Are you a Gen Y working towards your financial freedom?


Maybe you are in your 20s and 30s with a career that’s just starting to take off; maybe you want to start building a family and are making plans for the future; maybe you hope to achieve your financial freedom so you can retire early.

With all these goals in your mind, you realise that there are some very real financial challenges. It seems that

  • It will take forever to pay off all your loans
  • You will never earn enough to support your young children and ageing parents
  • You may have to give up your passions and aspirations due to the financial constraint

Research shows that millennials are facing greater retirement challenges comparing to baby boomers. This is not only due to the drastically changed financial environment, but also 3 common financial pitfalls that I am going to talk about.

These pitfalls can cause a big financial setback to your financial freedom, but if you recognise them, you can fix them today.

Pitfall #1 – Divert too much retirement savings to buy a house

The side effect of Singapore’s success story is the high property prices. Too much media attention was drawn to the overnight property millionaires. As a young investor without much experience, you could easily be enticed into the venture.


Singaporeans have the tendency to upgrade their houses very often, for various reasons:

  • Moving to a resale flat that is close to your parents
  • Getting a larger space for your children to grow up in
  • Buying a private property just because it is seen as prestigious to do so.

Buying a house isn’t such a bad idea, but many people fall into the trap of over-committing to a house above their income levels.

Singapore’s property price has gone up 50% in the past decade, how about your pay? Was your earning power keeping pace with the same increment?

Singapore’s property prices skyrocketed in the past decade

Property investment used to be a topic of the baby boomers, but anyone who has some savings wants to invest property nowadays. A property investment club was unheard of in the olden days, but it is a topic and fashion even in the school compound today.

How to fix this

How often you hear an older person saying, “this house is the only thing I have now”.

If you don’t want to be the same, you need to consciously allocate your financial resources within your means now. A $300,000 BTO flat base on two-person income may not sabotage your financial future, but upgrading to a $1.5 million condominium could be too stretching for many young Singaporeans.

If you want a comfortable retirement, I recommend you targeting 30% debt servicing ratio when purchasing a house. It is likely that you haven’t achieved this figure yet, but at least you can set a goal and work on it.

Another misperception is that paying your monthly mortgage is equivalent to saving for your retirement. Because you always need a roof over your head, the house you stay is not a retirement asset.

Owner-stay property is still a liability. It is only an asset when it can generate positive cash flow to you

It is only when your property becomes an “Income Generating Asset” where you can call it a retirement fund.

To summarise, here is how you can get out of this pitfall

  1. Purchase a house within your means (target 30% debt servicing ratio)
  2. If you have to invest in a property, make sure it generates positive cash flow

Pitfall #2 – Borrow too much, save too little

The consequence of paying too much for your house is twofold. It not only drains your cash savings today but also creates a huge debt burden in the future.

debt-mountainMany people do not see this coming because you are allowed to use your CPF to pay for your house with no constraint. Are you guilty of “fully utilising your CPF” for your property purchase?

For many Singaporeans, CPF is the main, if not the only funding, for retirement, yet more than 50% Singaporeans can’t even meet CPF’s Full Retirement Sum of $166,000. That is because most people’s CPF were channelled into offsetting their mortgage loans.

Increasingly, people are getting too used to having debts in their everyday lives. Housing debt is but just one of them. Many Gen Y bear the burden of student loan debts even before they start to work. Some even incur debts to fund their wedding, new home renovation or financing a car.

Never has been so much credit released to the world in the human history, and more young professionals are filing for bankruptcy due to their overspending today.

How to fix this

You know you don’t have to “look wealthy”. It is ok for you to go for your dreamed holiday, it is ok if you need to upgrade your house at some point in your life. But you need to count where the money comes from.

Are you indulging yourself with your savings from the past or are you destroying your future by withdrawing earlier?

