After close to a decade and a half of formal education, and living under the care of their parents, many young Singaporeans finally enter the work force full of enthusiasm and brimming with ideas in their 20s.
However, landing their first full-time job and earning thousands of dollars each month isn't a blank cheque for young adults to spend their salary in any way they wish. As a working adult, you have to be responsible with the money that you earn today to lower your chance of getting mired in financial hardships in the future.
In this article, we highlight four critical financial decisions every young working adult in their 20s will have to make. By making the right decisions, you will be setting yourself up to achieve your life and career aspirations in your 30s and beyond!
#1 The type of home you intend to buy
According to the Singapore Department of Statistics, the home ownership rate in Singapore is currently more than 90%. This means that for most, their property is likely to be the single biggest ticket item that they will be purchasing in their lifetime, let alone in their 20s.
Buying a property in Singapore doesn't just require a spouse, a hefty down payment and a creative renovation idea. For most, a housing loan spanning up to 25 years is necessary to finance this dream home. Depending on the home you've bought, this can also easily range from a few hundred thousand to more than a million.
Take a deep breath to understand the magnitude of the financial decision that you will be making.
You have just started working.
You have very little information on how your future is going pan out.
Or how much you will even be able to make in a few years.
Despite all this, you are going to take out a loan which very likely require a hefty mortgage repayment of a thousand dollars, or more, every single month for about 25 years.
Do you really wish to start your adult life with a large debt that you will need to work hard for best part of your working life to pay off?
Or would you rather compromise on a smaller, but more affordable, home that not only fulfils your needs today, but also empowers you with the financial flexibility of being able to pursue other interests in your lives without having to worry about your home mortgage.
There are plenty of housing options in Singapore including private properties, resale HDB flats in mature estates and more affordable BTO flats in non-mature estates. Choose a home that best fits your budget and aspirations, so that you do not have to lock yourself in to a large loan or limit yourself from doing the things that you prefer later on in life.
#2 How much you intend to spend on your lifestyle
Lifestyle inflation is a real thing. From getting a few hundred dollars a month in allowance or from part-time jobs, you are now raking in thousands of dollars. It's easy to see how this could lead to indulgent spending on your favourite gadgets, your dream vacation or wining and dining at fancy places.
Once set in motion, it's difficult to downgrade or do without.
Imagine if you have to give up your smartphone today for the mobile phones which existed 20 years ago. It's unthinkable – simply because we're so used to having what we have today.
The same logic applies to your lifestyle. It's common to see young working adults upgrading their lifestyles as soon as they start working. Suddenly, that clutch bag they bought from the flea market in Bangkok is no longer good enough and neither is that trusty G-shock watch that served them so well during their army days. In their place, YSL bags and Rolexes – because they can now afford it.
Lifestyle inflation is a reason why many individuals continue to feel they don't earn enough, even after getting increments and promotions year after year. If you start spending more each time you earn more, then no amount of salary will ever be enough.
In order to make prudent financial decisions on what you should be spending on, you need to be able to differentiate between your needs and wants.
Needs are things that you cannot do without in your life. Spend on them.
Wants are marketing and aspirations that have been sold to us by others, or because we see others enjoying them and want it for ourselves. Limit spending on these things.
#3 Paying off debts
It's a healthy habit to settle your debt from one stage of life before you transit to another. For some young working adults, this debt could be the student loans they may have taken to fund their tertiary education.
By settling these debts, you can enter the next stage in your life, be it marriage, having children or furthering your studies, without being burdened by your past loans.
Once you pay off these loans, you can use any excess money that you now have each month, to start investing for your future. You can do so on your own by investing in stocks and bonds, or you can start to invest in retirement or wealth planning products offered by financial institutions.
AIA offers a wide range of investment-linked plans (ILPs) which offer potential investment returns to help you achieve your financial goals.
#4 Understanding your insurance needs
As a working adult, personal financial planning is a responsibility that you should not take lightly. Being young and in the pink of health, your biggest financial risk is a health-related issue robbing you of your ability to work, and earn a living for yourself and your loved ones.
One simple way to protect yourself against this risk is to get the right insurance plans. For example, if have dependents and are worried that they will face financial challenges if you are no around to provide for them, you can get life protection products to ensure that your loved ones will be taken care of in your absence.
If you are worried about spiralling healthcare costs, then you should get the right medical protection plans to protect yourself against rising and unexpected healthcare expenses that you may incur in the future.
The best part about getting your insurance requirements taken care of in your 20s is that you not only pay lower premiums because you are younger, but you are also less likely to have pre-existing illnesses, which may be excluded from your coverage or which may even cause you to be rejected from buying an insurance plan.
Live life responsibly
Your 20s is one of the best and most exciting age to be in. You are old enough to earn a good wage yet young and energetic enough to take risks and live life on your own terms. This is also a honeymoon period for the rest of your working life, where you do not have many financial commitments to worry about…yet.
By making the right financial decisions in your life today, you will be setting the gears in motion for a better 30s, 40s, 50s and more!