If you are 30 years old and not yet serious about finance, you are…like most people. It's common to ignore serious financial mistakes and money issues until you need your first house, first car, first surgery, etc.
And who can blame you? Finance is dull. Just look at those finance experts on the news – we'd rather watch an Orangutan pick nits out of its armpit on Discovery Channel. At least there'd be less maths involved.
But never fear: here's the easy version of what you need to know from lessons distilled from years of poor life choices:
#1: Not Having Enough Savings By the Time You are 40
At the age of 40, disasters are suddenly magnified. What do we mean? Well consider the typical responsibilities of a 40-year-old Singaporean:
- Looking after parents
- Paying the mortgage
- Creating an education fund for the children
- Dealing with car loans, renovation loans, etc.
Notice that, when one of the above goes wrong, fixing it tends to be very expensive. Think of factors like an elderly parent developing a chronic condition, having to downgrade because you can't make the mortgage, your child failing an exam and making you pay for another year of university, etc.
If you don't have any savings to deal with these, you will end up in monstrous debt. We're not talking "spent too much on an iPad" level here, we're talking five or six-digit figures. This is why it's vital to save money early, and to build up a sizeable emergency fund (about 6-12 months of your income) before you're faced with these responsibilities.
#2: Buying a Car Before 40
Assuming you manage to get the down-payment to buy a car, you would be insane to do so. With car loans restricted to 40-50% of the car value, you would typically be forking out around $50,000 as down-payment. Let's not even go into the high monthly repayments.
A car is a depreciating asset. At the end of ten years, even if you renew the COE, it will be worth a fraction of what you paid. In the decade between your 30s to your 40s, if you had instead invested that $50,000 at just 5% returns (manageable with most insurers or index funds) and contributed nothing else, you would have over $84,000 in the bank by 40.
#3: Having Credit Card Debt
Credit card debt can spiral out of control fast. Once you start facing the issues that age brings (see point 1), the last thing you want is to add roll-over debt compounding at 24% per annum. If you don't clear this debt fast, it becomes financial syphilis – it stays for life (or until you default and ruin your credit rating).
Pay down credit card debt as fast as you can. If necessary, make a balance transfer, or take out a low interest personal loan to pay off the debt. You can find the best personal loan for debt consolidation at SingSaver.com.sg
#4: Not Buying Insurance Early
The older you are when you buy insurance, the higher the premiums will be. With age comes a hospital record (almost everyone gets sick or injured at some point), and an increasing probability of sickness. It is quite possible for your insurance premiums to be under $60 when you are in your 20s, and over $600 in your 40s.
So buy it early, and lock down a good rate. You will need to buy insurance anyway so you may as well get it as cheap as possible!