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Budgeting 101

How Saving 10% Of Your Income And Your Annual Bonus Can Change Your Retirement Completely

You can earn half a million more for your retirement just by managing your money a little more prudently.

 

People sometimes think retirement planning is tough. It takes a long time and requires a lot of money. For example, to achieve the CPF Life Enhanced Retirement Sum and enjoy a monthly income of between $1,770 and $1,920 from age 65 onwards, an individual would need to set aside $241,500 in their CPF Retirement Account at age 55. And if we assume the individual wants to retire at age 55 with a monthly income of $1,800, then the person would need an extra $216,000 to see him through from 55 to 65.

Is a total of $457,000 a target too much to accumulate by age 55? Let’s take a look at it.

Balancing Your Spending And Saving

It is easy to go on either extreme when it comes to money management. There are people who simply do not save, and are constantly finding new ways to spend away any pay increment or bonuses that they get. On the other spectrum, there are those who scrimp and save every single penny to the extent that daily spending becomes so stressful to deal with.

We want to advocate that you should enjoy life today without having to sacrifice your enjoyment tomorrow, or when you finally decide to retire.

Your Monthly Spending Should Be Reasonable

All of us working adults should be responsible enough to be able to manage our month-to-month budget. We all know how much we earn, and what we can or cannot afford. If you are earning $2,500 a month but enjoying restaurant meals and shopping spree every weekend, along with an expensive $150 gym membership and regular taxi rides, then you my friend, have bought in to the idea of consumerism as a way of life.

With all things being the same, someone who earns $2,500 a month should not be spending in the same way as another person who is earning $5,000 a month. Likewise, a person who has to take care of multiple dependants in his family should not be spending in the same way as someone who does not have any dependants.

Can you save 10% of your monthly income each month? This is a question that everyone should answer for themselves. Some people are already doing it (and more), others will find ways to do it and there will be some who can’t do it because they have a standard of living to upkeep.

Read Also: How You Can Start Adopting A Saving Habit

How Much Would $300 A Month Become After 30 Years?

If we assume that a person invests $300 a month at a return of 6% per annum, the person will receive $301,355 after 30 years.

Just imagine that, a person who has a salary of $3,000 just needs to set aside 10% of his income each month to be able to accumulate $301,355 in 30 years. Is that possible? Or would we prefer to spend that money on the weekly Saturday dinner we think we deserve?

The other way to look at this is to tell yourself that the weekly Saturday dinner, or whatever it is that you feel you need to spend your money on, can continue to exist, but only after you have set aside the amount ($300) you want to invest in for your retirement first.

So yes, we are not saying that you can’t have your restaurant meals or your taxi rides, we are saying that you should prioritise on what is more important to you. And we think investing for your retirement is a tad more important.

How Investing Your Bonus Works

If you are spending based on your monthly income, then there is no reason why you need to be tapping onto your year-end bonus to meet your expenditure.

Too many times, we are guilty of wanting our end-of-year holiday without making any effort to save it up. We want to take a $5,000, 3 weeks trip to Europe, but are not able to save an extra $400 each month during the year. So we end up using our bonus to fund the remaining amount we need.

Avoid doing that. If you are able to invest your one-month bonus ($3,000) each year for the next 30 years at a investment return rate of 6% per annum, you will be able enjoy an extra $237,135 for your retirement.

When you add the amount you can get by saving 10% of your income to the amount accumulated from your bonuses, we are looking at an extra $538,470 for retirement. That’s enough to retire at age 55 ($457,000) and still be to afford multiple post-retirement holiday trips. This amount does not include the money in your CPF account, which we are pretty sure that it would be significant as well.

Not Easy But Not Impossible Either

We want to end off by saying that saving 10% of your income and your annual bonus isn’t just going to be a walk in the park, particularly if you have already been used to spending the money away. At the same time, we want to say that it isn’t the most difficult thing either.

If you are willing to spend some time to relook your expenditure, we are pretty confident that you would be able to find some items that you can easily do without to find the money you need to invest for your own future.

Read Also: Why Saving $100,000 in 10 Years Is Much Easier Than Saving $10,000 In 1 Year

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