Before I turned 27 this year, I managed to save more than $100,000 after working full-time for 3.5 years.
This was a target I struggled to achieve after spending so much in 2017. My major expenses included a 4 room HDB; home renovation and furniture.
Actually, this target has been achieved by many young adults in Singapore. I know of some who are investing in private property and owning a car before they turn 30 years old. There is another senior of mine who also managed to save $100,000 when she was 26 years old.
For young graduate working adults in Singapore specifically, I feel that to save $100,000 in your first few years of working is not impossible with careful planning.
I do not claim to be some financial guru and am certainly not the best in managing money. However, I feel that my experience could be relevant to young PMEs in Singapore.
First of all, I am just an average Singaporean and not an elite. As of 2017, I have not earned a six-figure annual salary; do not work for a big fancy company or in insurance, finance, medicine, civil service, GLC or law.
I do not come from a super wealthy family where my parents own landed property, are doctors/lawyers/bankers or hold top positions in MNCs.
Why is it important to start saving in your 20s?
Before beginning to explain how I managed to save money, I feel that it might be good to share more about what motivated me and made me take personal finance so seriously.
The biggest motivation for me to improve my finances is my loved ones. Saving enough would ensure that we have enough even if any of these circumstances (above) were to befall us.
As part of my grassroots work, I speak to residents on weekly basis. There were a few times where I encountered older PMETs facing ageism and being laid off as they were replaced by younger or foreign workers. Imagine working so hard and building your career, only to lose it all when you are in your 40s and 50s.
I decided to take steps to reduce the likelihood of ending up in such a situation and to be disciplined about saving while I am young. This is to ensure that when when I am 45 years old and if I were to be laid off in favour of a younger worker, I won’t be so stressed as I’d still have enough to contribute to healthcare costs of my aging parents and my own family.
Another factor which motivates me is the desire to contribute positively to my community. My main goal in life is not just to take care of myself and my loved ones but also improve the lives of those around me.
With more savings, I can better contribute to society. For instance, besides volunteering physically at our monthly food distribution program for lower-income families in Bedok, I can now also donate to fund our operational expenses.
Finally, besides looking out for others, I also have to be responsible and prepare for my retirement.
In Singapore, seeing elderly folks in their 70s and 80s working as cleaners or picking cardboard for a living is a common sight. I am sure they did not forsee their golden years to end up this way after doing so much to contribute to Singapore’s economy.
I fear that if I don’t manage my finances well, I may one day never be able to retire.
Thus, I decided to start saving diligently. Your 20s is the best time to start building your retirement nest egg due to the power of compound interests. At this point of time, many of us do not have that many obligations such as children to provide for.
5 steps to start saving in your 20s
As millennials, we would probably not be as lucky as the older generation who were able to earn so much from investing in property. We also face a higher cost of living which has outpaced that of our income increase. The cost of weddings has risen by 50 percent since 2011 and HDB resale prices have doubled from 2007 to 2017.
However, what we have the internet for us to share and exchange ideas and experiences so that we can improve our present situation.
I have personally benefited from so much knowledge that others shared with me via websites such as Dollars & Sense, The Motley Fool SG and Seedly. Now, I want to do the same and give free tips and information to others.
I hope that my post would benefit other millennials in Singapore. Why am I sharing all these? Well, we are not in competition but in the same boat facing the same life challenges and circumstances.
Here is what has worked for me and I hope that you will be able to achieve the same:
1. Lead a minimalist lifestyle
I am striving to lead a really minimalistic lifestyle where I boil down my possessions to only what is necessary.
Here are some lifestyle habits which have kept my cost of living low. I know that these habits may not be for everyone but I hope that they can give you ideas on some practical steps you can take.
- My utilities bill (electricity, water & rubbish collection) is consistently less than $50 a month compared to Singapore average of $130 per month for a 4 room flat. This has been the case for the past few months since I moved in. So far, I don’t even have to pay for my bills because the quarterly U-Save GST voucher has been helping me to offset my bill every month. I have no television set and only on my aircon once every few months. I hope that even with the 6.9% increase in electricity tariffs, we can keep our bills low.
- I don’t really buy accessories, new clothes or any branded goods. Yes, even on Chinese New Year, I’ve stopped buying new clothes. To prevent myself from wanting other material things, I install ad blockers. I also unfollowed friends/social media influencers whose lifestyle involves eating at cafes/restaurants often and always posting about their new clothes. The same goes for e-commerce mailing lists. The less exposure I have to advertisements and peer pressure, the less I feel tempted to spend.
- I eat at home most of the time and mostly cook vegetarian meals as I am actively reducing my meat intake for environmental reasons. Not eating at nice restaurants for lunch is quite challenging for me as I work at Tanjong Pagar and there is so much good food around.
