Forget About Investments - Look At The Looming Economic Crisis

2020 has became the toughest year to live in human history. Virtually everything has changed from the way we work, to the way we shop and the way we could travel. Investing will become the toughest as we brace for a longer depression happening in the economy which means stock prices could take very long to recover. 

I was looking at Singapore's GDP forecast by MTI and things don't look rosy at all. Many of you may have lost your job or have your pay cut and bonuses cut too. Those working in hospitality related sectors such as hotels, attractions and those doing events or in the entertainment industry will be affected the most. Singapore's unemployment numbers have not moved up much due to the many temporarily jobs created by the government. This has enabled people to continue earning some money even though their salary may not be as high as what they would have got before they were retrenched. 

In times like this, if you're working in an industry which is at risk of retrenchment now, its better to prepare your emergency fund for the possibility of a retrenchment later. This will definitely help you to tide thorough when it really happens. We do not want to make the mistake of investing all our savings in the stock market and end up having to sell at a loss when we lose our jobs. I believe the worse is yet to come and companies have not felt the full impact of the crisis yet due to government supporting wages through the jobs support scheme. This is unsustainable and it will be unwise for the government to keep using taxpayers money to fund wages for the long term. We have already drawn $52 Billion from our past reserves and used a total of $92.9 Billion for all the 4 budgets combined. This is at about 20% of our GDP in 2019. 

Breakdown of Singapore's GDP

If we breakdown Singapore's GDP, we will know which are the areas affected and why MTI forecasted a contraction of -7% to -4% for 2020. 

A contraction in GDP means the aggregate value of the goods and services produced within the economic territory of Singapore is decreasing. This means lesser revenue for the businesses which may lead to retrenchments as companies tighten their belts to protect their bottom line. 

Statistics of Singapore has a very good info-graphics as shown below showing the breakdown of GDP. 70% of Singapore's GDP comes from services producing industries such as wholesale & retail trade, finance & insurance and business services etc. 

Adapted from: https://www.singstat.gov.sg/modules/infographics/-/media/Files/visualising_data/infographics/Economy/singapore-economy25062020.pdf

According to MTI report here, the worst contraction in 1Q 2020 came from the accomodation & food services sector with a 23.8% year on year and 69.9% quarter on quarter contraction. Luckily, this sector only makes up 2.1% of our GDP. This sector includes hotels and also food services providers such as caterers and restaurants. 

The next sector which contracted the most is the transportation and storage sector. It contracted 8.1% year on year and 29.9% quarter on quarter. This sector includes air, land and sea transportation. Air travel shrunk drastically due to the closed borders and restrictions on international visitors. Sea and land transport also contracted due to lesser demand for sea cargo handled and reduced domestic demand for public transportation. 

Wholesale and retail trade also contracted by 5.8% year on year and 18.1% quarter on quarter. This sector includes motor vehicle sales, watches and jewelry and also apparel and footwear etc. Amidst all the contraction, we still see some expansion in some sectors such as manufacturing, finance & insurance and information & communication. 

Which sector will have more retrenchments?

By looking at the breakdown of the GDP above, we might be able to get some hints on which sector will have more retrenchments moving forward. The accommodation and food services sector made up only 2.1% of GDP while tourism contributes about 4.2% of Singapore's GDP. If borders continue to be closed to tourists, Singapore's economy will still survive. Thus, this sector may see more retrenchments if tourists are still not allowed to come to Singapore. It is difficult for the hotels to survive if they continue to keep their staff with them. 

Wholesale and retail trade may also continue to face some headwinds due to reduced domestic demand as most people work from home during the weekdays and also reduced tourism spending in areas such as Orchard road. Businesses in the CBD area will definitely be more affected as compared to shops in the heartlands. 

We have not touched on the "other services industries" which also is the most affected in this COVID-19 crisis. This includes the arts, entertainment & recreation segment such as concerts, events etc. Events are still not allowed in Singapore but good news is entertainment is slowly allowed to reopen such as cinemas and attractions. For corporate events, it will definitely take some time before it is allowed again so those businesses which provide event services to corporations will surely retrench many of its staff.     

It is election week for the whole of next week and we await to see the election results if Singaporeans will lean more to the government side or the opposition side. Nevertheless, life still goes on and we should always be prepared for such a crisis like this by having an emergency fund for rainy days. This is what I have always been advocating for and maybe through this crisis, the importance of financial planning will emerge out at the top again. 

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Employed vs Self Employed - Who Should Save More Money?

In Singapore today, there are more and more self employed people due to the many opportunities arising from the gig economy. Many of them are freelancers working in many different sectors with varying skills. Some of the common examples of self employed jobs are financial advisers, property agents, grab drivers, business owners, freelance musicians/singers etc.

While being self employed brings about the flexibility of time due to no fixed working hours and possibly higher pay when they work harder, the financial aspect has to be planned out well enough due to instability of income as compared to a full time employee working in the corporate world who receives fixed income every month. There is another part which self employed workers need to take note of, which is they have essentially no CPF savings to use for housing or have any for retirement as well.

On the other side, being employed means getting a fixed monthly salary but with less flexibility in working hours. Having a fixed monthly salary makes financial planning easier as we can set savings goals and achieve it with more predictability (bearing any unforeseen circumstances. While being employed means we have an automatic savings called the CPF, it may still not be enough for retirement. Let's take a look on being employed vs self employed and who should save more.


Why Self Employed People In Singapore Should Save More Money?

Self employed people definitely should save more money as they have no CPF savings to begin with. A full time corporate employee below the age of 35 will automatically have 20% of his monthly salary saved up in his CPF account every month. On top of that, the employer puts in an additional 17% of his monthly salary into his CPF account also. This adds up to 37% which is quite a significant savings rate. This means, a person who earns just $3000 will have $1110 saved up automatically every month.

