5 worst money mistakes to make in your 20s

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Photo: The Straits Times

This article was originally on GET.com at: 5 Worst Money Mistakes To Make In Your 20s

As a Singaporean, your 20s signal your first step towards adulthood, it's a time of great excitement and anxiety as well.

There will be many firsts for you, and one of them will be that you are finally responsible for your own money. Although money shouldn't be an obsession, it permeates our life so much that you cannot ignore it.

You work for money, you need to spend money in order to survive and you need to save some money for your future.

Thus, it's a shame that our education system places so little emphasis on teaching us how to manage money, often leaving it to our parents, or worse - learning through our own failures.

So while we may not have foresight about our financial situation in the future, it's always beneficial to learn a tip or two from those who've been through it already.

Here are some tips from us at GET.com to help those of you in your 20s to avoid the worst money mistakes you can make during these important years of your life.

1. You Delay Paying Off Your Student Loan

One of our first financial burdens as a young adult in Singapore is the money we've borrowed to help us get through polytechnic/university education.

The amount easily comes up to a five-figure amount, and it remains a drain to your monthly salary until you've cleared it off.

You're fresh in the workplace and earning a regular amount for the first time in your life, so I can understand that you may not want to allocate 50 per cent of your monthly salary to paying off debt.

However, it also does not make sense to pay a minimal amount each month, accruing more interest payments along the way and dragging out the loan repayment period.

A reasonable time to pay the loan off is between 1 to 2 years. Remember, the pain is temporary and the earlier you pay it off, the earlier you can start saving a bigger amount per month or you could even start an investment fund!

13 bad money habits young people have
  • It is no secret that the cost of owning a car in Singapore is extremely high. Our island city is one of the most expensive places in the world to own a car.
  • Young people who wish to live a fancier life often dream of owning a fancy car, which can put them in debt for a long, long time. Considering the car is a depreciating asset, it would be a mistake to tie yourself down financially while you are still young and unsure about future career or salary options.
  • It is never too early to start saving for a rainy day because you never know when the storm is going to sweep you away.
  • Before you make a decision to take up a loan, be sure you are ready and able to pay back the debt and interests without delay. <br>Students who take study loans and fail to take their studies seriously are wasting their time. Fresh grads should also start paying back their study loans as soon as they get their first salary. The longer you drag a loan, the heavier your debt gets.
  • Some people end up spending more than they should on day-to-day items.
<br> For example, you will end up spending hundreds or thousands of dollars more by taking taxis instead of the public bus every day. Just imagine how much more you could save if you made it a habit to wake up earlier to catch the bus to work instead.
  • Credit cards make spending incredibly easy. A lot of the time, people choose to swipe their credit cards simply because they can - and not because they can afford to. It is important to assess your financial ability before making each purchase whether big or small.
  • Some experts  suggest paying for necessities like food and utilities in cash instead of credit. That way, you make sure you can afford to pay for the most important necessities without incurring any additional debt.
  • Do you remember what your last $10 went toward? Learn to keep track of your expenses if you wish to save more and spend less. <br> Just like being on a diet, keeping track of the money you spend will help you remind yourself to cut back when on the verge of overspending.
  • According to a UBS report, only 28% of millennials in the USA commit to long-term investments to grow their wealth. While it is great that you are conservative with your spending, it is also unwise to prevent your money from growing.
  • This occurs when young people are too optimistic with their choices and end up losing all of their money by making rash investment decisions.
  • It might be tempting to put your money in a place where it can grow quickly, but the downside is that the risk also tends to be higher in such circumstances. If you want to invest, make sure you are well-informed. Many investment gurus like Warren Buffett recommend putting money in places where they can grow slowly.
  • Yes, your parents love you and yes, they are more than willing to provide for you at times. But relying too much on your parents will only cultivate bad financial habits in yourself.
<br>Young people need to learn how to survive in the real world without their parents' help, and the only way to do that is to become financially independent.
  • Young people who have just stepped out into the working world should give themselves a crash course on everything financial. Learn more about finance policies and look up what financial terms mean and how they affect you. 
<br>Learning more about finance will help save you a lot of hassle when you have to file your own taxes and make important financial decisions like buying a house or investing in shares.
  • Just because your friend thinks he can afford it doesn't mean you can too.
<br>Draft out your own spending plan and hold back from purchasing the latest gadgets just because 'everyone' has them. Trends and technology change all the time but it is difficult to get back any money that is lost. So spend only when you need to, and not because you feel like you have to.
  • No matter how rich you think you are, it is crucial to think very carefully before you decide to loan somebody money. You must consider the possibility that you might never ever see that money again.
<br>Also, you are not a bank. If money doesn't grow on trees in your backyard, please do think twice before parting with your hard-earned cash.
  • Sickness and disability do not come with warning before they strike, so make sure you are well-covered in case you are hit badly by ill health.

2. You Live Without A Budget

After about 2 to 3 months of working life, you'll be able to examine your spending patterns. Make it a habit to start tracking your expenses so that you can set up a budget. Budgeting is one of the first steps you should take towards personal finance planning.

With a budget, you can allocate a rational amount towards your various spending categories and see how much you can afford to pay each month to get rid of existing debts. A good budget plan can even help you forecast how much your savings will be by the end of the year.

Living with a budget will also provide a self-check on possible over-spending and illuminate any potential debt problems before they spiral into something you can't control.

We at GET.com put together this checklist to help you get out of debt faster.

Tip: If you're already in debt and paying high interest on credit cards or other loans, you might want to consolidate that debt in a single place to pay less interest and pay it off faster. One of the best ways to do this is to use a balance transfer credit card.

