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!
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.
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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