Some financial pitfalls set your financial life back by decades! Here are three to avoid:
Financial Pitfall 1 : Borrowing To Invest or Gamble
Investment should only be made through disposable income. Borrowing to invest sets you into a trap when the investments does not pay off as well as you predicted. Now, that is a dangerous pitfall as you just became a bank slave for no good reason. If your effective interest rate (EIR) is 6%, you are betting for your investment to go above 8%, which is highly difficult to achieve.
Never borrow to invest.
Financial Pitfall 2: Not paying off the principal sum
No debt? Congratulations! Now, make sure you don’t incur a debt unless strictly necessary and only as a last resort. For the rest of us, do not just pay the bare minimum each month.
If you owe $10,000 and you pay off $50 each month, next year you’ll still owe $10,000. Why? Because you haven’t been chipping away at the principal sum. You have only been paying interest, and paying interest alone is financially stupid. Keep chipping away at the principal each month, and you will sooner see that debt cleared, and your money freed up to serve you better.
Financial Pitfall 3: Cashflow deficit
If you earn 4000 but spend 4500 each month, at the end of one year, what do you have to show for one entire year of work? Nothing.
This is why you have to monitor your spendings closely, and keep as much savings as possible. Life is short and random, so by all means indulge and have fun but set a hard limit to how much you can spend each month. Year by year, your savings account should be growing, not becoming stagnant or worse, declining.
Please don’t see these pitfalls as trivial. Many Singaporeans in their 50’s have to restart their financial lives because of these, particularly pitfalls 1 and 2. Your money is hard-earned, so please manage it well.
