How much do you need to survive on comfortably?

Hi everyone, I am back to update on this blog after a break. Sorry for the recent gap as I have been on a short vacation and University camps. It’s time for me to refocus on the topic of financial education.

After introducing the concept of money and inflation in the previous posts, I want to focus on the amount of money, aka nest egg, one needs to accumulate to survive after retirement.

 

Sure, some of you may say that raising kids to take care of your golden years might work, but for how long would this be true in a society where filial piety is losing its presence?

To find out how much money one would need to accumulate for retirement, we would firstly determine how much one needs to survive on.

Let us take a look into the expenses of a typical non-married person by using reasonable estimates at current market prices.

Monthly:

Transport – $200

Food – $300

Utility and Phone/internet Bills – $400

Entertainment – $100

Miscellaneous ( Hobby, clothes, home necessities ) – $100

Annual Expenses:

Luxuries ( Vacations and gifts ) – $2000

A typical person would be incurring $15,200 in expenses annually. That boils down to $1266 in monthly expenses on average. In other words, one needs to have an inflow of at least $1266 per month to maintain a basic lifestyle.

However, it is virtually impossible to live off with only this amount of money as we have yet to set aside contingency funds and savings for a rainy day. It is also assumed that you aren’t married, and there is no need to give money to others (alimonies, giving to parents, IOUs, etc) After factoring in all this, let’s just say $2000 per month is a comfortable figure to look at for retirement at current prices.

Let me re-emphasize the previous point. It means that we need $2000 per month coming into our pockets at retirement age to let us continue living comfortably into the golden years. Most of us in Ratpack are presently in our twenties, if we are able to have this amount of money inflow as passive income, we would be financially free. However, let us take the common workforce to illustrate for this example and in this case, age 60 would be the consensus retirement age, which most people are contented with.

[WARNING: PLENTY OF CALCULATIONS IN THE NEXT PART]

Taking inflation of 2% into account, $2000 would have the same value as $4500 in 40 years’ time. We would need to look at the amount of capital needed by age 60 to be able to generate you $4500 per month to live with. Surely after all the years of being in the workforce and saving, you would have amassed your nest egg to invest with. How big your nest egg is during retirement depends very much on how much you save, how early you start investing and how you invest. A good financial advisor should be able reap at least 4% returns on your capital invested on top of inflation. Hence, assuming 4% return is what you get from your capital, $1,350,000 is what you need to build from now onwards to retire.

You may use this format to suit your own needs and eventually obtain the capital you would need to set as your goal. To calculate the value of money after n number of years, simply use the CPF retirement calculator online.

As I move on to the next part of the calculation, it gets more personal. After knowing how much we need to build to retire comfortably, we need to look into our own lives currently to see if we are saving and investing adequately. A simple way to calculate this is by taking your annual inflow ( salary, bonus, CPF ) minus your annual expenses. For those of you who are paying for insurance premiums, check if theres a cash value to it after a certain number of years. If there is, you may take into account the premiums paid as part of savings and investments. After which, you may take the total amount of savings and investments annually multiplied by the number of years you have left to your intended retirement age. This sum added on to the amount of savings you currently have would give you the amount of money you have at retirement age! In other words, the earlier you intend to retire, the more savings and investments you would need because you have fewer years to accumulate that capital!

Now put the above exercise into your own life. Are you having a shortfall under or a surplus over the required capital?

If you are having a surplus, congratulations! But don’t forget the kind of assumptions you are currently using. Expenses increases as you grow up, buy a house and start a family.

If you are having a shortfall, then you need to look at increasing your inflow or decreasing your outflow. It is simple Mathematics here. But trust me, focus on increasing your inflow because I believe in expanding your means of living and not living below your means.

In the posts ahead, I would be looking more into how to amass more capital, which I think is the primary concern for young people. Without capital, there is no way anyone can invest or buy opportunities. As a teaser, saving more of your salary is definitely one sure way to success, but it is not the only way. There are more channels out there that allow us to build a passive income.

If you guys prefer an excel sheet format for these calculations, feel free to contact us or leave a comment below. I do hope this post allows more of us to determine our current financial standing and discover each of our own financial needs.

Cheers,

Thomas

KNOWING MY MONEY.

This would be my approach to the first post to kick start the financial education:

 

What is financial education about?

Being financially educated means to be financially literate, just like how basic literacy enables us to spell words and communicate in a manner which other people understand, it teaches us how money works in the world, how one manages it and invests it to let it grow.

More specifically defined, being financially educated means having the skills to make informed decisions with all of your financial resources, such as cash and assets.

In essence, you can soon dump the old school concept of ‘working for money’ as you embark on this journey and open up the pathway to letting money work for you!

 

Why the need for financial education?

 

 You might be wondering about this question, why the need for financial education at our age? We are staying in an affluent country, where many of us come from decent families, and pay for minimal expenses we incur, such as transportation, food and entertainment. Many of us do not pay for our own education costs. We are still too young to bear the financial burden of paying for a house, a car, and a family. Hence, most of these individual expenses we incur could be covered by taking up part time jobs, and the rest of our pay goes to our savings account in the bank, we are satisfied. If this scenario clicks with your life, or you find this  comfortable, it is time that you start educating yourself financially.Because what you are about to see are some Cold Hard Facts which would serve as a wake up call to many of us.Yes, I think financial education is important, but do I need to start now?

 

To all young adults and teenagers out there, It is never too early to start. But it can be too late if you don’t take action. Besides how the effect of compounding would work wonders in building our wealth, which would be illustrated in the next few lessons, there is no better time than now to embark on this life-changing journey.

If you are in your late tens or early twenties, you would be stepping into worklife soon, enrolling into University, or enlisting. Financial education is most crucial at this point of time as most of you know that our financial burden would get heavier in time to come. Fortunately, you are currently free of much worries which would hit later in life. Take advantage of your youth and this freedom to truly enrich yourself with financial knowledge and start to cultivate the good habits. There will not be a better position in your life to do it!If you are in already ten years into working life, you might want to build your nest egg for retirement, or looking to more financial stability in your life. I would like to congratulate or thank you for making the effort join this group. Whether you are new to financial knowledge or not, we are committed to impart this wisdom to you and allow you to gain more exposure to it.

Closing Statements

“If you are born poor it is not your fault, but if you die poor its your fault” -Bill GatesBen Franklin once said, empty your wallet into your mind, and your mind will fill your wallet. Hence, investing in knowledge is the key to becoming financially free.To all those who want to make this change in their life, I welcome you with open arms! I hope place adds value to your life and feel free to contribute in the upcoming discussions!

Written by Thomas Wu