- My solemnisation and honeymoon were extremely simple. I never had any pre-conceived notions of a perfect dream wedding. I got my wedding flowers from the wet market; my wedding gown from Zalora and did my honeymoon plus wedding shoot in a nearby country – Vietnam.
To me, keeping one’s expenses low is really one of the most important in ensuring one can save $100,000 after working for three years.
An older colleague at work once shared with me that it was not wise for the average person to spend money by spending on flashy cars, branded goods, and expensive properties. If one incurred such a debt, they may find it hard to keep up if they were to lose their job one day.
He argued that “sustainability” is much more important. If one had a lifestyle within their means, they could decide to stop work for several months and even go on holidays during this time without feeling much stress or the pressure to find employment asap.
That inspired me to prepare an emergency fund of 12 months of my expenses so that even if I were to go out of job due to unforeseen circumstances or simply wanted to take a break from working, It will not spell financial disaster for myself or my family.
The lower your expenses compared to your income, the more sustainable your lifestyle is
2. Investing in stocks aka equities to ride on other company’s growth
Of course, saving alone is not enough. If you’re an average Singaporean like I am, if you just rely on savings alone, it is really hard to achieve this goal.
You need to complement it with investing. Out of the money I save each month, I would put around 70 percent into investments. The idea is to accelerate the growth of your savings.
Every time I talk about the stock market, some of my female peers would dismiss it saying “let my husband or boyfriend handle it”. I feel this is a missed opportunity and would encourage women to take the lead in their financial lives.
Finance may seem like an intimidating topic. However, it isn’t actually that hard to understand or require a solid mathematical foundation.
I studied humanities-based subjects (journalism and public policy) in university, scored a C grade for H2 mathematics. I had zero knowledge about finance until I started working. If I can do it, so can you!
My approach to stocks is simply to buy and hold blue-chip stocks. I mostly buy technology stocks in US and China as I am more familiar with them.
However, my plan this year is to diversify by buying local stocks while they are cheap and dividend stocks in 2018. I aspire to be like those uncles and aunties who have built such a strong portfolio that they have dividend income every month to cover their expenses.
How to get started? The first step to getting started in investing is to open a brokerage account. I use SAXO as it gives me access to 29 exchanges around the world and has one of the cheapest fees.
One mistake I made in investing is not starting earlier to enjoy the power of compound interests.
I had several male friends who started when they were in army or university. I was late to the game only started when I started working.
The younger you start doing this, the better. To illustrate why this is the case, here is how much you would need to invest each month to retire as a millionaire. Say, you invest in a fund that would give you at a 6% annual rate of returns.
If you’re 20, and you want to retire a millionaire, you should be setting aside $361 per month. If you’re starting at 25, that jumps to $499. You can see how as you get older, you need to be setting aside more.
Perhaps I had the wrong priorities when I was in school. Back then, I wasn’t thinking much about finances but more trivial concerns like relationship problems, comparing myself to others and other less frivolous issues.
If I focused my energy, money and time on learning this, perhaps I’d be better off now.
Just imagine if I bought Tencent Holdings Ltd in Year 1, my investment would have multiplied by 13X for not doing anything.
3. Diversify your investments
Several of my male friends share with me that their investment portfolio are made almost entirely out of stocks and cryptocurrencies. These tend to be more volatile and considered “high risk”. Though they also have the potential to give higher returns. I personally don’t invest in things which I don’t really understand such as cryptocurrencies.
Thus, if you’re like me and have a lower risk appetite, you may wish to diversify and complement your stocks with other types of investments such as ETFs, Fixed Deposits or the Singapore Saving Bonds.
While I may not be able to make as much as my peers who have a more aggressive portfolio, my more conservative strategy can better protect me from risks.
Currently, I am using a roboadviser to purchase ETFs and transfer money every month. I am looking at a more long-term investment i.e. 10 years. Hence, I don’t really check it on a daily basis.
Besides Robo-advisers, one can also purchase ETFs via POSB invest-saver account. You can read about the pros and cons here: As a new investor, should I purchase ETFs using POSB invest-saver or using Robo-advisors?
4. Optimize your forced savings – CPF
Love it or hate it, CPF is here to stay. So why not focus on how you can optimize your CPF?
While I do not use my CPF currently for investments, I add $7,000 cash to my Special Account annually. What are the benefits of doing so?
- The CPF special account has a minimum return of 4.0% per annum (p.a.). In contrast, the CPF savings in the Ordinary Account earn guaranteed interest rates of 2.5 per cent a year.
- Once your OA and SA hit $60,000 of which up to $20,000 must come from your Ordinary Account, you can enjoy an additional 1% p.a. interest. That is like having a free $600 per year. The sooner you hit this the earlier you can start earning 3.5% interest in your OA.
