3 Financial Decisions You Absolutely Must Make in Your 20s
Money is hard to come by and even harder to save in Singapore. Then again, living in one of the world’s most expensive cities tends to have that effect – and Singapore isn’t about to become more affordable any time soon.
While it’s tempting to spend your paycheque on fun trips to Orchard Road, Marina Bay Sands or Clarke Quay – resisting that urge now will save you plenty of financial heartache in the future!
Here are some key financial decisions you must make if you want to set yourself up for financial success.
#1 Create an Emergency Fund NOW!
The worst thing you can do as a 20-something is believe that everything will go according to plan or that unexpected will happen to you – because life is unpredictable.
After all, it only takes one major medical emergency or career mistake to leave you in a financial bind that either leaves you in a low- or no-income situation.
That’s why you should never put off building up an emergency fund in your 20s – because it will give you the financial buffer needed to survive life’s unpredictable challenges such as:
- Retrenchment: You never know when there might be a “change” in management or your company needs to cut staff for “restructuring”.
- Accident/Injury: Accidents/injuries can happen anytime, whether you’re at home or work… and they can also lead to expensive medical bills and loss of income.
- Repair/Replacement: Things often break down at the worst possible moments, and if it happens to be your car, major appliances or home furnishings that need repair/replacement, it’s going to cost you plenty.
Ideally, you’ll need to build up a savings fund that’s equal to 3 to 6 months’ worth of income. So if you’re making $3,000 a month, aim to have at least $9,000 to $18,000 set aside for financial emergencies!
#2 Sign Up for Insurance
Many 20-somethings wrongly assume that because they are “covered” just because they have Medishield Life and a little money in their CPF accounts – but they are gambling on the notion that they either have “adequate” insurance coverage or that it’s a waste of money.
Of course, the reality of why insurance is so important doesn’t become apparent until you actually need it. Unfortunately, too many people end up finding out that their insurance coverage just isn’t enough.
They best way to make sure you have enough insurance coverage is to speak to your financial advisor. However, there are some insurance policies (e.g. travel insurance and car insurance) that can be transparently compared and chosen at no cost.
Here are several important insurance policies you should definitely consider signing up for:
- Long-term disability insurance: provides you with monthly “income replacement” payments in the event that you are unable to work due to an accident/illness causing long-term disability.
- Life Insurance: provides your loved ones and dependents with a lump sum payment to cover your family’s financial obligations in the event you pass away.
- Health Insurance: provides financial assistance to cover expensive medical bills in the event that you suffer an injury or illness that leaves you hospitalised.
- Travel Insurance: provides financial assistance in the event you lose your luggage, miss a flight, or are involved in a fatal transportation accident during your vacation.
- Car Insurance: provides financial assistance in the event you get involved in a car accident or your vehicle takes damage (e.g. a hit and run fender bender in the parking lot).
#3 Start Looking at Side Jobs for Extra Income
“I never have enough money” is probably the biggest complaint most 20-somethings have. And that’s probably because you’re still in working on completing your diploma/degree or you’re still in the early years of your career when your starting salary isn’t the greatest.
However, this is the time when you can and should start looking for side jobs to earn extra income.
If you have a skill or hobby that can be monetised, you can definitely boost your monthly income by at least a few hundred dollars.
Do you have proficiency at writing? Then try your hand at being a freelance writer.
Love graphic design? Showcase your portfolio and take on design jobs.
Play an instrument with a degree of proficiency? Give music lessons at $50 an hour.
The reality is that there are plenty of ways to earn a side income if you just evaluate your skills and hobbies close enough – chances are good that there’s something you can make money from. And having a little extra income every month will certainly make it easier for you to build up your emergency fund and purchase the right amount of insurance coverage you need to protect yourself well into the future.
For more financial tips and tricks to optimise your financial lifestyle, visit imoney.sg and learn all the best moves to make with your money.