Invest Now
Most people wait until they are in their thirties, forties and fifties to start saving money. They realise that they are not getting any younger and will require additional money for retirement. The trouble is, by the time they realise they ought to be investing, they have lost valuable years when stocks could have helped them with their goals. Their money will have accumulated over the years through investing.
Instead, they spend what they have as if there is no tomorrow. Many expenses are inevitable, you name it, children to support, aging parents to support, doctor bills, enrichment fees for the children, insurance bills, household expenses, etc. If there is nothing much left over, there is not much they can do about it. But often enough, there is something left and they are not using them to invest. They use it to pay for fancy restaurants dinner and drinks or make the down payment on the fanciful car in the showroom.
Before they know it, they are heading into the sunset with pennies in their pockets. They have to squeeze themselves into a tight budget at the time they are supposed to enjoy life.
One of the best ways to avoid this fate is to begin saving money as early as possible, while you are living at home. When else are your expenses going to be this low? You have no children to feed and your parents are probably feeding you. If they don't make you pay the rent, so much the better, because if you have got a job you can sink the proceeds into investments that will pay off in the future.
Whether it is ten dollars a month, one hundred dollars a month or five hundred dollars a month, save whatever amount you can afford, on a regular basis.
We hope that young people will not fall into familiar trap of buying an expensive car. As soon as they land the first stable job, they become slaves to the car payments. A car robs you of free cash flow for investment, you will need to incur interest charges, road tax and fees (ERP in Singapore), insurance premiums, petrol and maintenance. So do not be deceived by the face value of the car at the showroom, there is alot of hidden cost and opportunity cost. For illustration, base on 2016 Singapore context, if you buy a car (say Toyota cost $100,000 with COE) for the next 10 years, you will have incur a total of approximate $160,000 for all miscellaneous cost mentioned earlier. Assume there is no scrap value here. $160,000 invested over the ten years, assuming $16,000 per annum with 5% (conservative) yield will amount to a considerable sum of money! Unless you can use the car to make money, then it will be a different consideration. We are looking at the numbers and not considering the intangible benefits which you derive from owning a car.
Putting Your Money to Work
Money is a great friend, once you send it off to work, it puts extra cash into your pocket without your having to lift a finger. If you invest $500 a year in stocks, the money gets a chance to do you a big favour while you are living your life. On average, you will double your money every seven to eight years if you leave it in stock. A lot of smart investors have learned to take advantage of this and they realize their capital is as important as their own labour.
If you start saving and investing early enough, you will get to a point where your money is supporting you. This is what most people hope for a chance to have financial independence where they are free to go places and do what they want, while their money stays home and goes to work. But it will never happen unless you get in the habit of saving and investing and putting aside a certain amount every month, at a young age.
The A-plus situation is when you are saving and investing a portion of your paycheck. The C-minus situation is when you are spending the whole thing. The F situation is where you are ringing up charges on your credit cards and running up a tab. Then that happens you are paying interest to somebody else, usually a credit card company. Instead of your money making money, the company's money is making money on you. The credit card companies love it when you buy things with the card and don't pay the entire bill straight away. They charge you a high interest as much as 24% which gives them a better return from your pocket then they could ever expect to get from the stock market. In other words, to a credit card company, you are a better investment than a stock.
People are buying things when they don't have the cash to pay. Instant gratification, and shoppers pay a high price. They read the ads and go into different websites to find the best deal for a new toy (TV, shoes, watches, bags, etc) to save themselves a few bucks then charge it on credit card, when may end up costing them an extra few hundred. They do so willingly without thinking about it.
In the past, people felt great pride when they worked hard and made certain sacrifices in order to pay for something all at once. Don't allow yourself to get into the F situation. It is ok to pay interest on a house which may increase in price but not on cars, appliances, clothes or bags which are worth less and less as you use them.
