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Why Earning A Higher Salary (On Its Own) Wouldn’t Be Enough To Build Long Term Financial Stability

There are two ways to make money. We work for money or we get money to work for us.

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Our financial success is typically measured by the amount of money we earn from our jobs. If we make more, we feel better about our jobs and assume we will be more financially stable. If we earn less, we begin to worry about fulfilling our financial commitments.

When I started working a decade ago, I thought earning a higher salary would provide me with greater financial stability. I envied my peers who found jobs in areas like investment banking and private equity, where the entry-level pay was easily $6,000 a month or more.

However, I realised quickly that while earning a higher salary is good, it doesn’t guarantee long term financial stability. Making smart investments are just as important.

Save, Plan & Invest

There are two ways to make money. We either work for money or get money to work for us.

A good education allows us to become more competitive in vying for high paying jobs, which becomes what we call our active income. Some of us may engage in side hustles to generate additional income. When working on these side hustles, we are essentially exchanging our time for money. But is this necessary? In reality, far fewer of us focus on how we can get money to work for us.

You can learn how others like you plan for their future and live a well lived life in Prudential Singapore’s Pursuing a Well Lived Life video series.

Generating passive income is key to building long term financial stability. After all, we all only have 24 hours in a day.

Passive income can come in different forms. It could be investments that pay you regular dividends and coupon payments. It could be through property you rent out, an endowment plan, unit trusts or investment policies you purchased. With sufficient funds on hand, there are no limits to the profits we can generate passively.

Shifting From Active To Passive Income

To get started, set aside a monthly portion of your employment income for investment. If you are new to investing, it’s perfectly fine to start investing with a small amount each month (e.g. 10% of your income). By being a consistent investor, you can enjoy the compounded benefit of seeing your investment grow into a larger amount over time. Once we are confident with investing, we can also increase the amount we invest so that we achieve our investment goals more quickly.

For example, if you invest $200 each month over a 15-year period and earn a return of 6% p.a., your portfolio would be $58,455 after 15 years. However, if you extend your investment period to 30 years, your portfolio would be valued at $201,908. The result is that you get a return of about 3.45 times more, even though your investment period only doubled.

Monthly Investment: $200, Annual Return: 6%


Contribution Portfolio Value Interest Earned
1 Year $2,400 $2,479 $79
5 Year $12,000 $14,024 $2,024
15 Year $36,000 $58,455 $22,455
30 Year $72,000 $201,908 $129,908

Source for calculation

For illustration purposes only

For illustration purposes only

The rule of 72 is a simple way to determine how long it takes for your investment amount to double. If your returns are 6% p.a., it will take about 12 years (72/6 = 12) to double your capital. If your returns are 8% p.a., it will take nine years (72/8 = 9).

Understand Your Risk Tolerance As An Investor

Being a good long-term investor isn’t just about maximising your returns. You also want to ensure that you have a portfolio where you can continue investing in good and bad times.

Your investments should align with your risk tolerance level. During major recessions, it’s natural for your portfolio to be down, and it is in these times that you need to have the means to continue investing and perhaps even expand your portfolio.

Build A Diversified Portfolio

It’s common to find entrepreneurs who have so much conviction in their business that they will put everything they have – their time, money, and sometimes even their health – into running it well.

As investors, we don’t need to adopt an all-or-nothing mindset. Even if we are confident in the investments we have made, we should ideally diversify our portfolio across different asset classes and geographical regions. A well-diversified portfolio allows you to spread your risks and avoid situations where the failure of one or two investments can adversely impact our entire portfolio.

You can consider investing in products like endowment plans that give you a combination of both guaranteed and non-guaranteed returns. The added advantage with endowment plans is that they have a maturity period, making them useful for those who are looking to invest toward a time-specific financial goal.

Read Also: How Financial Stability for Me Has Evolved After a Decade in the Workforce

So remember, to enjoy long-term financial stability, maximising active income shouldn’t be your only strategy. Instead, you need to ensure that you channel your savings into building up an investment portfolio over time that can generate passive income.

Visit Prudential Singapore’s Pursuing A Well Lived Life website to learn more about how we can build long term financial stability.


The information in this article does not necessarily reflect the views of Prudential. Prudential does not represent that such information is accurate or complete and should not be relied upon as such.

This article is for your information only and does not consider your specific investment objectives, financial situation or needs. We recommend that you seek advice from a Prudential Financial Consultant before making a commitment to purchase a policy. 

Information is correct as of 16 February 2023.