A quick calculation will show that a person who earns just $3000 at age 25 will have CPF savings of about $240,000 at the age of 35 assuming his salary grows at 3% per annum only. A self employed person will have to save $24,000 every year for 10 years just to be on par with the full time employed person above.

Most employed persons will use their CPF savings to pay for the house they buy so they can channel more money into their savings. For self employed people who do not have CPF, they should definitely factor in that they have to pay for the down payment and monthly loan installment for their house. This can be quite significant and eat up into their retirement savings significantly.


How much more should a self employed person save to match his full time employed peers?

Being self employed usually comes with higher pay. If the average starting salary for university graduates is $3000 per month for full time employed workers, then a self employed person should strive to earn $4110 per month and save that extra $1110 per month to be on par with their full time employed peers. Without doing this, they will surely be worse off at the end of the day. Furthermore, CPF earns interest of 2.5%-5% for various accounts and monies. A self employed person have to make his savings work harder by investing his savings for at least 3%-4% interest.


Employed persons may not have enough for retirement even with CPF savings

For employed persons, some may think that CPF will cover their retirement fully so they don't have to save any money and spend all their income. This is not true actually. Let's look at a typical example of an employed person and see how much he or she will have in the CPF accounts at age 55.

• Starts work at age 25 with $3000 gross monthly salary
• Has 3% salary increment annually
• 2 months salary bonus
• Buys a 4 room HDB flat at $400,000 using CPF to pay fully

With the above example, how much will this person have in his or her CPF at age 55? The answer is about $770,000. 

Although $770,000 may seem like a lot of money, however, the amount we can take out will be much lesser as there will always be a basic retirement sum which we have to keep inside till age 65 before CPF life kicks in to give us some monthly income for retirement. 

Also, $770,000 to last for 30 years is actually not a lot if we do some detailed calculations. Each year, we can only spend $25,666 and each month just $2138 for 30 years. Definitely not a lot of money considering cost of living will most likely at least doubled when most of us in our 30s now, retire in the future. 

Employed vs Self Employed - Who Should Save More Money?

No matter if we're employed or self employed, we should all have some savings for ourselves. While those who are full time employed have CPF savings, don't forget that we will all be using a portion of it for our housing loan so there won't be too much left. 

For those who are self employed, they definitely have to save much more as there is no CPF for them. They also have to first save for their first home as they have to use all cash to settle their down payment and housing loan. Then, there is retirement to save for and ensure enough to last through retirement without being on CPF annuity plan (CPF life). Of course, self employed people can also contribute to their own CPF to save for their retirement and also enjoy tax relief. By doing this, they are also enrolling themselves to a national annuity plan called CPF life.

Being employed or self employed requires different levels of financial planning. At the end of the day, its about what we want in the future. Whatever decisions we make now will have a great impact to our future.  

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Early Retirement Through Finding Work That You Enjoy Doing

How many times have you heard people complaining about their work? I'm sure almost on a daily basis be it your family members, your friends, your colleagues and maybe even your boss complains about work to you.

This is why early retirement and financial freedom is so popular. In Singapore, we probably need about $1 Million to retire comfortably. But the bad news is its extremely hard to save this amount of money in a very short time.

In my previous post, I introduced the 30 years retirement grid:

In this grid, it shows how much we need to save and invest to achieve whichever amount we desire for retirement. I figured out we need to save consistently $1500 every month and invest at 4% return for 30 years to achieve $1 Million. 30 years is honestly too long a time if you hate your job every single day. This is 10,950 days of your life!

You can read more about the 30 years retirement grid here.

Introducing the 10 years early retirement grid

In this case, can we achieve retirement in 10 years instead just to get out of the rat race? Let me introduce you the 10 years early retirement grid.

Sadly, you would realise that it is extremely difficult to achieve a desired sum of money for retirement in 10 years even if we invest at 8% return. We need to save $6000 per month to get $1 Million dollars, which will definitely lead to a poor quality of life (unless your income is extremely high). For most of us, even saving 100% of our salary will not lead us to retirement in 10 years.


Introducing the sustainable way to early retirement

The truth is, we don't need to save till we drop to achieve early retirement. Most of us think of retirement as quitting our jobs completely. This shouldn't be the case for early retirement as I can guarantee you that you'll be too bored in a short while.

A financial blogger, Zack from four pillar freedom, who's based in the US, recently quit his job and achieved early retirement before his 30s. Now, he focus his time on his blog which generates a decent $3K plus per month. He mentioned work feels like play for him now which is early retirement to him.

While in SG it may be different for us, I'm sure we can also find something we like to do and still create some sustainable income. It is never an easy journey as income outside of work also takes time to build. The key is doing what we like to do.

Building income outside of work requires times and effort. We need to create value to generate sustainable income. Some ways to create sustainable income outside of work are:

• Start an online blog writing content which you like
• Investing in good dividend stocks
• Providing consultancy services on your expertise areas
• Providing professional services such as playing musical instruments, singing or doing emcee for events
• Start a part time business
• Providing freelance service such as website programming, content writing, design etc

You can see in our world today, there are endless opportunities to create income outside of work. Everyone can do it. 

If creating income outside of work is too tough, we can also find work which is more meaningful and let us feel more fulfilled. Since we are spending so much time at work, it is quite important that we do not work in a job we hate. While we can't totally like our jobs and there will always be conflict, we can at least find some work which we like a bit more. Its just like relationships where there will always be conflicts but we resolve it and get stronger.

Rethinking retirement

If we create income outside of work which we enjoy doing and the income can sustain our monthly expenses, then we have achieved early retirement.

If we work in a job we enjoy and feel fulfilled then perhaps thinking of quitting work totally for retirement is not so critical anymore. If we have enough money, we can even consider slowing down by taking on part time or freelance roles instead of totally quitting.