Balance transfer credit cards are cards that offer a low introductory interest rate for a certain amount of time. Aim for a card that offers 0 per cent interest during the intro period. If you can pay your debt off in full before the intro period ends, you will avoid paying interest altogether! Keep in mind that most balance transfer cards have a balance transfer fee that you will have to pay when you transfer a balance.

For example, ANZ Travel Visa Signature Credit Card let's you transfer a balance with only a 1 per cent processing fee and you'll pay 0 per cent interest on that balance for the first 6 months. If you can pay off that balance before the intro period ends, you will avoid paying interest!

Another good balance transfer card is Citibank DIVIDEND Card VISA which also has a 0 per cent introductory interest rate on balance transfers for the first 6 months.

16 money mistakes you are making
  • We've all learned from a young age that saving is good for you. Failing to save means you have nothing to fall back on when you need it. It also means you are more likely to borrow and increase your debt when you need funds for certain things like having a wedding, furthering your education and more.
  • Your budget is the key to achieving all your goals. Just as we have limited time, most of us have limited means. So, how you choose to spend your money can either help you take that dream trip to South Africa or can keep Cape Town in your dreams. Without a budget, you also run the risk of falling into debt, a huge hindrance to achieving goals.
  • Setting aside a bit of money every month for emergencies could save you big time when you least expect it. You never know what could happen, and having funds to turn to could help you get through bad times in life.
  • If you do not plan your expenditure, you could end up spending a lot of money on things you do not need. Just because something is on sale, does not mean you should buy it. 
<br>Always think about how much you need the item. If you don't already have it, think carefully if you will actually use it if you did own it.
  • You could be paying a lot of unnecessary fees if you don't check your bills before paying. For example, credit card insurance that you never signed up for, or telco service subscriptions you did not know about.
  • Very few people think about retirement and when they realise it, it is too late to start saving. Plan and save for retirement from your first paycheck to ensure a comfortable retirement.
  • Choosing wrong insurance plans will affect how much you can receive when you are in need. Think carefully about the policies you are offered and read up about which insurance plans work out best for your lifestyle.
  • Credit card companies have a range of incentives which encourage people to spend more. Spending is encouraged with 'reward points', lucky draw, privilege discounts and more. Beware of these marketing gimmicks and stop yourself from spending on things you might not actually be able to afford.
  • Many people save a lot of money by doing their homework before shopping - finding out which merchant has the best price for the product they want. You can also take this further, by always trying your luck to negotiate for better prices on big item purchases. You never know when you might get a good deal.
  • It takes a certain kind of bravery for people to dabble in investments. Many experts have warned that making investment decisions based on your emotions and fear can jeopardise your ability to reap rewards.
<br>
"You can't let the outside environment dictate every single change you make," Mr Scott Thoma, investment strategist for Edward Jones told Fox Business.
  • Many consumers are guilty of this - signing away their lives to credit companies in exchange for products they want but do not need. While credit cards make it easy to spend, paying for debts is not as easy, especially with interest rates. Try not to reach your credit card limit every month and if you can, avoid using it at all.
  • Spending money on entertainment and leisure is good, but make sure that you can also afford to spend on classes and opportunities which are good for your career. Taking up a Chinese for business class, for example, could be very useful if you plan on expanding your business networks overseas.
  • If you need to take on a loan for your house, car, education or other purposes, be sure to do your research and obtain for a loan which is best for you. Don't fall for marketing gimmicks. Instead, think about interest rates and the realistic capability you have to repay the debts incurred. If you don't need to take out a loan, maybe you should not even apply for one at all.
  • Spending $5 a day on coffee adds up to a lot of money over a month. You could save a considerable amount if you cut down or stop spending so much on things you do not need to have every single day.
  • You can afford to have a meal without buying a drink when dining out. Bring your own water or wait till after the meal to drink some. This means healthier meals for you too!
  • Many people are used to having lunch out of the office because they are too lazy to prepare a meal beforehand. If you have time to spare, prepare a sandwich the night before so that you don't have to spend a single cent at lunch. Dining out could gradually damage your wallet in the long run.

3. Living Off Credit Cards

With a regular income, you can now apply for a credit card. Credit cards provide a convenient way to pay for purchases and they can also help you save money by letting you earn rewards or cashback. Credit cards can be a great financial tool, but only if used wisely.

Credit cards should never become a way for you to use money when you are left with none. If you find yourself using the card when you've run out of cash to spend, it's probably a sign that you aren't ready to use it properly.

4. Moving Out Too Soon

While the situation is not as prevalent in Singapore compared to other countries, young adults may make the mistake of moving out of their parents' home too soon for their own good.

Even with no debt and a regular monthly income, monthly rentals can still come up to few hundred or a few thousand dollars a month, are you prepared for the cost?

If there aren't any major conflicts with your parents, why not stay at home initially? Just think about the amount of money you save in a year from not paying for a room/apartment rental.

If you save that money towards purchasing a home, it may be better spent in the long run!

5. Not Buying Insurance

As a young adult, you might not think that you need to take up any insurance policies. However, it would be a big mistake to think this way - misfortune can befall anyone at any age.

Although you will not be as susceptible to diseases as someone in their 50s, there is still a need to protect yourself from the uncertainties in life.

But you know what one of the best advantages of getting insurance at your age is? Insurance premiums are always much cheaper when you start at a younger age!

If you need a more temporary insurance or can't afford higher premiums, look into term policies instead of life insurance for a more affordable option, as well as accident or hospitalisation plans to protect you against any medical crisis you might meet.

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