Because the lessons you’ll learn from these money mistakes will stick with you, especially when you’re older and need to be financially stable.
Gandhi said fools learn from experience, and the wise learn from the experiences of others. Now that’s somewhat true–no one has to stick their hand in the fire to learn that it’s hot. But sometimes, direct experience is the teacher that really makes a lesson sink in. So you can try either experiencing these for yourself, or just learn from the ones here!
1. Go Crazy With Your First Credit Card
Until you have had your first credit card, you don’t know how easy it is to overspend. When there’s no need to physically take money out of your wallet, spending becomes as easy breathing.
It’s only toward the end of the month when you realise you owe S$5,000, or whatever twice your income is (in your 20s the credit ceiling should be manageably low. Enough to shock you, but not enough for a lifetime debt.)
That’s when you will be forced to learn about balance transfers, or using personal loans to at least lower the interest rate of your debts. The first time you take a S$5,000 loan at 6% interest (personal loan), to pay off a debt of S$5,000 at 24% interest (credit card loan), banking will suddenly seem more relevant and interesting.
If you’re in this situation right now by the way, please fix your debt. Use a balance transfer or debt consolidation plan to take over your old credit card debt, and lose less money. Check out our tools on SingSaver for options.
2. Live Paycheck to Paycheck
When you live paycheck to paycheck, you have no reserves to deal with emergencies. Those emergencies will happen at the worst possible time, because the universe hates spendthrifts*. The day you smash an antique lamp while browsing in a store? That will be a day or two after you’ve spent the last of your paycheck.
But saving all the time is not fun, so expect the trend to continue until your 30s. At which point you will see the price of a house, or your first major medical cost, and instantly become more prudent.
You will then learn to save a portion of your pay until you have an emergency fund (about six months of your income), before continuing to spend every paycheck to its last cent. The difference is that you’ll be safe doing it this time, because you have the fund backing you up.
3. Lend Money to Friends
Lending money to friends is what we call an outsized risk. There is significant downside (there is a chance of losing the money) with minimal upside (the best you can hope for is that you will be paid back). But enough with the cold, rational terms.
The first few times you lend significant sums to friends (say S$1,000 or more), you will probably forget documentation. You will forget to photograph receipts of bank transfers, or get an email of them agreeing to pay you back. This will often weigh against you in your first approach to a courtroom.
In any case, you will come to realise how friendships dissolve–often loudly–over situations like these. And this bit of wisdom will dawn on you:
If you want to help, give the money or just give what you can. Don’t lend and plan on getting it back.
If someone asks to borrow S$2,000, you are better off giving them S$100 and saying “Sorry, I can’t afford to lend that much, but you don’t need to pay me back this money.”
This will do wonders for your friendship, and it’s a recommended approach to relatives who want to borrow.
4. Hold Off on Buying Insurance
We have that Medi-whatsit thing, and insurance is boring, and oh, who cares, right? Go ahead and surf in Bali, and zip line across crevasses in South America–don’t worry, you have a travel insurance policy.
Until your first major accident, and you realise the cost of the medical evacuation to bring you home (or just to a hospital, depending where you are) is enough to wipe out the entire claim from your S$50, ATM-purchased travel insurance.
Or until your first chronic conditions show signs of developing–anything from rising hypertension to permanent injuries from a YOLO lifestyle. That’s when you’ll realise MediShield mostly just covers hospitalisation fees, and you’re struggling to pay mounting costs.
If you’re wise, this will send you scrambling to buy insurance before premiums rise any higher, and before you’re hit by another wallet-emptying incident.
5. Make Your First Investment Mistake
The chance of making an investment error at some point in your life is virtually 100%. You may as well get it over with in your 20s, so you’re wiser later on.
For many 20+ year olds, an abortive attempt at being your own boss, or partnering with a friend for an apparel store / blog shop / cafe is the most common first mistake. This is actually a good thing–you will get some experience with accounting, and a sense of how much such ventures cost you. In particular, you’ll get a sense of how wasted time is much worse than wasted money.
Alternatively, you will be pulled into your first Multi-Level Marketing (MLM) scam–which will again teach you about the pain of wasted time–or questionable schemes by friends dabbling in stocks and Forex. As long as you keep the loss affordable, go for it.
Even go for it if you highly suspect something might go wrong, so you know what questions to ask when investing later. And as for the resulting loss–the first cut is the deepest. You’ll be much more calloused (mentally) and able to tolerate losses later.
By Ryan Ong
Ryan has been writing about finance for the last 10 years. He also has his fingers in a lot of other pies, having written for publications such as Men’s Health, Her World, Esquire, and Yahoo! Finance.