When it comes to finances, bad decisions can have a snowball-like effect. Assuming that an individual may work for 30 years and lead a retired life for 15 years, financial planning has to be done for nearly 45 years. Since this requires long term strategic planning, people tend to make mistakes, which should be rectified to realize financial goals.
Some common financial mistakes that we make but never rectify:
- Inadequate insurance
If you are thinking to drop certain insurances, particularly health insurance, then you may get into unnecessary debt as unexpected illness and injuries can happen anytime, often necessitating costly medical treatment. As per the Life Insurance Association’s 2017 Protection Gap Study, the average employed person has about $60,000 worth of critical illness coverage. However, in order to take care of the family, five times of this amount is required. This indicates a gap in the total insured amount which leads to increased borrowings and impacts your monthly budget.
2. Failing to live off a budget
While creating a budget, it is vital to allocate some money to savings and other daily routine tasks such as transportation, food, and other expenditures. According to the Ministry of Manpower, the median monthly expenditure is about $2,000 (single person) and the majority (precisely 46%) of the expenses are incurred towards paying rent. Hence, failing to adhere to the budget results in using different lines of credit, such as instant cash loan in Singapore, which hampers the ability to save money.
3. Using credit cards irresponsibly
Singaporeans use their credit cards frequently, which escalates the risks of getting into debts easily. The data from Credit Bureau Singapore indicated a rise in the circulation of credit cards from about 6 million in May 2008 to around 9 million as on May 2018. Banks wrote off a total of $128.3 million in bad credit card from January 2018 to May 2018 as borrowers were persistently unable to repay the outstanding amount.
4. Taking on too much educational debt
With the increasing importance for higher education, obtaining a degree is the highest priority of most individuals and they are not concerned of getting into debt for achieving this objective. On an average, Singaporeans spend an average of $21,000 annually, more than twice the global average. Also, more than 52% of the parents are willing to avail loans for their child’s university education. This is the biggest financial risk they take as education is the key concern among the households above personal and medical expenses. Many households tend to miss their saving targets and look for assistance from banks or a licensed money lender in Singapore for maintaining their families. Hence, only the education degree in an area of interest of the student has to be pursued and education debt has to be paid as soon as possible upon graduation.
5. Immature investment planning
A research conducted by Manulife indicated that investors hold an average of 46 months of personal income in cash. Of that, only one-fifth amount is considered for unexpected expenses. Instead of “keeping all the eggs in one basket”, diversification of investment improves returns and enables to manage risks effectively.
Each of these points involves a trade-off and a decision that involves denying the joys of overspending or upgrading the credit cards. But there are rewards for each sacrifice you make since it will protect you from a financial downturn without falling into debt traps.