The end goal is that we feel more fulfilled in life and able to spend time on the things that matter to us more. If you're stressed up having to plan for retirement, perhaps its time to rethink how each of us see retirement in life. Perhaps its time to lead a more purposeful life, creating value and doing more meaningful work in our lives.

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The 30 Years Retirement Grid - Saving $1500 per month to achieve $1 Million

I was on course last week and during the course, there were several people who were in their 60s and some even nearing 70s. They were here to upgrade their skills in order to make sure they could still afford to work in their old age. I really admire their attitude to continue learning and still go through the stress of having to sit through an exam to get certified. Many of them were worried they couldn't pass the test and were so stressed out. I thought to myself at this old age they should be enjoying life why still go through this? I spoke to some of them and found out that most had to keep working and in order to get higher salary, they decided to upgrade themselves.

Most of them have been working for more than 30 years but still do not have enough for retirement. Many of them were earning as low as $200 per month back when they first started working. As inflation sets in and things become more expensive in Singapore, it became impossible to retire for them. Some of them even tell me to prepare a house overseas as retirement in Singapore will become even more impossible in the future. Is this really the case?

Is saving $500 per month for 30 years enough for retirement? 

I did some quick calculations and indeed its quite hard for low wage workers to save enough for retirement. If they had diligently saved $500 per month for 30 years, they would only accumulate a savings of $180,000. As we now know, this amount is too little to last for any retirement. For this amount to last 20 years, they can only spend $750 per month.

So, saving $500 per month is definitely not enough for retirement especially during our times now. Then, how much savings is enough?

The 30 Years retirement grid - Saving $1500 per month to achieve $1 Million

For retirement planning, we should first determine how much we need to accumulate? For simplicity sake, let's put this figure at $1 Million since this is the sweet spot to have a good retirement. I did a retirement grid which shows how much our savings and investment will become in 30 years.

Let me guide you on how to read the grid above. The left most column is the savings per month and the top row is the annual investment return. The first figure of $180,000 is derived from saving $500 per month for 30 years with 0% investment return. If there is 1% investment return compounded over 30 years, the sum will be $208,709 instead.

I concluded we need to save at least $1,500 per month for 30 years to get a comfortable retirement sum of $1.01 Million. However, saving $1500 per month is not enough. We still have to invest it at 4% compounded returns to achieve that sum. Without investment, we will only accumulate $540,000. Most of us will start working probably in our mid 20s and in 30 years, we will be about 55 to 60 years old so 30 years timeline is just nice for retirement planning.

If we're not comfortable with 4% investment return, then saving $2000 per month may be a better option as we can accumulate $1.14 Million with just a 3% investment return. If we're still not comfortable with 3% investment return, we can save $2500 per month to accumulate $1.04 Million with just 1% investment return. 1% can be achieved easily through bank interest.


Why income is so important for retirement planning?

If you look closely at the retirement grid I created, you may have notice that savings form a big part of the retirement. If we just save $1000 per month and invest at 6% investment return, we will not even accumulate $1 Million in 30 years.

This is why income is so important for retirement planning. If we earn a low income, it is really quite difficult to save more money. It becomes a very miserable life to save money with too low an income. However, do take note that most of us do start with lower income so the starting point is always more of a sacrifice but it gets easier later.

Investing is also an important part in retirement planning. Looking at savings of $1500 per month in 30 years, a person who does not invest will only accumulate $540K while a person who invests at 4% investment return accumulates $1.01 Million. This is almost double in 30 years! This also shows investing early in our life is quite important.


Retirement planning is time critical

Another thing about retirement is that it is really time critical. The above retirement grid is in a 30 years time frame so it is more manageable. If we are late in the planning stage and only have 20 years till retirement, it will be much more difficult to accumulate substantial savings for retirement.

Here's the 20 years retirement grid:

Let's look at the same $1500 per month savings at 4% investment return. This time, we could only accumulate $536K in 20 years vs $1.01 Million in 30 years. You can see how much difference 10 years is in retirement planning.

Let's say we only start saving and investing in our 40s and look to retirement in our 60s, we have to save double ($3000 per month) as compared to the person who started saving in his 30s ($1500 per month) to achieve the same retirement savings.


Start saving and investing early for retirement!

In conclusion, the earlier we start saving and investing, the better it is. Most people could not see the actual benefits of starting early so many people only realise its too late when they are much older. I hope this retirement grid will finally give you the visualisation to see the benefits of saving and investing early.

The earlier we start, it gets easier as we earn more income. This is because we only have to maintain that same $1500 per month savings instead of saving much more to accumulate that same amount if we start 10 years later.

If you're in your late 20s already, its probably good to start saving that $1500 or $2000 per month from now so that you can retire in your late 50s.

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The 10 Years Financial Independence Target

Achieving financial independence in Singapore is possible but honestly, only a handful of the population can achieve it. This is because most of us are brought up being taught that we need a job to survive and we will probably have to work till we are quite old. That is sadly still happening when I see some of my colleagues still struggling to make ends meet even in their 50s and 60s.

In the financial goals page of my blog, the target I set for myself is to achieve financial independence by the age of 42. This is about 10 years from now as age catches up quickly unknowingly. In Singapore, I reckon we need more than $800K to $1 Million in order to achieve financial independence. My way of financial independence is to invest and get enough investment income to substantiate my expenses indefinitely. Investing $800K at 6% dividend yield will get us about $48,000 a year or $4000 a month. Most of us would probably need more than $4000 a month if we have a family and thus the target of more than $800K came about.

How long does it take to save $1 Million dollars?

A million dollars is the sweet spot in financial freedom. Investing a million dollars at 6% dividend yield gets us about $5000 a month. For a person who does not invest at all, achieving $1 Million is almost impossible. For a person who saves $20,000 a year and puts it in the bank earning almost 0% low interest, he'll need 50 years to save up $1 Million. If he saves $40,000 a year, it still takes 25 years to save up that amount.

