Monday, September 10, 2012

Money Matters: 3 Financial Lessons to prepare you for Adulthood

Money Matters is a short series of articles written by Ho Khin Wai, a Diploma in Banking and Financial Services student, in an effort to raise the level of financial literacy among NYP students. He will cover various relevant topics on personal finance for teenagers in Singapore, and strives to make these articles fun and easy to understand.
As we grow older, many things seem to get more complicated. One such matter is ‘Money’. We tend to think less about money when our parents give us an allowance every month. As youths, we only talk about how much to spend on food, how much to save up to buy a new pair of shoes and so on. As we grow older, however, we become less reliant on our parents for an allowance and may even look into ways to generate our own income.

Often many people fall prey to shrewd marketers, sales people and their own greed. And get their finances in the red.

So, how do you avoid these common pitfalls? Here are 3 important lessons to keep you out of the red:

Lesson 1: Credit Cards are a double-edged sword

Maybe you are thinking of getting one. Maybe you already have one of these cards. Although it may be a great alternative to getting “more cash” instantly, but if you do not pay your bills on time, you will end up paying more than what you owe on your credit card.
How many of these do you have in your wallet already?

Credit cards are BAD if you do not know how to use them properly. Interest rates on credit cards are unimaginably high at a rate of 24 per cent per year. This equates to 2 per cent every month on the amount that you owe, and that IS a lot.
So, does this mean you should cancel your credit card, or not get one at all?

If you think you are disciplined enough to pay your bills on time then go ahead and apply for one. However, do not fall into the common fool’s mindset that credit cards give you extra money. It is just a form of borrowing where you have to pay back the amount borrowed, or even more, at the end of the day.


Lesson 2: The need for a “buffer fund”

Many of you will have heard the phrase “saving for a rainy day”. But how many individuals actually do it?
Most, if not all of us, will go into the workforce and earn an income. Many of us will use this income entirely on personal or family expenses and think little about saving.
The thing is, having a “buffer fund” is a very useful tool as you will be able to tap into excess funds in the event of a real emergency. It acts as a financial safety net for you and in the future, your family.
With inflation at 5%, don’t save in a piggy bank!
The amount to have in the buffer fund, according to financial experts, is 6-12 months of your salary. This ensures that if any unforeseen event occurs (such as unemployment), you worry less because you are assured of 6-12 months’ income to carry on with your daily life while looking for another job. After all, it is a much better option than borrowing from banks.


Lesson 3: Taking up a loan? Make payments on time!

Now you might be sitting at your desk thinking “Loans? Isn’t it a little too early to talk about it?” Well, it is never too early to start having this bit of financial knowledge as every individual in Singapore will have to take up at least a loan in his lifetime.
When you start working in future, you may be taking up your very first car loan or housing loan. Taking up a loan is fine, provided you are disciplined to make payments on time.
Don’t be caught up in Loan Street!
Do not be like the common man who delays payment on his loans because he thinks he will have less money once it is paid out too soon. In fact, he will suffer more losses (in interest and late payment charges) if he does not pay the monthly installments by the payment due date.
It is very important to follow this rule, considering that interest accumulates very quickly on loans due to the large loan amount.
There are many other important financial rules to follow in life. It is vital to learn from the mistakes that others have made in managing money, and to avoid them when managing your own. After all, it is your money.

Photo Credits:debtcovered, Images_of_Money,Robby Virus
Khin Wai is an NYP Year 2 Banking and Financial Services student from School of Business Management (SBM). He started writing for NYP Portal in 2011 out of interest and was soon "addicted" to it. He has also written book reviews for Straits Times YA Classified. Besides writing, he loves singing and has performed for various events in NYP under NYP Soundcard

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