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Hola! There are many ways to become rich but they all follow the same old formula. Let’s not go into a debate of having how much is being rich. It is very different for everyone by circumstances and choice. However, the same formula for everyone applies which is to save more than spending. Let us take a journey together as a fresh graduate and some key principles to saving up for a better life.
It is very tempting to book your first European get away in the first year of your work and most do it despite draining their bank accounts. The notion of YOLO is over rated because YODO (You only die once) too. The common excuse is that travel while you still can but the fact is that you can pretty much still travel when you are 35. Baby steps with the travel, perhaps a South East Asia holidays in the 1st year of work, and East Asia in your 3rd year. The idea is to give it time to build your base and foundation.
Rainy day fund
Investing is very important but you never know when the rainy days will strike. Get ready 6 months worth of emergency funds as soon as you start work. Calculate and count the total expenses per month with some buffer and multiply it by 6. Expenses to consider include bills, mortgages, insurance premiums, allowances for parents, etc. Put that 6 months of funds into a bank account that is not locked in any financial tool. Do not use it until necessary.
You will be inevitably taxed in one way or another but there are tax deductibles to look out for and some that requires work in order to qualify. Some good and common examples as follows:
- If you have dependents above 55 , taxable income below $4000 and live with you, you will qualify for dependents relief
- If you have taken a course that will award a recognized certificate or professional qualification, you will qualify for course relief fees
- If you make voluntary contributions to your CPF and/or medisave , the contribution amount qualifies for tax deductibles too
- If you put in money into SRS (Supplementary Retirement Scheme), the amount qualifies for tax deductibles too
By conscientiously doing your sums and reallocating your resources, you might even be able to lower you taxable income bracket and saving you a couple of hundred bucks per year.
The best way to control your spending is to limit your spending. Discipline is key. On pay day, set aside a fixed amount that you will spend every month and monitor all expenditures. Excess leftovers can be brought forward to other months for a little treat or luxury. Aim to save at least 40% of your take home pay monthly. Remember, it is not how much you earn, but how much you save.
Your savings in a bank will only shrink as inflation takes its toll. Investing your resources becomes key to growing your wealth as the law of compounding interest will also works it magic on your resources. The rule of 72 which means the number of years it takes to multiply your investment by 2. For example if you invest in a financial tool that yields 5% per year, 70/5 = 14 years is what it takes to double your investment. Different individuals will have different risk appetites and there are a wide variety of tools available to cater to different needs so research wisely and always spread your risks but putting money in different investment tools. I will touch on the different tools available in subsequent articles but there are a few common ones for consideration
- Stocks investment
- Managed unit trusts
- Fixed deposits
- Investment linked policies from insurance companies
- Gold and silver
- CPF SA