If you already run into debt trouble and even your credit score is affected, you have to make some serious commitment to get back to shape. But if you are just on the verge of debt default, you can make some quick adjustments:

  1. Stop creating new debt – you can’t pay off your debt if your new debt keeps on piling up.
  2. Lower your interest rates – you can often lower your interest rates by doing a balancing transfer to another bank. But you need to very careful that your aim is to pay off the debt, not to create more.
  3. Pay off small debts first – many financial experts advocate paying off debt with higher interest rates. But the best way is to check out all the small items in your debt list and make small wins. Only then you can be motivated to move forward.

Pitfall #3 No grit when it comes to investment

In the past, investment was easy. You either invest in stocks or bonds. You want to buy stocks of good business when they are undervalued. Over the time, your stock price will appreciate and you just wait to reap your returns.

But modern technologies open the doors for many new opportunities. There are just too many choices for Gen Y. You probably have attended countless investment trading seminars for stocks, future, forex,  CFD and options.

Having too many choices is often a bad thing, especially when you just start investing. As a Gen Y, you are keen to learn about how to start investing and you want to manage your own investments. That is totally understandable. But instead of gathering useful information, you always end up with noises, distractions and hypes.

Have you opened investment accounts with one or two providers, tried a few transactions and stopped there?

In today’s age where patience and perseverance are hard to come by, you may be tempted to move from one strategy to another strategy, from one platform to another platform. But after a while, you may start to conclude

  • Investment doesn’t work
  • I can’t do this
  • There is no money to be made in the stock market

You end up leaving your money in the bank earning nothing.

It is not that all these do not work. Investment, like any other field, requires dedicated time and commitment. The key thing is to have is the “GRIT“, the passion and perseverance. I encourage you to read Angela Duckworth’s New York Best Seller book on this topic.


The new norm of financial crises

Gen Y were also exposed to many financial crises in the past. Do you feel that the investment trauma never ends? Let me count them for you

You probably heard of these events but I can triple the list if you like. The point is that crisis happens every year. And with all the exaggerating news, you may feel investments are too complicated or too risky to embark on, and you procrastinate, try to time the market and wait on the sideline.

As a result, most investors achieve much less return than what the stock market wants to give them.

How to fix it

You can be a victim or beneficiary of the Internet and all the technologies today. The truth is that you have the investment resources which only the biggest financial institution used to possess a decade ago.

You can use ETFs to building a simple diversified portfolio without all the technical knowledge and huge amount of capital.

Even if you have little to start with, you can accumulate along the way through regular savings plans such as POSB InvestSaver and OCBC Blue Chip Investment Plan.

There are also innovative insurance products such as AIA’s Wealth Pro Advantage which I mentioned last week.

Like I said just now, you need to have a system for “grit”. That is why I like the idea of Savest™, combine saving and investing into one plan and build in some flexibilities in it.


Long-term saving and investing is hard without a disciplined approach, but if you implement Savest™,

  • You know you will never lose all your capitals so you are mentally relaxed
  • You can start small and yet multiply your returns
  • You have a plan at the onset so it is hard for you to deviate your goals even if the stock market crashes.
  • You can make easier investment decisions by leveraging on the expertise of Mercer.

Here you have it

By now you know the 3 pitfalls that will cause a setback for your financial freedom and how you can fix them.

  1. Overcommitting a house for own stay
  2. Borrowing without checking the ability to pay back
  3. Giving up investment too fast

What do you think? How would you overcome these pitfalls? I would love to hear from you. Simply share your comments using the social buttons below or leave your comments.

About the Author

Ivan Guan is the author of the popular book "FIRE Your Retirement". He is an independent financial adviser with more than a decade of knowledge and experience in providing financial advisory services to both individuals and businesses. He specializes in investment planning and portfolio management for early retirement. His blog provides practical financial tips, strategies and resources to help people achieve financial freedom. Follow his Telegram Channel to join the FIRE community.
The views and opinions expressed in this article are those of the author. This does not reflect the official position of any agency, organization, employer or company. Refer to full disclaimers here.

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