Wednesday, August 17, 2016

5 Financial Mistakes Singaporeans Typically Regret In Their 30s

Many Singaporeans don’t take care of their money until they hit 30. Don’t be one of them. Most Singaporeans don’t pay attention to savings and investments in our 20s. This is because it’s hard to think through the perpetual Korean drama that is early boyfriend or girlfriend relationships, or to think of retirement within an alcohol-fuelled haze. But in the few lucid moments between drinks, see if you can manage to avoid the following financial mistakes. Otherwise, you’ll have the same regrets as most Singaporeans at 30.
1. Buying Insurance Only After You’ve Developed a Smoking, Drinking or Binge Eating Habit
Many of us will develop some kind of medical condition before we’re 30. This could range from something genetic and unavoidable, to something we’ve done to ourselves (e.g. becoming a smoker, becoming overweight, drinking too much, and so on). Whatever the case, our joyfully acquired conditions will add a hefty amount to insurance premiums. In some cases, it may even result in becoming uninsurable. For example, once your BMI goes above a certain level, many insurers will not consider covering you for anything beyond death. This is why it’s always a good idea* to buy a good insurance policy early on, before you develop any such issues. *A better idea is to not become a smoker, drinker, binge eater, etc. But what are we, your dad? This is a finance site. We look after wallets, not lifestyle choices.
2. Living Paycheque to Paycheque Until You’re 30
If you haven’t saved a penny by the time you’re 30, you’re in for a world of (financial) hurt. The reason is simple: Your mid-30s will be the time when you need to make a lot of crucial financial decisions. This could be purchasing your first house at 35 (or even earlier if you’re getting married), having your first child, starting to take care of your parents, etc. It’s an incredibly rough time for most of us, and it’s a hundred times worse if your savings at this point are $0. If it really annoys you to save money constantly, here’s what you can do: spend just two years hoarding money, until you’ve accumulated about six months of your income. After you have this amount stowed away, you can go ahead and spend as you wish with your paycheque with some modicum of safety.
3. Leaving Your Money in a Fixed Deposit for a Decade
On the upside, this at least means you’re saving money. On the downside, this means you’re losing as much as 2 to 3% of your savings every year from inflation. Most fixed deposits don’t even have interest rates of 1%. Singapore’s inflation rate is about 3% (and that’s being optimistic). Trying to fight inflation with fixed deposits is like trying to put out a forest fire with nothing but a full bladder. So where you should put your cash instead? The best places to keep your retirement savings are passive investments like POSB or OCBC’s blue chip programme*. You can also talk to a financial adviser on how to use your money more actively. *This article is not sponsored by either POSB or OCBC. The writer does invest using OCBC’s blue chip programme.
4. Not Paying Your Credit Card Debts in Full or On Time
Credit card debt is even worse than leaving your money to stagnate in fixed deposits. At an interest rate of 24% per annum (which can be more if you are late with repayments), rollover debt is the surest way to haemorrhage money. The greatest risk with credit card use is missing repayments. Not because of the potential $60 late fees, but because of the damage to your credit rating. By the time you have received your first warning letters, your much treasured “A” credit rating may have slipped to a “C”. This could drastically impact what banks are willing to lend you on bigger loans, such as property loans, car loans, and personal loans. You may recognise those things as being quite important to a 30+ year old. This could drastically impact what banks are willing to lend you on bigger loans, such as property loans, car loans, and personal loans. You may recognise those things as being quite important to a 30+ year old.
5. Getting Heavily in Debt by Buying Cars, Fancy Watches, or Other Depreciating Assets
We’re aware that you look totally cool owning your own car, motorcycle or even powerboat. Now if you’re rich enough to buy these things then more power to you, and did you know some of our writers are single and very attractive? Chat us up on Facebook. Otherwise, one of the silliest things you can do is to owe a huge amount on a depreciating asset. That is, an asset that decreases in value over time. A car, for example, depreciates by as much as 60% the moment it’s delivered and you start it up. As for watches, almost all of them (even limited edition ones) will probably result in you losing money upon resale. Critical financial planning, such as planning for retirement, should be on your mind by the time you are 30. By then, you will be so sick of bosses and morning meetings that the mere thought of working past 62 will make you call the Human Rights Commission and weep. It will be a massive relief at that point to have a nest egg, which you can place into a well-diversified portfolio. This will give you some hope of retiring at 62 or even earlier. But you can’t do that if you find you’re paying off debt till your mid-30’s.

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