I recently received an email from a reader in his mid 20s who just joined the workforce. Reading my blog at the recommendation of a friend, he wrote that he felt encouraged and sceptical at the same time. He wondered if it is really possible for him to become a millionaire (without having to sell his future flat) when he finally retires. Do you feel the same way he feels?
The sooner we start, the better.
With the increasingly high costs of living in Singapore, it is easy to think that it is no longer possible to retire wealthy and having a million dollars in liquid assets seems to be a popular yardstick. I have a feeling that this belief is widespread amongst the young and, perhaps, the slightly less young too. This belief is very dangerous! It could be a self fulfilling prophecy!
Hey! Young people out there, listen up! You can become a millionaire by the time you reach retirement age or earlier! What's more, this is possible without even counting the money in your CPF or the value of your flat! AK is not pulling your leg. It is true.
I don't know how much money you make a month. I don't know how much money you spend a month. Of course, you know that I would say you should increase your income and reduce your expenses as the first step to wealth building. You already know that.
I won't tell you how much money you should spend a month. How could I tell you? Everyone's circumstances are different.
What I can tell you is how much money you should at least save a month! Now, based on this and with the knowlege of how much money you are spending every month, you would know how much money you must make a month to achieve the target of having a million dollars in liquid assets by the time you reach retirement age.
Young people have the most valuable asset in the world and that is time! Young people have time on their side.
The younger we start saving and investing for our retirement, the easier it is going to be. I know we hear this all the time from insurance salespeople and often, we brush them off because we believe that they are just out to make money from us. Well, AK is not an insurance agent and I am not going to make money from you listening to me. So, don't brush me off.
So, listen, what the insurance salespeople say is true. Yes, it is.
Now, let's work our calculators!
How much should we be saving and investing every month if we would like to have a million dollars in liquid assets by the age of 65?
Taking the example of the 25 year old reader who wrote to me, S$650, give or take a few dollars. Yes, only S$650 a month! Accumulate savings, buy stocks of good companies with about 5% dividend yield a year and re-invest the dividends. Saying nothing of possible capital gains, voila, you would have $1,000,000 by age 65!
The power of compounding is amazing and I have blogged about how money in our CPF-SA will grow 50% every 10 years even if we were to stop contributions today and this is from an annual interest of 4%!
What about the not so young? Well, if we start at age 30, we would need to put aside about S$880 a month. Not so bad. What about age 35? Ah, S$1,200 a month. Still manageable. Then, age 40? Hmmmm... S$1,680 a month. Later at age 45? S$2,430 a month! Wah! Sorry, I shouldn't shout.
OK, don't ask me for the monthly amounts for age 46 and above. I am in cold sweat.
Now, when I blogged about my passive income from S-REITs, I said that it is always hardest at the start. The Chinese say 凡事起头难. Hard to start but start we must.
To the 25 year old reader, believe me when I say that if you keep at it, your annual investment gains will eventually exceed the annual sum that you are saving and investing. Yes, your annual investment gains will exceed S$7,800 at some point in time and it will continue to grow if you continue to do the right thing.
Now, pause and picture that. Are you smiling?
If you know anyone who feels the same way this 25 year old felt, tell them that AK will shake them hard by the shoulders. Nah, let's not be violent. Just tell them to read this blog post. It won't take too much time but it could change someone's life.
Remember, all of us can do it!
1. 7 steps to passive income from stocks.
2. If we are not rich, don't act rich.
3. Warren Buffet, the world's greatest money maker
4. Rich Dad, Poor Dad: 2 are better than 1.
5. Recommended books for FA and TA.
6. 7 money habits of AK71's.
7. What is $1 million at retirement?
8. Achieving $1 million in retirement funds.