Now, if the same person who saves up $20,000 a year and invests it to get 6% investment returns, he'll only need 24 years to achieve that $1 Million as compared to 50 years. This is the power of compound interest where it effectively shortens the time to achieve the same financial target by about half. Not many people will understand compound interest as it is always almost confusing for most people. This is why 90% of the population will continue to struggle to retire even in old age. Only the top 10% of the high income earners can retire comfortably because of the high savings they have even without investing. The rest of us will not make it if we do not know what to do.


Investing for dividends to reach financial freedom

While compound interest concept is so difficult to understand, investing for dividends should be more familiar to most of us. It is actually still compounding at work but explained in a more layman way. The focus is to keep on saving and investing and getting stable dividends and one day we will just reach the financial target that we set out for.

Let's look at a person who earns $3000, spends $2000 a month and invests for 6% dividend yield, how long will it take for him or her to achieve $1 Million in savings?

Additional assumptions is the income will increase by 3% each year which I think is quite conservative as most of us would be able to earn higher income faster through promotions. Bonus is not included also. Additional savings is ="income - expenses + dividends".

This is the result:

Year	Net worth	Income	Expenses	Dividends	Additional Savings	Investment return
1	$0	$36,000	$24,000	$0	$12,000	6%
2	$12,000	$37,080	$24,000	$720	$13,800	6%
3	$25,800	$38,192	$24,000	$1,548	$15,740	6%
4	$41,540	$39,338	$24,000	$2,492	$17,831	6%
5	$59,371	$40,518	$24,000	$3,562	$20,081	6%
6	$79,452	$41,734	$24,000	$4,767	$22,501	6%
7	$101,953	$42,986	$24,000	$6,117	$25,103	6%
8	$127,056	$44,275	$24,000	$7,623	$27,899	6%
9	$154,954	$45,604	$24,000	$9,297	$30,901	6%
10	$185,855	$46,972	$24,000	$11,151	$34,123	6%
11	$219,979	$48,381	$24,000	$13,199	$37,580	6%
12	$257,558	$49,832	$24,000	$15,453	$41,286	6%
13	$298,844	$51,327	$24,000	$17,931	$45,258	6%
14	$344,102	$52,867	$24,000	$20,646	$49,513	6%
15	$393,615	$54,453	$24,000	$23,617	$54,070	6%
16	$447,686	$56,087	$24,000	$26,861	$58,948	6%
17	$506,634	$57,769	$24,000	$30,398	$64,167	6%
18	$570,801	$59,503	$24,000	$34,248	$69,751	6%
19	$640,552	$61,288	$24,000	$38,433	$75,721	6%
20	$716,272	$63,126	$24,000	$42,976	$82,103	6%
21	$798,375	$65,020	$24,000	$47,902	$88,922	6%
22	$887,297	$66,971	$24,000	$53,238	$96,208	6%
23	$983,506	$68,980	$24,000	$59,010	$103,990	6%
24	$1,087,496	$71,049	$24,000	$65,250	$112,299	6%

The above chart shows it takes 24 years for this person to achieve that $1 Million sweet spot. However, if you look at the dividends column, his dividends have already covered his $24,000 per year expenses at year 16. 

This person could grow his money because the dividends received could offset his expenses and in turn increase his additional savings significantly when he has more capital. If you look at year 10, the dividends received of $11,151 is contributing to his savings which is quite significant. 

Of course, some of you will say it is impossible for expenses to stay at $24,000 a year ($2000 a month). Now, this brings me to the 10 year financial independence target. 

The 10 Years Financial Independence Target

Achieving financial independence in 10 years is possible with the following in place:

1. Starting savings/investment capital of $300,000
2. Take home pay of $6400 with 2 months bonus
3. Salary increase of 3% per annum
4. 6% dividend yield
5. With $5000 per month expenses

If you look at the above scenarios, it would most likely apply to a couple who work towards a financial target together. If you are already earning that amount of salary with the above investment capital, then you can achieve it yourself. 

Here's the breakdown of the numbers: 

Year	Net worth	Basic Salary	Bonus	Total income	Expenses	Dividends	Additional Savings	Investment return
1	$300,000	$76,800	$12,800	$89,600	$60,000	$18,000	$47,600	6%
2	$347,600	$79,104	$13,184	$92,288	$60,000	$20,856	$53,144	6%
3	$400,744	$81,477	$13,580	$95,057	$60,000	$24,045	$59,101	6%
4	$459,845	$83,921	$13,987	$97,908	$60,000	$27,591	$65,499	6%
5	$525,344	$86,439	$14,407	$100,846	$60,000	$31,521	$72,366	6%
6	$597,711	$89,032	$14,839	$103,871	$60,000	$35,863	$79,734	6%
7	$677,444	$91,703	$15,284	$106,987	$60,000	$40,647	$87,634	6%
8	$765,078	$94,454	$15,742	$110,197	$60,000	$45,905	$96,101	6%
9	$861,179	$97,288	$16,215	$113,503	$60,000	$51,671	$105,173	6%
10	$966,353	$100,207	$16,701	$116,908	$60,000	$57,981	$114,889	6%
11	$1,081,241	$103,213	$17,202	$120,415	$60,000	$64,874	$125,289	6%
12	$1,206,531	$106,309	$17,718	$124,027	$60,000	$72,392	$136,419	6%
13	$1,342,950	$109,498	$18,250	$127,748	$60,000	$80,577	$148,325	6%
14	$1,491,275	$112,783	$18,797	$131,581	$60,000	$89,477	$161,057	6%
15	$1,652,332	$116,167	$19,361	$135,528	$60,000	$99,140	$174,668	6%
16	$1,827,000	$119,652	$19,942	$139,594	$60,000	$109,620	$189,214	6%
17	$2,016,214	$123,241	$20,540	$143,782	$60,000	$120,973	$204,755	6%
18	$2,220,969	$126,939	$21,156	$148,095	$60,000	$133,258	$221,353	6%
19	$2,442,322	$130,747	$21,791	$152,538	$60,000	$146,539	$239,077	6%
20	$2,681,399	$134,669	$22,445	$157,114	$60,000	$160,884	$257,998	6%

It would take some time to digest the above numbers. In summary, in just 10 years, the above person or couple can achieve close to $1 Million in 10 years with dividends received of $57,981 using 6% dividend yield. They can spend about $5000 per month freely even without working at this stage. This would be the desired financial independence where quality of life is still quite alright.

