Many may think that saving money is hard. To some extent, this is true. Setting aside money each month into a saving account that you are not allowed to use is not easy, and counter-intuitive to what society pressures us to do.
Wherever we go, marketers are lurking around trying their best to convince us to spend our hard-earned money on their products and services. People whom we know tend to measure our success by finding out what car(s) we drive and where we stay. Even when we are on social media, we are constantly flooded with images filled with hashtags such as #YOLO (you only live once).
Some of us may have set financial goals such as aiming to save and invest $10,000 for the year. We might have already started working on these goals, or perhaps, are still procrastinating on them. We might feel discouraged, wondering to ourselves how difficult it is to accomplish our goal of saving $10,000 for just one year, let alone for the next ten years.
If that's what you are going through now, we got good news for you. It gets easier with time.
Why Saving Your First $10,000 May Be Tricky
If you are one of those who are used to spending most of your salary each month, then changing your spending habits to save more will not be easy initially.
In Singapore, there are many ways in which you can blow a hole in your pocket. A trip to the theatre to watch the latest film can easily cost $30 for two once you include in the price of popcorn and drinks. A night partying at a club would easily cost $100. Your CBD lunch could easily set you back $20 to $30 each day if you like exploring new cafes and restaurants in that area. Your morning latte could set you back $5 per day, or $100 per month.
There are many other things in life that could be making you spend more than you need to as well. Expensive gym membership that you hardly use. Manicure packages that you can do without. Mobile plans which offers more talk time and data than you actually need. The list goes on.
To be successful in achieving your one-year goal, you need to have a plan. This plan could include lowering your monthly expenses, it could include allocating your year-end bonus to your financial goals, it could also include refinancing your home-mortgage to enjoy lower interest or reallocating your emergency saving funds to a bank account that pays higher interest rate so that you can enjoy an extra $100 more each month.
Why Saving Your Next $90,000 Will Become Easier
If saving $10,000 a year seems daunting, saving $100,000 over 10 years may appear even tougher. But that isn't really true. Here is why:
Once you have adopted the right habits to help you become successful in just one year, all you really need to do is to just continue these habits. You may notice that your daily routine have started changing. Your daily latte may have been replaced by a cheaper alternative. Your mobile plan may have cost you less each month and you are perfectly fine. You are still as fit without an expensive gym membership as you embrace the thrill of 6am circuit training under your home void deck instead of the 8pm workouts in the gym.
Your Investment Will Start Growing
After some time, you will also start realising that your initial investment made will be providing you with passive income. This may come in the form of dividend payout, if you invest in good stable blue chip companies that have strong cashflow (i.e. telecommunication companies) or appreciation in stock price. If you invest in bonds, this will come in the form of interest payout.
The passive income you earn (or the appreciation of stock price which you enjoy) may have helped you grow your portfolio. Based on an annual return of 6 per cent, you will be able to attain your $100,000 target in about 8 years, rather than 10. If your annual return is lowered to 4 per cent, you will hit your target in slightly more than 8.5 years.
Your Financial Targets May Change And That Is Perfectly Okay
Your financial targets may change during this period. We want to say that this is perfectly okay. Your initial saving goal might have set for $100,000 within 10 years without having anything specific in mind. Along the way, you might start to have new aspirations.
Perhaps, you want to buy a 2nd property for passive income. Maybe you want to invest in your own business. Or it could be a sabbatical. These goals will be more attainable given the portfolio that you already have. And that means more financial freedom to do what is it that you really want to do in life.
DollarsAndSense.sg is a website that provides bite-sized and relevant articles to help Singaporeans make better financial decisions.