5 ways Singaporeans are hurting their finances

Do you know that two in three Singaporeans don’t believe they can retire at their desired age? Many are also worried that they will not be able to afford an adequate standard of living in retirement.

Ever wondered what are the most common ways Singaporeans are hurting their finances, burning their money and ultimately stop them from retiring young

  1. Spend too much too soon

Many Singaporeans keep spending away their money, sinking into debt and setting themselves for an insecure financial future. Even without realising it!

And what do many people commonly splurge on? Nice clothes, nice shoes, watches, cars, branded bags. Just so they feel they can keep up with their friends. Or to show off to others.

Or they will feel like they have earned the right to indulge after working so hard. Shopping, restaurants, clubs, bars, and expensive holidays.

There’s nothing wrong with indulgence when done in moderation. Commit only 10% of your budget for fun stuff.

Before you indulge, just consider how this money you’re going to spend isn’t coming back to you anymore. That it couldn’t be invested in something that will give you a return for the money put in. That is opportunity cost, the loss of this potential increase in your income.

2. Letting debt accumulate

Start clearing your debt ASAP, before they creep up on you. Don’t let unsecured debt punch a big hole in your early retirement plans. Most people think they can ‘wait’ till they have enough money to clear their debts. That will never happen, because you’ll end up spending more and more on different things down the road as your lifestyle changes.

For example, in your 20s, you have just finished your education and borrowed from your parent’s CPF to pay for it. That would mean starting off being already heavily in debt.

Once you start work, you may get tempted to sign up for credit cards and then owe money to your bank every month.

As you get married and raise a family, that would mean weddings, housing loans, car loans, raising children, etc

Just think how all these would deplete your savings and sink you further into debt.

Our life expectancy is increasing, and many of us will spend 20+ years in retirement. Not setting aside money early on can greatly increase the chance of your retirement or emergency funds depleting when you need it most.

3. Lifestyle inflation

Many Singaporeans will spend more money when they have more money to spend. This is called lifestyle inflation and it can do serious damage to your financial future.

They feel entitled, thinking that the more money they can make, the more they have earned the right to treat themselves and their family to better things in life.

I know people who buy better cars after a few years, moved into condos, or travelled further to more exotic destinations.

Even people who are prudent can’t escape lifestyle inflation. For example, after the birth of a child, you need to get a car so it’s way easier to transport your family around. Or after your child starts school, that would mean more money spent on books, allowances, etc. Your situation will change over time and a certain amount of lifestyle inflation is to be expected as your work and family obligations evolve.

4. No emergency fund

You need to have plenty of extra money for an emergency fund. This is the money that you need to reserve, in case something bad happens to you. Like getting retrenched, quitting your job, or getting an injury or illness and being forced to stop work. Or the same thing could happen to your family members. And you’d need a large sum of money to tide them over.

If you have insurance – great! But there will still be plenty out of pocket expenses to pay as insurance won’t cover everything. And you still have living expenses to worry about, all while you’re not getting any income for the immediate future. It’s best to have this reserve prepared early on, so anything that happens doesn’t delay your plans for retirement.

5. Not preparing for retirement early

Do you know that many retirees found out they actually needed more money than they thought. And their biggest regret is not being better prepared for retirement.

They go through younger years spending and not caring too much.

Only to regret when they hit their 50s and reality sinks in.

Think you have your CPF money to look forward to? The sad fact for many Singaporeans, is their CPF (already spent on HDB) will not be enough to maintain the lifestyle and standard of living they dream about.

You’ve got to do the hard work of preparing for retirement early on. That means investing at least 20% of your monthly salary into savings and investments that’ll into a huge sum years down the road.