Achieving financial independence should always start from good savings habit to accumulate a sizable investment capital. Once the foundation is built and investment capital crosses above $200K, focusing on investment will make more sense. I am at the stage where I should be focusing more on investing and so generating more passive income through dividends is what I am going to do.

If you do not want to be stuck in a job you don't like but have no choice but to keep working because you do not have financial independence, then its time to start planning and see how it is actually achievable. There are many disgruntled employees in the workplace where they have no choice but to work till their old age. I've worked in 3 different companies and everywhere I go, there will be unhappiness in the workplace. I foresee in the future, working in Singapore will get more and more stressful as the ageing population puts a strain on the infrastructure spending in our country. As our workforce shrinks, each employee have to work longer hours and take on more roles and even roles of multiple persons. It is already happening and the drive for productivity using technology doesn't seem to really work. Instead, what I see is more workload for the existing employees.

Reaching This Savings Amount Will Enable You To Stop Saving For The Rest Of Your Life

Saving the first $100K is a hurdle that once we achieve it, our life gets easier because of the compounding effect. There is another savings target which if we achieve that early in our lives, we can actually stop saving for the rest of our lives and still be able to retire quite comfortably.

So what exactly is this amount? In this post, I will show why saving that amount will enable us to stop saving indefinitely and how we can save up that amount in the first place? Let's start off with a chart which gives an overview of what the savings target will be:

The x-axis shows the amount and the y-axis shows the age. The assumption made for this chart is a 5% investment return consistently for every year and all profits are reinvested. There are no additional savings injected into the portfolio, the money grows just because of 5% investment return over the period of years.

As we can see, if we have $300K at the age of 32, we can actually grow our money to $1 Million somewhere at the age of 57 even without saving a single cent after the age of 32. We can continue to work and spend all the money we earn but still can achieve $1 Million in savings at retirement age. This doesn't even include our CPF savings yet which most of us will have another few hundred thousand dollars for retirement.

This is how the money grows year after year in detail:

Age	Savings	Additional Savings	Investment return
32	$300,000	$0	5%
33	$315,000	$0	5%
34	$330,750	$0	5%
35	$347,288	$0	5%
36	$364,652	$0	5%
37	$382,884	$0	5%
38	$402,029	$0	5%
39	$422,130	$0	5%
40	$443,237	$0	5%
41	$465,398	$0	5%
42	$488,668	$0	5%
43	$513,102	$0	5%
44	$538,757	$0	5%
45	$565,695	$0	5%
46	$593,979	$0	5%
47	$623,678	$0	5%
48	$654,862	$0	5%
49	$687,605	$0	5%
50	$721,986	$0	5%
51	$758,085	$0	5%
52	$795,989	$0	5%
53	$835,789	$0	5%
54	$877,578	$0	5%
55	$921,457	$0	5%
56	$967,530	$0	5%
57	$1,015,906	$0	5%
58	$1,066,702	$0	5%
59	$1,120,037	$0	5%
60	$1,176,039	$0	5%

It is amazing how the power of compounding works to achieve that $1 Million even without additional savings. However, many of us may be thinking how do I even save that $300K at age 32 to begin with? I admit this is not an easy task and I personally won't be able to achieve that since I'm only just 2 years away from age 32 and I am nowhere close to $300K in savings yet. 

To save $300K by age 32, assuming most of us start work at the age of 25 or 26 after graduation, we will need to save close to $50K a year. This is almost impossible for a fresh graduate salary since most don't even earn $50K to begin with. In view of this, I will tweak the scenario a little which should suit most of us.

Here is the new scenario:

Age	Savings	Additional Savings	Investment return
32	$200,000	$10,000	5%
33	$220,000	$10,000	5%
34	$241,000	$10,000	5%
35	$263,050	$10,000	5%
36	$286,203	$10,000	5%
37	$310,513	$10,000	5%
38	$336,038	$10,000	5%
39	$362,840	$10,000	5%
40	$390,982	$10,000	5%
41	$420,531	$10,000	5%
42	$451,558	$10,000	5%
43	$484,136	$10,000	5%
44	$518,343	$10,000	5%
45	$554,260	$10,000	5%
46	$591,973	$10,000	5%
47	$631,571	$10,000	5%
48	$673,150	$10,000	5%
49	$716,807	$10,000	5%
50	$762,648	$10,000	5%
51	$810,780	$10,000	5%
52	$861,319	$10,000	5%
53	$914,385	$10,000	5%
54	$970,104	$10,000	5%
55	$1,028,610	$10,000	5%
56	$1,090,040	$10,000	5%
57	$1,154,542	$10,000	5%
58	$1,222,269	$10,000	5%
59	$1,293,383	$10,000	5%
60	$1,368,052	$10,000	5%

Now, the savings target at age 32 is lowered down to $200K. Because of this, it is impossible to achieve $1 Million by retirement age without any additional savings so there is an additional $10K of savings added in per year. With the same 5% investment returns and the additional $10K annual savings, we can now still get a decent Million dollars for our retirement. 

Saving $200K by age 32 should still be achievable. With this, it sets the new savings target which I aim to achieve bearing in mind the expenses which I need to incur for a new house, renovation, marriage and more. Thereafter, we actually do not really need to save that much anymore if we can get a 5% investment return which shouldn't be too difficult to achieve. That additional $10K savings annually is just an average of less than $1,000 savings per month. 

