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Budgeting 101

Financial Errors to Avoid as a Young Singaporean


Dollars and Sense was recently invited to give a talk at the opening of the NUS Invest Fiesta, an event organised by the NUS Students’ Investment Society. The main objective of our talk there was to share on the importance of financial literacy and on the need to ‘start young’, be it in terms of actual investing or simply just reading up more widely on financial literacy.

Part of our talk covered what we feel are financial mistakes that young Singaporeans are frequently guilty of making. A common theme among these mistakes is that none of them are your typical get-rich-lose-everything sort of mistakes. Rather most of these mistakes that we highlighted usually arises due to negligence, ignorance or just plain oversight. Since not everyone was able to join us for the talk, we thought of providing a quick recap of these mistakes.

1. Becoming a bad credit risk

For those not familiar with the term, credit risk essentially refers to the possibility of a borrower not repaying a loan. Being a bad credit risk basically means that the lender (bank) does not think highly of your ability to repay them should they extend you a loan.

But how is this relevant for a young Singaporean who has never taken any loan? Many do not know that there is a Credit Bureau in Singapore that provides consumers’ credit ratings to the banks. Most Singaporeans also do not realise that charges billed to their credit cards qualify as a loan that would affect their credit rating negatively if prompt payment is not made, and of course positively if they do make timely repayments. As such, delayed payment on your credit card bills due to random reasons such as being out of the country during the payment due date would actually deteriorate your credit rating.

This may not appear to be a big deal but it potentially could be. In future loan applications that you make, such as a housing loan, you may encounter difficulty and have a tougher time getting your loan approved – just because you didn’t bother to pay your credit card bills promptly when you were young. Remember that the loan-approving officer will be looking at your credit history and be making a decision based on it. He or she may not be so convinced hearing your weak explanation of how you were too busy to pay your bills on time.

For a better understanding on credit, you may read one of our previous article written.

2. Not getting Health Insurance

After providing some strong perspective with the current system of the insurance industry previously, we will throw a complimentary carrot and say that buying health insurance is one of the best things you can do for yourself and your loved one this year, if you have not already done so.

In fact, I will go one step further today and say what all insurance agents will say when trying to sell an insurance plan. “Not buying insurance is gambling with your life. Do you want to gamble with your life?” If the answers is no, then we strongly suggest you speak to an agent about buying a plan. If you do not know one, just hang around at public places such as outside the MRT stations and an agent will approach you via the survey method. Just remember to tell them you like to buy a “Hospitalisation and Surgery” plan only as they might attempt to sell you unsuitable products otherwise.

3. Forgetting to save

If you think it is difficult to save when you first begin work as you have tons of things to spend on such as drinks at pubs and clubs, dream overseas trips to Europe and branded handbags and shoes and wallets, just wait till you are about to get married. Then you would have even more things to consider such as down payment for your flat, renovation cost and wedding packages – in additional to those drinks in pub and clubs, overseas trips and branded handbags and shoes and wallets.

If you think it is difficult to save when you are married, wait till you have kids. Then you would have even more things to spend on such as necessity for your kids, rising pre-school ‘education’ and compulsory tuition when they reach primary school and you realised all their classmates are a step ahead, and some even two. Following that you will then have to start preparing for their university education while simultaneously also having to meet their end needs by providing them with allowance. If you heed the government’s call to have even more kids, then you would have to multiply that cost accordingly. All these while also servicing your housing loans, car loans, renovations loans and whatever loans that you might have accumulated.

And once your kids are all grown up, then you would have to start thinking of saving for your own retirement, which by then you would be in your 50s.

This does not sound like a good overall plan. As such, DollarsAndSense.sg recommend that you start planning on how you want to save today and to focus on that rather than just only planning on how to spend.

We hope that this is a good read and as always, we will like to hear your views so do drop us a comment if you have any thoughts on the article.

 

Original photo by Benjamin Lim. Used with permission.

 

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