Complaining about the rising cost of living is not going to help you to retire earlier. But these days it seems like that’s the only thing a lot of Singaporeans are doing. They gripe about how everything is getting so expensive, and then they promptly walk into Prada.
The fact is, there’s no need to wait until your salary finally reaches a five figure monthly sum to think about retirement. There are things you, as a young, foolish employee, are doing right this very minute that could screw up your plans to stop working later on. Here are five big mistakes you might be making right now.
1. Not maintaining your health
If The Straits Times is to be believed, Singaporeans’ #1 retirement fear is not having enough money for medical bills. Well, let’s just say that’s not an entirely misplaced fear, as unexpected medical bills are amongst the top reasons Singaporeans wind up in debt.
However, despite the number of complaints about how medical care is so expensive in Singapore, few people actually take active steps to maintain their health. This is probably due to the fact that so many people here are relatively twig-like in stature and hence think that “only fat people” need to exercise to keep themselves in shape.
The sad truth is that only 1 in 3 Singaporeans exercises regularly, while you have only to spend some time at your neighbourhood hawker centre or coffee shop to realise there are people who eat unhealthy meals outside the home every single day. If that isn’t scary enough, an NUS study showed that 1 in 3 Singaporeans will end up with diabetes by the age of 69. Singapore is one of the developed countries with the highest incidences of the condition in the world.
If you’re really that worried about medical bills, it’d be stupid not to take steps to maintain your health while you’re still young enough to do so.
2. Getting stuck with a huge mortgage
In Singapore, there’s no such thing as buying a $100,000 house. This means that 25, 30 or even 35 year loans are quite common. Terrifyingly, this also means that if you buy a property at the age of 35, you could stuck making mortgage repayments until you’re 60-70.
Now, over the course of 25 to 35 years, interest rates are going to fluctuate quite wildly, and that mortgage you got at a steal decades years ago when you still had hair is almost certainly not such a good deal today. If you’ve gone 10 or 20 years without refinancing your loan, you’ve almost certainly lost thousands of dollars unnecessarily.
Make sure you monitor your existing home loans over the years so you can refinance as and when it’s necessary. If you wait till you’re about to retire you’ll already have lost tens of thousands of dollars that could have gone into your retirement fund. Check home loan rates right here on MoneySmart.
3. Not investing enough
You know how Korean children get funneled into K-pop star bootcamp when they’re barely out of diapers so they’re ready to start making their management companies money by the time they hit the age of 16? Investing works in the same way. While the investment vehicles you choose are certainly important, so is getting in as early as possible.
If you’re afraid that now is not the right time or can never seem to find the right opportunities, you might want to take the strategy known as dollar cost averaging when investing in stocks That means you systematically invest a certain dollar amount in stocks on a regular (say, monthly) basis. When the market is down, you get more stocks for your money; when prices are high, you get less. This cushions you from the risk of paying a lot of money for stocks that later crash, while still ensuring your money doesn’t languish in your savings accont.
Whichever method you choose, this chart should scare you into investing your money as early as possible. Someone who who invests $5,000 a year from 25-35 could end up with more money than someone who invests $150,000 between the ages of 35 and 65. The moral of the story is that you don’t need a lot of money to retire, you just need to invest it as early as possible.
4. Spending too much in youth
One of my friends firmly believes that the time to spend money is when you’re young. “Now in my 20s, I want to drive fast cars, impress girls and party with my friends. When I’m old, there’ll be nothing left to enjoy.”
However, if you belong to the group of people who don’t believe they should throw themselves off a cliff the minute they hit age 35, it’s probably a good idea to limit your spending in your youth.
If you invest your money, a dollar invested at age 25 at a 5% interest rate isn’t just a dollar—by the time you hit age 60, that $1 would have become $5.52 thanks to the power of compounding interest.
In addition, when you get older and have to worry about commitments like families, homes and cars, saving money gets even harder. The time to save for retirement, then, is when you’re young and unencumbered.
5. Clinging on to bad money habits
Our relationship with money is a complex one. You can hire the best financial planner in the world, but if you’re the sort of person who’s a slave to impulse spending, needs to boost low self esteem with an expensive veneer or has a gambling problem, change needs to come from within. The same goes for those who are too lazy or chicken to invest, or those who are unable to say no to peer pressure to spend.
If there’s one thing reaching the ripe old age of (bleep!) has taught me, it’s that old habits die hard. You’re not going to just grow out of your bad habits the way you outgrew those baggy jeans from JNCO and Alien Workshop.
I have friends in their thirties who started borrowing from loansharks to cover gambling debts or spent every cent of their salary in their 20s. And now, 5 or 10 years later, many are still in the same jam.
If you want a shot at retirement, weed out your bad money habits now and whip yourself into submission before it’s too late.
What mistakes are you making now that will hinder your ability to retire? Let us know in the comments!