Saturday, 14 November 2015

How to save $100k by age 30

I realised there was a same titled article published in Straits Times according to Kyith http://www.investmentmoats.com/budgeting/saving-100k-by-the-time-you-are-30-years-old/. I didn't read that article but just thought I would share my 2-cents worth of a different approach.

Assuming one starts working from age 23 (for sg ladies who go by the JC route, for guys even if you start work later but could factor in your pay from NS or higher starting pay when you graduate, so do abit of plus-minus), there's 8 years to save this amount. If you are a poly grad, then you would start work earlier, so plus-minus again. To save $100k by age 30, you would need to save at least $12,500 a year.

In the table illustration below, you see that you could actually start off with a lesser saving amount and increase your savings gradually by 5% a year and still reach your goal. As along the way you may get pay-rises, promotions or experience job-hop - to paint a more realistic picture for your path.
If you have started saving from young then you would already have a 'foundation' to build on, so the yearly figure to save here could be lesser (you could choose to challenge yourself from ground up or set a higher target in this case).

Year 1 $10600
Year 2 $11130
Year 3 $11686.5
Year 4 $12270.83
Year 5 $12761.66
Year 6 $13399.74
Year 7 $13935.73
Year 8 $14632.52
$100417

If you find the figures are too intimidating, you could further break those figures down into monthly sums. Then ask yourself, how to go about saving that amount monthly?

Rule number 1, don't go splurging your entire monthly salary even though SG gov would probably thank you for boosting our economy. Rule number 2, not to forget rule number 1.

There are 4 main actions to execute - practice frugal spending, repay loans ASAP, earn more, manage your own finances.

Identify the area which you think you could save up the most from and work from there. Draw up an excel sheet, set up a separate bank account for savings and you will be surprised how a seemingly impossible mission suddenly become so much more achievable.


Practice frugal spending - Don't drink Starbucks, drink generic kopi-o

The above is an example, fret not if you don't drink coffee like me. The point is in 'substitution', substitute something you need with same value but different price. Pamper yourself with Starbucks once in a while, but learn to stick with a good no-brand kopi-o for most days. Remember, frugality itself is habitual - just like coffee drinking.

What are those daily expenses you could cut down on? Jot them down. (That's if you 
won't get depression without them.)


Repay loans ASAP - or you will dream of pigheads

Calculate for yourself the amount of interest you need to pay the bank yearly on top of the loans you have taken (if not the bank would calculate for you too). Compare the repayment interest for 5 years versus 10 years, how much more are you letting the banks earn?

ONE exception here is for outstanding loans that come with no interest or is generating you better returns than the interest you pay. Then take as long as you could to repay it while putting those money to good use.

For those on scholarships in your tertiary education years, good for you!

Earn more $$ - be a lobang king

This is more difficult. It's like how it is easier to lose weight by cutting down on calories consumed versus regular exercising. When you save, you are cutting down on the calories consumed. Earning more is like exercising. You either need to get in the boss's good shoe to get promoted quickly or moonlight to earn more income or...

There's a thing known as passive income. So if you have spare cash lying around, put them to good use by either putting into Fixed deposits or Savings bond instead of under your pillows.

I know what you are thinking, please don't buy lottery.

Manage your own finances

If you don't, sooner or later someone will and the someone will make sure his pocket is fatter than yours.

Learn about insurance, learn about banking services, learn about credit cards, learn about investment. There are still many things to learn in your 20s despite having thrown down the books. Wherever you decide to put your money, ask yourself what are the costs and the risks. If you are prepared to put your money to something risky, then be equally prepared to lose all your money there without spinning off into trouble.

What I could offer in this blog may be limited. You could click on the links on my blog side bar to discover more financial articles, learn more tips from Moneysense.gov or simply pick up a finance book to kick-start your journey.
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Opps I thought I wasn't going to preach.

If you are up for some more really kick-ass preaching, here's a book by Richard Templar that I highly recommend . He wrote 107 rules in there about money issues in a very succinct and concise manner. How much of his 'preaching' you could put to use, it's up to your ability to decipher.



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