What happens if a person does not invest at all and leaves the money in the bank? This is the result with the same scenario above taking out the 5% investment return:

Age	Savings	Additional Savings	Investment return
32	$200,000	$10,000	0%
33	$210,000	$10,000	0%
34	$220,000	$10,000	0%
35	$230,000	$10,000	0%
36	$240,000	$10,000	0%
37	$250,000	$10,000	0%
38	$260,000	$10,000	0%
39	$270,000	$10,000	0%
40	$280,000	$10,000	0%
41	$290,000	$10,000	0%
42	$300,000	$10,000	0%
43	$310,000	$10,000	0%
44	$320,000	$10,000	0%
45	$330,000	$10,000	0%
46	$340,000	$10,000	0%
47	$350,000	$10,000	0%
48	$360,000	$10,000	0%
49	$370,000	$10,000	0%
50	$380,000	$10,000	0%
51	$390,000	$10,000	0%
52	$400,000	$10,000	0%
53	$410,000	$10,000	0%
54	$420,000	$10,000	0%
55	$430,000	$10,000	0%
56	$440,000	$10,000	0%
57	$450,000	$10,000	0%
58	$460,000	$10,000	0%
59	$470,000	$10,000	0%
60	$480,000	$10,000	0%

A person who does not invest at all only manage to save $430K at the age of 55 vs $1M at age 55 for a person who invests. This is why investing is so important for long term savings goal while reaching a substantial savings target is important early in our life. 

Let me put together all the 3 scenarios on a chart:

Legend

S1 - $300K at age 32 with $0 additional annual savings and 5% investment return

S2 - $200K at age 32 with $10K additional annual savings and 5% investment return

S3 - $200K at age 32 with $10K additional annual savings and 0% investment return

Visualisation helps us plan for our finances better. I mainly use excel to tabulate the numbers with simple formulas and charts to visualise the outcome. I would say excel is a really good financial planning tool. From the visualisation above, we can see having a savings target and an investment return target are both important. It is also important to run the numbers and make sure we are comfortable with it. Financial planning is all about making sense of it and asking ourselves is it practical and achievable? For example, we would want to be setting a investment target of 10% and think it is easily achievable over the long run. That would be quite difficult for most people. 

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The Regrets Of Saving Money For FI vs Spending To Get Happiness

Have you ever struggled with the thought of saving more money for financial independence vs spending to get happiness now? For people like me who are on the journey to financial independence, we often think that if we don't spend more on some items we wanted to, then we can achieve financial independence earlier. Its always a trade off for saving money vs spending to get happiness.

In recent weeks, the conflict of saving money vs spending to get happiness right now is constantly on my mind. It went on into a state of confusion and anxiety as well. I have been a saver all my life and spending more money on something which I don't think is valuable affects me a lot. The numbers run through my head and my mind keeps thinking what if I didn't spend this amount? Will this affect my plan of financial independence?


The Regrets Of Saving Money vs Spending To Get Happiness

I chanced upon a podcast which was a conversation between 2 people who had achieved financial independence early in life. They both had enough passive income to live their life in their late 20s and early 30s but it was through extreme saving and investing. In the podcast, they were talking about the regrets they had because they turned down friends gatherings and forego trips just to save more. After they achieved financial independence, they looked back in their life and felt lots of regrets for sacrificing so much early in life.

Another thing which caught my attention is that they also mentioned the motivation for achieving financial independence early is because of anxiety. This is the anxiety that money is not enough and they wanted more to feel secure. To think of it, actually my motivation for achieving financial freedom is also because of anxiety. This made it very difficult for me to spend money unnecessary without comparing prices to get the best deal. Even when I tried to live away from a budget, mentally in my mind, the numbers are always there and when I spend a little more, my mind would give out an alert.

I have also lived with the notion that money does not buy happiness and spending unnecessary on material goods does not give lasting happiness. However, in actual fact, money does buy happiness especially when we spend on experiences with people. It also builds relationships and create memories of a lifetime.

Spending a little more doesn't hurt?

If money does buy happiness and can create memories, so spending a little more doesn't hurt right? I am still trying to learn this part where I just spend money without thinking about the trade off for financial independence. In fact, spending a little more doesn't really deviate myself from the financial plan. Instead of focusing on how much more I can save, I should focus on what I can spend more meaningfully on. This doesn't apply to everyone. If you're already spending close to 100% of your salary, then you should be focusing on saving more. For those of us who are already saving perhaps more than 50% of our income, then it may be good to review our expenditure to spend a little more on meaningful things.

Meaningful things which we can spend on includes:

• Gathering with friends
• Overseas trips with family or friends
• A nice meal treat for your loved ones
• Participating in events to create memories
• Buying gifts for people

What about financial independence if I spend more?

Now, spending a little more doesn't hurt but does it affect our goal to reach financial independence? Or maybe I should put it in another way, if we can't reach financial independence earlier, then does it matter if we reach it later? 

Many financial bloggers have wrote about how they saved more than 100K in their 20s. More often than not, this is done through lots of sacrifices unless we have a high income which is not the case for most people in their 20s. I used to save even on drinks and food just to save that extra few dollars. Looking back, maybe if I didn't do that, it wouldn't hurt much also. I would think there are some regrets which I had, living a life of fearing to spend money. 

As my income grows, spending money is not as painful but there are still conflicts in my mind on this when it comes to certain spending. In the podcast which I was listening to, it was also mentioned that one of them couldn't bear to spend $13 on breakfast when on the same morning she got a $6000 cheque for a side hustle. Its really not about how much money we have or earn but the mindset that we have. 

Never in my life would I have thought that the ability to spend more could be as bad a problem as the ability to save more. We have often heard of people who can't control their spending but not much have been said of people who do not spend a lot. For our own life, I always believe there should be a balance. Life is short so spending some money on people we love is really a privilege. We may not have a chance in the future when they are gone. There will be lots of regrets by then. 