- You can claim tax reliefs on cash top ups.
- No one can take money from your CPF. Even if you go bankrupt, your CPF savings will remain safe.
I also do the same for my parents to help them gain a higher interest rate by giving their monthly allowance via CPF. This is to ensure they would not lose out on any extra interest earned and can receive higher monthly payouts from CPF.
Rather than using CPF from my ordinary account to pay for my entire monthly mortgage, I’ve decided to do this in part cash part CPF.
What are the advantages?
- I personally see my CPF as an important part of my retirement fund, something to grow instead of using it to fund my house entirely.
- When I sell my property (which I intend to), I do not need to pay back so much accrued interest (2.5%) to myself.
- If I lose my job or am unable to work for a period of time, I can switch back to CPF to pay for my monthly mortgage and use my savings for my daily expenses.
However, one should note that if you choose to use cash instead of CPF to pay for housing loans, there are some disadvantages.
- This means you will have less spare cash each month on discretionary expenses. However, I personally feel that my retirement savings and repayment of mortgage comes first before my discretionary spending.
- There is also a risk that policies may change as it has done so in the past i.e. increase of minimum sum or perhaps the withdrawal age may increase too. This makes it hard for one to plan for their future and their CPF. We cannot appropriately manage our future cash flow if the goalpost keeps moving.
Despite its’ benefits, CPF is not a perfect system and could do with some improvements. The shortcomings of CPF has been very frequently raised by residents during our house visits.
For example, CPF members could be allowed to start drawing down their CPF from age 60, if they choose to. Instead of having to wait until they are 63 or 65 years old. This will provide more flexibility for people who have retired early and need to start using their retirement savings if they are physically unable to cope with normal employment demands.
5. Your day job is the biggest investment of all
I know that some millennials feel that the purpose of a job is to fulfill your passion. It should be aligned entirely with your passion. They proclaim that “we should work for passion alone and not for money“. Some even consider thinking about money and how the worker benefits to be selfish, entitled and too practical.
This appears to be a new phenomenon in the past few years. If you think about it, for the longest time before our generation, a job is simply an exchange of labour and achievement of KPIs for money. I don’t think our parents were thinking about “passion”. They just did what they had to do. They provided for their families. They came home from the job, and then they pursued their passions.
I feel happy for some of them who don’t really have to worry about money as they’ve achieved financial stability; were born into a wealthier family or perhaps plan to retire in a neighboring country with a much lower cost of living.
However, my perspective about my day job is a different one. I personally see my day job as my biggest investment. I am spending an extremely important asset that can never be recovered back – time – to achieve a steady monthly inflow of income and to secure more in the future.
Thus, I try to optimize my day job but finding the one which I find the work somewhat interesting, don’t mind doing, would likely be relevant in the next decade, gives me autonomy and can provide me the best possible rewards (material and non-material) for my time and effort.
Say you’re doing human resource, in most companies you’d probably do similar things – talent acquisition, talent management, employee engagement, payroll etc.
However, if you work in F&B family owned business instead of pharmaceutical MNC in Singapore. The pay, benefits, prospects and work-life balance may vary greatly.
So, if the amount of work is the same, why not pick the better deal that gives you the best ROI to make your time and effort worth it?
Besides looking at the benefits now, it is also important to think about the future returns on your current investment into your day job.
I love to learn and spend a great deal of time and effort to master my skills at work and keep up with industry trends so I don’t get left behind. Almost every morning, I read industry news and ponder about changes and the implications to my field.
Thus, it is important to me that a job is relevant to the future. This is to ensure I don’t waste my youth learning what would be useless in the long run.
Think about your own day job which you wake up early to go to each day. Are you in a rising or declining company or industry? Can your current role open doors to better roles within or externally? Does your role offer you the best plan? Do you know what others in similar roles are earning? Are you getting the best possible deal in the market for your effort and time? If not, perhaps it is time for a switch.
Do I not care about passion? I do. I pursue it outside of work hours through blogging and volunteering. Working time is dedicated to helping my company become successful and to grow my own value in the market.
Most of us have been taught that money is the root of all evil and one of the things you do not talk about.
However, I am glad to see that there is an increasing trend of young people being more open about talking about money, exchanging ideas and even sharing salary information to help each other. This exchange of information only benefits all of us.
For the past few years, I’ve focused on current affairs such as our education system and the economy on this blog. I have decided to complement my discussion about issues in our society with solutions such as practical tips that Millennials can take to improve their own lives and that of others.
Up next, I would be publishing more posts with tips related to adulting such as how to keep utilities bill low; how to save money on renovating your HDB flat and other useful advice that others have given me. If you feel that the advice shared here has helped you, do share this post with your peers.
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