Thursday, August 19, 2021

Shifting mindset from extreme saving to increasing income and investing

Saving money was my mantra all along in this financial journey. In my younger days when I started this blog, I wrote various articles about the importance of saving money for financial freedom and even wrote about why extreme savings is more important than investing. As I grow older pass my 30s and approaching my mid 30s, I realised my mindset have to shift away from just saving money. I am no longer just a young chap who is single, no commitments and my parents are getting older. I realised I have more responsibilities and I need to earn more money to survive life. 

Another part of me is tired of the frugal life. I have been questioning myself what's the point of saving so much money and in the end not being able to enjoy the finest things of life. 

Don't get me wrong. Saving money is still important if you're young. In fact, that's the only time we have to save a significant sum of money because as we grow older, we have more commitments and will definitely not be able to accumulate high savings rate anymore. 

Nevertheless, after saving money for the past 10 years, I've decided to shift my mindset to increasing income and investing to grow my money. This is a more sustainable way to live at this stage of my life. 

Increasing income is somewhat more difficult than saving money alone. I've been trying to increase my income for the past few years too and definitely its hard work. To get that promotion, I rack my brains to do many projects that will shine and devise a plan to let my bosses see my effort. I suffered burn out as a result of that even though I got what I wanted. Along with that, I still continue mortgage consultancy work, blogging and investing. Late at night, I'm still reading financial reports to plan what other stocks to invest in. 

I realised I'm not alone in this journey to earn more income. I know of people who have side business on top of their full time job and people who trade the US markets till the wee hours of 4am and wake up at 7am the next day for work. This is the sacrifice to take to increase income. 

I would think I have a comfortable income now to live my daily life but if I were to spend all my income to live this comfortable life, I would not have enough for retirement.  Increasing income and investing is thus important to live a comfortable life now and still have enough for retirement. 

I have my own financial spreadsheet which forecast how much one would have in xx number of years. The below forecast assumes a person with $300K savings, earns an income of about $5000 per month, spends about $3000 per month and invest with returns of 5% annually.

This is how the chart looks like if one does not invest the money. It'll take 22 years just to save up $1 million.



This is how the chart looks like if the money is invested with a 5% yearly investment return. It now takes just 15 years to save up $1 million. 




Now, when I combine the 2 charts, here's what you see. The difference is more noticeable as the years go by due to the power of compound interest.  



I can't emphasize the importance of investing your money but in order for investment to be a significant part of our financial plan, we need to have a substantial sum of savings first (300K for the example above). 

Saving money then becomes not so important once we reach this stage, which is somewhat the stage which I'm in now. Its time for me to shift my mindset but its never easy after saving money for so long and growing up in an environment where I was taught to be thrifty all my life. 

The next steps is to continue increasing my income and be patient with my investments, not giving in to greed which can wipe out any savings I can have in an instant. There are people who indeed lose millions of dollars in the stock market. 

Nevertheless, life is never a smooth sailing one. Having a sum of money and more income will enable us to be more prepared for rainy days such as a financial crisis and also if the needs arise (eg for family healthcare needs). While in this midst of struggle, I should remind myself to enjoy life a little and not be so hard on myself. This is how I should live my life forward. 

Its been awhile since I blogged but definitely I've not forgotten the existence of this blog. I hope all of you are doing well in life and thank you for your support if you've read till the end here. Till the next article we meet again. 


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