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Here's Why The First $100K Savings Is Really Important

Here's Why The First $100K Savings Is Very Important: 

"The first $100,000 is a bitch, but you gotta do it. I don’t care what you have to do—if it means walking everywhere and not eating anything that wasn’t purchased with a coupon, find a way to get your hands on $100,000. After that, you can ease off the gas a little bit" - Charlie Munger

The above quote is adapted from Charlie Munger who's a popular name in the investing world. He is vice chairman of Berkshire Hathaway, the conglomerate controlled by Warren Buffett. There is much truth in his words as I personally experienced it myself saving the first $100,000. It was real hard, very hard at the start. After that, its true that it gets easier.

To illustrate the point why saving the first $100K is very important, I've put the numbers into various charts to visualise how life actually pans out after we have saved the first $100,000. The scenarios are based on saving just $10,000 annual and investing at a 7% investment return.

How long does it take to save the first $100K?

The first $100K is the hardest. If we only save $10,000 annually and invest at 7% return, it takes about 8 years to reach the first $100K.

The journey beyond $100K

Let's look at what happens after we have saved the first $100K assuming we continue to save only $10,000 annually and invest at 7% interest rate.


From $100K to $200K, it takes about 6 years

From $200K to $300K, it takes less than 5 years

From $300K to $400K, it takes less than 4 years 

From $400K to $500K it takes about 3 years plus

And from $500K to $600K, it takes only less than 3 years

This is the summary of how our money compounds after the first $100K. As we can see, the line gets steeper indicating the the power of compound interest and also the importance of saving the first $100K.

There is another interesting fact we can see through the charts. The fact is investing is less important when we have less money as even if we can get 10% on just $10,000 savings, it is only $1000 returns. This doesn't add much to our wealth. But if we have $100K savings, the same 10% will increase our wealth by $10,000.

For my own financial journey, I set out a goal to save $100K when I started my blog back in 2013. I saved aggressively and managed to achieve it in less than 5 years. Did it get easier after that? Yes it did and I really can ease off a little bit and spend more without hurting too much.

For those who are still on your way to the first $100K, get it as early as you can. For those who have already got your first $100K, you can actually relax a bit.

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Here's How To Easily Get At Least $2000 Monthly For Retirement

All of us will think of planning for retirement at some point in our life. However, when we start thinking of retirement, many times we ask ourselves how we can go about to start planning for it? How much do we need to save and invest? This is always the answer we would like to know.

One thing we must know is that retirement can never happen by chance. If we do not plan for it, we will never have enough when the time comes. This is a scary fact when we actually reached that stage. In this article, I will write about some of the easiest ways to plan for retirement. The ways I will be writing about will NOT require much effort and most of us will be able to do it. The goal is to plan to have at least $2000 monthly to spend during our retirement years. This amount may not even be enough for some people but we will start of small first. The more you need, the more you need to plan.

The assumption of the scenarios will be to start work at age 25 to age 65 (40 years of working) and retire at age 65 to live till age 85 (20 years of living).

$2000 Monthly for retirement through savings only

If you just want to live on your savings alone for retirement, this is not difficult to calculate. If you approach a financial planner, this would most often be the method. They would advise you to get a retirement savings plan so that you can save up for your retirement and have some cash when you stop working. However, this is not the best method which you will find out why later.

Let's assume you retire at the age of 65 and live to age 85, this is 20 years of retirement life. Using a simple calculation, you'll need $480,000 to draw-down $2000 per month for 20 years. How are you able to save $480,000? If we assume we start work at age 25 and work till age 65, this is 40 years of working life. To save $480,000 in 40 years, we'll need to save averagely $12,000 every year for 40 years just to achieve that.


$2000 Monthly for retirement through savings & investment

If we up our game and not just save but invest also, how much do we need to save every year to achieve the same $480,000? The answer is a stunning $3758 only as compared to $12,000 for a person who does not invest.

For a person who invests, they can even retire earlier. For the same $2000 monthly for retirement, a person can save $10,000 every year and be able to accumulate $480,000 in about 24 years. This means if this person starts working at the age of 25, he or she can probably retire by the age of 50. However, this $480,000 still can last 20 years only if we draw down $2000 monthly.


$2000 Monthly for retirement through CPF Life

For Singaporeans, we are all under this CPF life scheme whether we like it or not. However, we can actually use it to our advantage in planning for our retirement.

As we can see earlier, we actually need $480,000 savings to have $2000 monthly for retirement which can last for 20 years only. With CPF life, we will only need $256,000 savings at age 55 to get monthly payout of $2000 for the rest of our life from age 65 onward.

How do we achieve the $256,000 in our CPF by the time we are 55 years old? The strategy is to utilise our Special Account (SA) to let the money compound to reach that amount. If we have $38,000 in our SA at the age of 30 and have $300 monthly contribution till age 55, we would easily achieve that $256,000 in 25 years.


Which method will you use to plan for retirement?

I have stated 3 methods which are most common in retirement planning. I have summarised the different methods in the below table:

Method	Accumulaed Savings	Annual Savings	How many years to save?	How long the money can last?
Savings only	$480,000	$12,000	40 years	20 years
Savings + Investment (5%)	$480,000	$3,758	40 years	20 years
Savings + Investment (5%)	$480,000	$10,000	24 years	20 years
CPF Life	$256,500	$3,600	25 years	Life

There is no one method that fits all. The most important thing before planning for retirement is to know how much you need when you stop working which can sustain your lifestyle for as long as you live.

It is also crucial to plan early as the earlier we start, the less we have to save to achieve the same amount of funds for retirement. Just like a marathon race, the road to retirement is the same length. If we start early, we have the luxury to jog or even walk to the finish line. If we start too late, we may have to even sprint just to reach the same finish line. It can be very tough at that time.

