At what age does one become financially independent?
For many of us, the answer lies somewhere in our mid to late twenties after we start work, or at the very latest, in our early thirties. As we progress through the four stages of life, it seems only natural that we should become more financially secure as we mature in our professional as well as personal lives.
Sadly, however, that isn’t always the case here in Singapore. I’ve seen many peers fritter away more than half of their hard-earned salary every month, just because they no longer have to answer to their parents on how they’re spending their money. I’ve also seen many singles past the age of 30 who are living from paycheck to paycheck despite still staying under their parents’ roofs. And I’m sure we’ve all seen the horror stories in the media about working professionals who are mired in debt despite earning a respectable income every month.
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But the truth is, there’s really no reason for being so careless with money. It’s important to actively manage your money and start saving for retirement as early as possible. Otherwise, the older you get, the more you’re going to feel the consequences of not reaching your financial goals.
Here are some common money mistakes we’ve spotted made by young Singaporeans and how you should avoid them.
1. You don’t stick to your budget
Generally, most people know what budgeting is – setting aside an allocated sum of money for specific purposes such as saving or spending on daily essentials like food and transport. But while they understand the “planning” part, it’s the “doing” part many have an issue with.
It is all too easy to fall prey to the temptation of overspending, especially if you own multiple credit cards. An extra cup of coffee in the morning, lunch at the new café with your colleagues, an impulse buy on the way home…you’ll soon find your expenses adding up rather quickly and alarmingly. If you’re not careful, you’ll land yourself in the red without knowing it.
The solution? Learn to set a budget – and make sure you stick to it. If you have only $500 a month to spare for food, you shouldn’t be spending more than $15 a day, or approximately $5 per meal. (To be on the safe side, round the figure down rather than up so that you’re less likely to overspend.)
Also, try out one of these budgeting apps to keep track of your money so you get a better idea of your spending habits. From there, you can make adjustments and trim down on any unnecessary expenses so as to avoid spending beyond your means.
2. You’re not saving (enough)
Let’s be honest: how much do you save each month? Often, we start with the best of intentions to save $X amount of money each month but end up failing to do so because we forget or because we spent the money on something else.
It’s easy to come up with excuses for not saving. But remember, you should always start saving for retirement once you start drawing a regular salary because there will come a time when you won’t be making any money but still have to support yourself (such as during unemployment or retirement). This means that part of every dollar you earn during your working years should be saved to go towards funding your non-working years.
In Singapore, we’re fortunate in the sense that every employed person has “enforced” retirement savings under CPF. But really, your CPF money wouldn’t be enough to cover your everyday expenditure in future, especially if you rack up any hefty medical bills. So you still need to supplement it by saving diligently on your own accord.
Start by saving at least 20% of your monthly salary to meet your financial goals. More if you can afford it. Better yet, set up a banking arrangement that automatically transfers money from your chequing account to a savings account every month. That way, your savings can continue to earn an interest rate and grow without you having to do anything at all.
3. You’re over committing on big-ticket purchases, like a wedding, house and/or car.
Big ticket purchases will come when many of us start moving on to the next stage in life, like getting married, having children, and buying property and cars. Though these are all important life goals, they can take a heavy toll on our wallets as well – for example, an average Singaporean couple spends at least $50,000 on their wedding, and that’s before other major expenses like paying for an HDB flat.
The only workaround solution for this is really just to plan your finances properly. Start saving regularly in your 20s. If you know money is going to be tight during a certain period, cut down on all unnecessary expenses and try to be as frugal as possible. Also, don’t commit to more than one loan at a time, be it a property or car loan. As these are usually joint commitments, you should sit down with your partner to work out a realistic repayment plan that both of you can agree on (such as a 50-50 co-payment).
We understand that there’s a certain social pressure in wanting to keep up with the Joneses, especially if you see your fellow peers doing well in life. But more important than saving face, you should first and foremost make sure you don’t bite off more than you can chew. Be practical; your thirties is still a decade for you to work hard for your goals, whatever they are, and not to spend money that you cannot afford to.
4. You’re not using your credit cards fully
By this, we don’t mean to max out your credit limit. Far from it, actually. What we mean is to use your credit cards wisely to tap on all the reward programmes, discounts and cash rebates available. With so many credit cards available in the market, there’s really no reason for you to have even one card that doesn’t come with special perks. Use sites like MoneySmart to learn more about the perks that different credit cards offer.
On a related note, don’t forget to always pay off your credit card bills on time. One worrying trend we noticed is that one in five credit card holders these days are in the habit of paying only the minimum sum for their credit card payments, thus falling into the risky trap of consumer debt. Don’t do the same – credit card interest is exorbitant, and there’s no legit reason why you should be paying the bank that extra 20-over per cent for nothing at all.
5. You don’t know your net worth
Most people don’t know how much they’re worth.
In Singapore, young adults tend to continue living with their parents until they get married. This may be why many Singaporeans from the younger generations tend to spend only on themselves, instead of supporting their family and lack a firm grasp of basic financial literacy.
The good news is, it’s never too late to start learning. Remember, financial independence begins when you become responsible for your finances – learning where your money is coming from and going to, and how to grow and manage it so as to meet your life goals.
So if you’re guilty of any of these money mistakes above, it’s time to pull your act together and get your finances in shape. Good luck!