What are the most common money management problems?

I recently had 2 conversations about money, one was with a friend with 4 kids and one millennial who just started on his financial journey. Despite them being so different in so many ways, I realized that they both have very common perceptions when it comes to managing money.

Here are my thoughts on some of the common money management problems of beginner

1. No idea what is considered safe/reasonable return

Just because the bank savings interest rate is a pittance does not mean that your investment returns have to be so also. While I don’t advocate yield chasing, being too risk adverse is not helpful too.

I advocate having goals in mind and use time and effort to understand the risk and rewards of the various investment opportunities presented in life. Not everyone will be able to land a million dollar opportunity in life, but having educated yourself you will be able to identify the most risk adjusted investments to choose in any stage of life.

2. Saving and investments out of sync with life goals

Investing <$400 a month in an index fund might be great start. But in the grander scheme of things $5,000/year is really a drop in the financial whirlpool of expenses, especially so when its inflation adjusted. In order, to have any kind of meaningful investment income you need to recognize that investment is really like an iceberg, the passive income portion is really backed up by a large portfolio of invested funds.

This means that investment and insurance amounts need to vary with needs and life goals. They are not set in stone and left to be forgotten. One needs to be engaged in your wealth building journey.

3. Underestimating future expenses

Younger Singaporeans underestimate expenses inflation later in life. While most of the spending in your 20’s is discretionary and can be cut back on, spending in your later years are likely not to be, add in the aged parents and young children and you get a combustible stickybomb most can’t shake off.

The problem of the sandwich class is real in Singapore and needs to be taken more seriously. The friend with 4 kids is considering realizing the gains from his BTO home to buy a larger but older condo, I’m not sure how doing so will help him in his wealth building journey, but he says that when you have a family “you manage”. Well, I really hope he manages to en-bloc in the future, cuz that might be his retirement sum.

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