There is one last method for retirement planning which is creating passive income for retirement. The most popular way is to create a sustainable dividend income stocks portfolio or through getting rental from properties. Both these method need a significant amount of savings in order to create that income. For dividend income through stocks investing, the rule is 4% draw down during retirement years which according to research is sustainable can last a lifetime. This means if we have 1 Million dollars, we can generate $40,000 dividends every year using the 4% rule. If we have $500,000, then we can generate $20,000 every year. This should be sustainable and not difficult to achieve.

No matter which method we use for retirement planning, starting now is the key. Try thinking how much you need per month when you retire and work backwards from there. Its actually not as difficult as we thought it would be once we start the ball rolling.

Planning For Unfortunate Events In Life

It has been a tough week for me as some unfortunate events happened. I shall not go into the details of what happened but rather focus on the planning aspects before any unfortunate events happen in our lives.

The following is what I think will help at least alleviate some of the problems which we will encounter if something unfortunate happen to us or our loved ones:

Lasting Power of Attorney (LPA)

The lasting power of attorney or LPA in short is a legal document which allows a person to voluntarily appoint one or more persons ('donee(s)') to make decisions and act on his behalf should he lose mental capacity one day. A donee can be appointed to act in the two broad areas of personal welfare and property & affairs matters.

I first heard of LPA a few years back from a colleague but didn't really understand how important it was. A point to note is LPA is only useful if someone is still alive but cannot make decisions himself. If he passes away, only a will drafted by legal representatives can be used.

LPA is getting more and more important that the government actually waived the application fees since 2014. The waiver is stipulated to end next year. If you're interested to find out more about LPA, you can click here. To apply for LPA, click here. I will be doing this for my parents immediately.

If you do not have LPA at that time when something happens, you'll have to apply to the court for a deputy to act on behalf of a family member and it can be a tiring and long process at that time. So its better to get an LPA ready now.


Hospitalisation Insurance - Medishield Life and Integrated Shield Plans

Another very important thing we must have is hospitalisation insurance. Hospital bills are not cheap at all and it can be stressful to handle the bills while having to take care of your loved ones. All Singaporeans including permanent residents are protected automatically under a basic healthcare insurance called Medishield Life. This insurance covers for life even for those with serious medical conditions currently up to B2 ward in the hospital. For the detailed benefits, you can refer here.

Medishield life is indeed just basic. If we want to have better healthcare coverage, we can get it from a private insurer. I'm sure many of us know about this. We can cover up to private hospital and even cover fully such that we don't have to pay a single cent for the hospital bills. Something to take note when buying hospitalisation insurance is the deductible and the co-insurance. We can cover these 2 through riders where the premiums have to be paid in cash. You can consult a financial consultant for the various hospitalisation plans out there.


Eldershield - Basic Disability Income

Besides hospitalisation insurance, all Singaporeans above the age of 40 are also covered under Eldershield. This is an insurance which pays out a monthly sum of money should we be severely disabled.  “Severe disability” is the inability of an individual to perform at least three of the six Activities of Daily Living (ADLs) independently, with or without mobility aids (e.g. walking aids, wheelchair). This means that the individual will require the physical assistance of another person for the ADL. Under the Eldershield, we can receive $300 or $400 up to 6 years.

Be sure to check if you or your loved ones is covered under Eldershield as they may have opted out unknowingly. Log on to the Central Provident Fund (CPF) Board website with your SingPass. After logging in, please select “My Messages” and check under the “Healthcare” section. If you are covered under ElderShield, this section will also let you know the ElderShield insurer you are covered under*.

* If you are not covered under ElderShield, the CPF website will not reflect any infomation on ElderShield.

I checked my father's Eldershield and was surprised that he was not covered under it. He had no recollection of opting out also so its good if we check.

If you are looking for higher disability income, the eldershield can be upgraded or you can get a seperate disability income insurance.

Home Protection Scheme - Protection for Home Mortgage

If you lose the ability to earn an income, paying for outstanding home mortgages can be really stressful. All HDB properties are protected under the home protection scheme (HPS) under CPF board. The HPS is a mortgage-reducing insurance that protects members and their families against losing their HDB flat in the event of death, terminal illness or total permanent disability. HPS insures members up to age 65 or until the housing loans are paid up, whichever is earlier.​

For HDB, you can also get a private mortgage reducing term insurance and opt out of the HPS. But, it would not be that wise of a choice as I think HPS will be easier to claim in the event anything happens. HPS will just offset all the outstanding loans while for private mortgage insurance, they will pay out in cash and it may take some time. For private properties, it would also be wise to take up a mortgage term insurance. Private properties mortgage amounts will be even higher than HDB so it is better to cover ourselves.

Term Life Insurance - Lumpsum payout for future use

After an unfortunate event be it death or critical illness or disability, there will be a lost of income where your dependants may have some financial difficulties thereafter.

A basic term insurance pays out a lumpsum amount upon death. Riders can be added to increase the coverage to pay upon critical illness or total permanent disability.

The younger we get the term insurance, the more affordable the premiums will be. It can be as low as $100+ per month for a 1 Million coverage. Of course, being a term insurance, we will not get anything back vs if we have bought a whole life insurance. For myself, I go for the term insurance because it would be impossible to pay the premiums for high coverage with a whole life insurance.

Are you prepared?

No matter how much planning we do, staying healthy is still the most important. Regular health check ups also help in detecting problems early. For Singaporeans age 40 and above, there is a government scheme which allows for health screening at $5. You can refer here for the information. You will get a letter on it too so do look out for it. Most people would have already received the letter. For us who are younger than 40, we can encourage our parents to go for it and for ourselves, it is also important to go for health check ups too.

Eat healthy, exercise and stay healthy. Having a balance life with lesser stress also helps too. Hope the above planning tips are useful for your future.

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