term “budgeting” often has a negative connotation. It invokes thoughts of being restricted or being denied of what you want. But budgeting is a way of being in control.

 

Take control of your finances by allocating your budget for the short and long term. Identify your big-ticket and milestone purchases (immediate and future) as well as your disposable income. A good start will be to set aside a monthly sum to take care of your necessities and keep track of your spending.

 

A simple tip is to follow the 50-30-20 rule, where you spilt your expenditure between needs, wants and savings respectively.

50-30-20 budgeting rule

Regardless of how you pay for your purchases, you should always weigh the benefits against the potential pitfalls. A purchase now can lead to more costs in the future, so why not stave off those concerns with foresight rather than hindsight?

 

Make informed and financially prudent decisions, so that you will not buy now and regret later.


Information is accurate as of 18/04/2022