Hi everyone, this is my first post since I got back from being deployed overseas for a month in Australia. Happy to finally be able to have some time on hand to do things I like. Recently, I read this article on Medium called “Confessions of a 23-Year-old thousandaire”. In the article, he wrote about his financial journey as a 20 odd years old individual in the US. I was inspired by it and thought I should do a Singaporean edition based off my own experiences. I hope teenagers or even those in their 20s will glean something off my CONFESSIONS. Haha so here goes…
Chapter 1: Who says you got no money?
There is always this common misconception that teenagers like us have no money. True enough we don’t draw a constant salary unlike our parents. But we do draw a steady stream of pocket money from them. One thing I regretted when I was drawing pocket money from my parents was to draw it daily instead of weekly or monthly.
Drawing your money weekly or monthly is a better arrangement as it forces you to learn BUDGETING. You will need to learn how to allocate your money wisely throughout the week or month in order to have sufficient for each day.
Budgeting is a critical first step in learning how to plan your money wisely. It was only until NS when I stop taking pocket money from my parents and start living off my own NS salary that I realise the importance of budgeting. On some days, you can very well spend a few times more than you are supposed to, so remember to always BUDGET!
Like they say:
“Failing to plan is planning to fail.”
Chapter 2: Save yourself by saving…
To tell you honestly, I didn’t even realise the importance of saving until I was 18. I regret not saving up left overs of my pocket money into my savings account. Usually my leftover cash will stay in my wallet and mysteriously “disappear”. Haha it probably went into my stomach with all the snacks or occasional Starbucks that I bought.
The lesson here is by not saving and leaving cash in the wallet, it exposes us to several dangers lurking out there. By dangers I mean temptations to buy things that you probably won’t need.
With the advent of cashless payment, it becomes even more important to be discipline in your budgeting and saving habits. You will not feel the pain when you just click a few buttons to purchase whatever things you see online. The pain only comes when you check your bank account at the end of the month.
Don’t belittle the small amount you save each day, be it from your pocket money or your monthly salary. It is these small amounts that will pave your way to financial freedom.
“The habit of saving is itself an education; it fosters every virtue, teaches self denial, cultivates the sense of order, trains to forethought, and so broaden the mind.” — T.T Munger
Chapter 3: Make your money work for you…
Sadly, in our times, it is no longer enough to just save for retirement. Inflation is continuously eroding the value of our savings 10, 20 years down the road. Inflation is the reason why our $2.50 chicken rice is now $3.50. Here’s a chart showing the price of property for the past few decades.
The one clear trend here is UP. Of course, wages have also been growing but the paramount question will be if wage growth can always outpace the rate of inflation. And even so, all those money you save up in the bank are only going to depreciate in value as inflation rate outstrips the interest rate gained on your savings.
Hence, we need to have some ways to make our money work for us. And that is through investing. Whenever I tell others about investing, many tend to look at me with fearful eyes. Even my mum advised me against investing, because to her its akin to gambling. What many don’t know is that investing can be a safe and fuss free way to grow your money.
Average inflation rate is about 2-4% per annum. Banks currently give you about 0.05% on normal savings account. To win the game of investing, all you need to do is to ensure your money grow at a higher rate than inflation. Sounds tough? It’s actually quite easy.
For those who don’t intend to actively manage their investments which usually yield higher returns albeit at a higher risks, index ETFs are safe and fuss free way to win the game of investing.
The above are 2 of the indices that track a group of stocks. S&P 500 tracks the best 500 US stocks and FTSE tracks the best UK stocks. As you can see as long as you are able to hold it for a long time, the trend is only UP. S&P 500 annualised return since its inception is about 10% per annum which is much higher than the inflation rate. The FTSE return about 5% per annum for the past 20 years also higher than inflation rate. Hence putting your money in the best stocks in the world through index ETFs are definitely an easy way to make your money work for you.
There are also many other methods to invest for beginners which I shared in this article
“An investment in knowledge pays the most interest.” — Benjamin Franklin
Chapter 4: Compounding is the key to financial freedom…
The key to a fruitful retirement in the future is through compounding. Imagine someone were to give you 10% every year on the $1000 you put with them.
You will realise that you do not just get $100 every year. The amount earned increases exponentially with time!
Now imagine 2 individuals, Adam and Smith. Adam starts investing with his $5000 savings at the age of 20 by buying into the index ETF that return 10% per annum. On the other hand Smith started slightly later at 30 buying into the same investment product as Adam.
Assuming they both aim to retire by 65, how much retirement sum would they have?
Wow a sum of $364,452.
As for Smith:
The difference is HUGEEEE. A 10 year difference means your results are reduced to about HALFFFF!!
So who says you can’t start investing with a few thousand dollars? The magic of compounding usually sets in the longer you hold onto your position.
The lesson here is start picking up investing EARLY and have PATIENCE to let your money do the work for you.
“Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.” — Albert Einstein
Chapter 5: Enjoy the process…
The most important thing of it all is to enjoy the process. There’s no point to save up such a huge amount of money but lead a miserable life of cooping yourself at home in order to save up a few penny. At the end of the day, you can’t lug your bag of cash with you to the grave. I ever once tried to save 90% of my NS salary and only spend 10% of it. It was tough and I found that I wasn’t happy. That is not to say that you abandon saving altogether, but rather plan your budget around your lifestyle and find a healthy amount to save and invest. This is so that you can both enjoy the PRESENT and the FUTURE!
“Enjoy the process. You will get there, you might as well enjoy the journey!”
the whole idea of me setting up this blog is to educate young people to take charge of their financial journey early. You don’t need a lot to start From Ground Zero, I started out with $300 in the stock market. You just need to be patient and disciplined in budgeting, saving, investing and the rest will take care of itself. Hopefully this will encourage more young people to take charge of their finances! 🙂