Received Some CNY Ang Bao Money? Here's How to Maximise it for the Future

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12 Feb 2024

New Year, New Huat!

As we usher in the new year, let’s start things on the right foot by reviewing our lifestyle choices.

After all, the real huat (Hokkien: prosper) starts with not buying 4D and making smarter day-to-day personal finance decisions for your future with your Angbao money!

TL;DR: Maximise Your Ang Bao Money This CNY

Disclaimer: The information provided by Seedly serves as an educational piece and does not constitute an offer or solicitation to buy or sell any investment product(s). It does not consider the specific investment objectives, financial situation or particular needs of any person. Readers should always do their due diligence and consider their financial goals before investing in any investment product(s).

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Clear Existing Debts
Replenish Your Savings and Make Up For Your CNY Expenditure
Set a Savings Goal
Put Your Money Into Low-Risk Investments
Use Your Ang Bao Money to Kickstart Your Investment Journey

Before Maximising Your Ang Bao Money…

1. Clear Existing Debts

Depending on your luck this year, you may have racked up some debts from all the late-night poker or mahjong games, unforeseen emergencies or periods of unemployment.

If you are on the losing end, remember to start the year right by clearing those debts so that you can enjoy the rest of your Ang Bao Money with peace of mind.

Not to mention that with some of these debts, the interest rate on them is guaranteed.

In our article A Beginner’s 4-Step Checklist Before Starting Your First Investment, we explored why you should look to clear your debt first:

Simply put, if you are in debt, you are fighting a losing battle where you are paying off a loan at an interest rate which may be rendered redundant if you are trying to invest also.

Here is a simple illustration:

You have a debt of $15,000 student loan with a guaranteed interest of about 5% per annum (p.a.).

Instead of allocating more funds to pay off the debt, you are trying to invest that additional funds into an exchange-traded fund (ETF) that yields a non-guaranteed ~5% p.a.

There are two main problems with this.

Firstly, you need to know that your investment returns are not guaranteed, while the interest on your student loan is guaranteed to keep accumulating.

Volatility in the stock market means that your investment might crash, like what happened with the stock market in 2022:

Also, even if your investment does well and yields about 5% p.a., your net gain will still be about 0%…

Thus, you effectively waste the costs incurred from investing (brokerage fees, etc.) to return to square one.

Instead, you should fight the negative yield (in this case, clearing your loan first).

This is actually a pretty common situation we observe with individuals with student loans. My answer would be to focus on clearing that down before moving to the next step of building up your savings reserve.

Another big red flag is credit card debt. Never get into such deep waters because these debts generally have an interest rate of about 26% p.a., which can get you neck-deep in financial trouble real quick.

Thus, you should prioritise clearing your credit card debt or other high-interest debt if you have it.

Here are two tried and tested ways to clear debt:

*Getting out of debt: Snowball vs Avalanche method*

Manageable Debt

Even though the interest on these debts is guaranteed, the interest rate is generally lower.

For example, you have your housing and mortgage loans where you can actually predict the interest rate (e.g. ~1.0% to 2.6%) or use your CPF every month.

Granted, this method is still risky as investment returns are not guaranteed.

But you can actually build wealth at a yield above that interest rate.

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