Savings 101

Savings for the young

Financial knowledge is not taught in school, not during my times. A lot of fresh graduates taste the liberty of first pay cheque and start to splurge on bags, clothes, shoes, jewelries, watches and fine dining. They have a mindset of spending future money using credit cards and when this viscous cycle gets out of hand, they will severely in debt. They become slaves to debt, living pay cheque to pay cheque. I experienced this through several close friends which hurts me a lot. That is the motivation why I will like to share with everyone the millionaire mindset which is frugality and financial knowledge.

Firstly, we need to understand inflation. For example, if inflation is at average 4% per year (ignore the government's basket of goods which is skewed in a way to their benefits), your mixed vegetable rices with 2 vegetables and 1 meat used to cost S$2.50 and now it cost S$3 in most places. The price increases by 20%! Given inflation, generally cost of living will become more expensive in the future due to inflation. That is the key reason the rich uses different tool to beat inflation. They act like our Central Provident Fund, take your money, give you a 2.5% guaranteed return and invest the money to get return of (modest level) 6-8%, this is a zero sum game and I think Singapore government is doing a fantastic job in this forced saving. Without this, a lot of ignorant Singaporeans (pardon my bluntness and those with financial knowledge will understand where I am coming from) without investing their money will suffer when they are old. If you are a Singaporean and offended with my sharing, I urge you to read up and understand more about investing, entrepreneurship and economics. This will only benefit you and not me.

Secondly, there are a lot of people who complain that they are not in school about financial knowledge, they do not have time, financial knowledge is too difficult to learn. Time is of essence, the earlier you start, the better it is. I will share in future the power of compounding effect which is the crux why you need to invest.

Financial Planning involves three major steps which include savings, insurance and investments. The young graduates should start from learning how to save money. The experts always recommend to use automated method to transfer 20% of income directly to a fix savings account. They will recommend pay yourself first, then spend the remaining. 

I will like to share many years ago when I received my first pay cheque, I remembered the nett amount was $1999, after contributing to Chinese Development Association and 20% to CPF. I wasn't a Christian then, I gave my mum $200 for providing me till 25 years old and $180 to my dad's CPF account to pay off my study loan. I manage to save $1,500 per month because I was giving tuition during the weekend. Like many others, I stopped getting pocket money from my parents since army days, surviving on $300 during army days and started to provide tuition to students. I was tutoring from 2000 to 2008, However, my girlfriend was suffering with me, we only indulged in a good meal during special occasion. Saving to me requires discipline, delay gratification, goal and vision. You need to understand why you are saving for, this will compel you to do the necessary to sacrifice the present to achieve your future goal. I was saving for my business with an initial budget of $100,000. 4 years later, I achieved the goal at age 29 but till date yet to go full time into business. 

I took the employee route and I know it is possible with financial knowledge. Be a bit hard on yourself today for a better tomorrow. It pays to be frugal.