Mistakes – everyone makes them. Then again, making mistakes is a part of life right? I mean, the whole point is that you’re supposed to learn from them so that you don’t repeat them. Of course, some mistakes don’t really give you that “second chance” to make things better.
Once they happen – the only thing you can do is to work hard to “fix” them. That’s especially true with major financial mistakes. So how can you avoid a major financial mistake that can cost you some serious money?
Easy – by learning from the mistakes of others.
Recently, I met up with Peter Sin, a Senior Wealth Management Adviser with Zurich Life Insurance to discuss some of the biggest financial mistakes he has seen Singaporeans make during his career.
Want to know what he said?
Read on to learn more about the 3 biggest financial mistakes Singaporeans make too often:
#1 Many Singaporeans Don’t Know How Credit Affects Them
It’s a sad fact that many Singaporeans (especially younger Singaporeans age 25 to 35) have no idea how their credit rating can affect their financial future until it’s too late.
In fact, because of the TDSR framework for home loans and the latest MAS measures on unsecured loans – your credit now plays an even more important role in your financial future.
“Most people only find out how important their credit is when it’s time to buy an HDB flat”, says Peter. “By then, it’s too late to learn because they’ve already been rejected for a home loan because they are carrying too much credit card or unsecured loan debt”.
But it isn’t just bad credit that can affect financial future – having no credit can be just as bad. “Some people avoid credit cards and choose to pay cash for everything”, relates Peter. “That’s another big mistake because you need credit cards to build up your credit rating so you can show financial institutions that you’re reliable and responsible with credit”.
Having a bad or insufficient credit rating can not only make it difficult to buy a home, but it can hurt your ability to borrow as well – especially if you’re looking to take out a personal or business loan.
Being responsible with your credit by making payments on time, paying off balances in full and living within your means is the best way to avoid this mistake.
“The biggest misconception people have is that ‘good’ credit is determined by making payments on ‘big’ loans on time, but the truth is that any delay or non-payment of their credit cards, even with a small balance, is very damaging”.
And if you’ve already stepped on the landmine called bad credit, you can still repair the damage by destroying your credit card debt as quickly as possible.
#2 Many Singaporeans Don’t Have an Emergency Fund
Chances are that you probably already know about the importance of having an emergency fund, especially if you’ve read our recent articles on the 3 Biggest Financial Objectives You Should Aim for In Your 20s and the 3 Smartest Ways to Spend Your Pay Raise.
And if you don’t know what an emergency fund is – it’s a sum of money that you save and set aside for unexpected emergencies such as retrenchment, injury or illness (*hopefully you have insurance policies in place to protect you from the latter two).
Now, what percentage of Singaporeans do you think have an emergency fund in place?
While Peter can only speak from his experience in dealing with prospective clients – that number is 9 out of 10. That’s how many Singaporeans DON’T have an emergency fund in place.
“When building your emergency fund, you should save up at least 6 months’ worth of income to cover your expenses before you even think about investing a single dollar”, says Peter. “If you invest first before setting up an emergency fund, you run the risk of having to sell of your nest-egg building investments in the event you go through retrenchment or a medical emergency”.
*Note: According to Peter, you shouldn’t be spending more than 10% of your salary on insurance to protect your income should anything happen. “It’s a 10% expense that can potentially pay you 20X your income in the event of an emergency,” says Peter.
#3 Many Singaporeans Waste Money on “Get Rich Quick” Courses
With the cost of living in Singapore rising every year due to inflation (and wages not rising fast enough to beat compete with it), it’s easy to get caught up in many of the “get rich quick” courses you see advertised everywhere.
You know which ones I’m talking about – courses that show you how to “beat” Forex, teach you to invest in multiple properties with some ridiculously low sum.
Unfortunately, too many younger Singaporeans are adopting that “get rich quick” mindset that leads them to take a speculative mindset towards investing that’s extremely risky.
“It’s sad because many Singaporeans don’t even learn the basics of investing or even how to determine their cashflow and balance sheet before making such investments”, relates Peter.
“So before you think about attending such courses, check the previews, never sign up on the spot and make sure the courses are certified by the Monetary Authority of Singapore (MAS)”, says Peter. “Any course that doesn’t have MAS accreditation should be avoided at all cost”.
But it’s not just these “get rich quick” courses you should look out for – you should also be weary of professional development courses that offer to teach you some useful skill like “internet marketing” for very high fees.
It’s important to invest in your professional development, but there are ways to do it without spending thousands. In fact, you might not even have to spend anything if you follow the points outlined in our article 3 Free Ways to Upgrade Your Professional Skills without Setting Foot in a Classroom.
What are some other major financial mistakes Singaporeans are guilty of making? Share your thoughts with us on Facebook! For even more useful information on everything personal finance, visit MoneySmart today!