2020 - The journey begins
The start of this decade would be a rather iconic year for me. I graduated and started working a few months ago and this year would be the first year marking the first full year of my career. It would also be my 2nd year of managing a portfolio and my 6th year of investing.
In the past few months, I did a tremendous amount of planning for my future in several aspects - health, family, relationship, career path and of course, finance.
I believe I am well on track with regards to what I have mapped out for myself, and I really recommend everyone to really put some time into planning exactly what you aim for in the future - migration, retirement, financial freedom, etc. Yes, I can be too detailed to the point where some point in the future, reality will largely deviate from what I have set out. However, with this, the moment a deviation occur, I can probably re-adjust my expectations or to change my current way of lifestyle in order to get back on track.
Most people who just started working - like me - do have some rough idea what they would like in the future, such as:
- Retiring at 50, and/or
- Traveling the world,
- Own 3 properties with 2 rented out and collect income
- Buy landed property
- Migrate to a chill country and retire
These do not come easy, nor quickly, unless given special circumstances like a huge inheritance or lottery.
To those who have already been working for a few months to a year (worse if longer), are you keeping track on your progress to financial freedom? How much of a nest egg do you have now?
Let's say you got $10k. That equates to about $833 savings per month, I am sure most of you do not even save that much. At this rate, assuming you left it in your DBS Multiplier account to earn 2.5% interest. In 20 years you will only have $275,175, in 30 years $465,747, still below half a million. Which of the above do you think you can achieve in 30 years? Not even close to any.
If we bump up to a savings rate of $1000/month. You will also end up with only $554,915 in 30 years. This meager sum excludes all the huge payments that we might have coming soon - Housing, Marriage, Car, Kids, Parents retirement. Even though we are relatively young and there's a lot of years prior to retirement, the financial gap between now and retirement is terribly wide. If we do not attempt our best to close this gap everyday, by the time you realize you are screwed it is probably too late.
If you save $6000 a month for 12 years, then you will have approx. $1m in savings. Unless you expect you can be dropping that amount in (your retirement age - 12) years old, do you think you still have a lot of time left?
Of course I won't be sharing my personal savings schedule except to a few close friends who would have already known. Everyone should tailor one for themselves immediately and start working on it.
Here are some takeaways that I personally try to stick by extremely closely:
- Do NOT touch your planned savings if it's for your retirement. With regards to this, do not try to save $2000 out of $2500 take home a month, it is impractical. You will be drawing into your savings pretty often and end up blowing your budget. Calculate exactly how much do you think you will spend (include holidays, home payments, saving for marriage etc.). One-time expenses are never one-time.
- The above 2.5% is a pretty horrible example. Try to get higher yields of at least 5% (if not you might as well top up into your CPF SA).
- You will be earning income continuously, make sure whatever financial instrument you're investing into can generate returns continuously as well. If someone sells you a product that returns 20% last year, do you think it will be giving u 20% every year? No? Then your deposits are just gonna be tanking in the years it doesn't. Be smart.
- You legit don't need cafe food. Nobody ever died from not eating expensive foods.
To financial independence!