My best friend asked me how to become wealthy. This is what I told him

My best friend asked me how to become wealthy. This is what I told him e4ysNAp

Post enough helpful finance and wealth articles on Facebook and  most people will get the impression that to become wealthy, you have to be like me.

You have to have a rich lineage, a businessman, lawyer or doctor father who is able to afford buying you a BMW on your 21st birthday, line you up to work in one of his friend’s investment banking firm.

The truth is that I have none of those.

In fact, 10 years ago, the main breadwinner couldn’t find work any more and I have to make a decision to not finish my honours year in university to come out to work.

If you are not born with a silver spoon, how do you build wealth automatically?

No luck just Smart Actions

Many in this world have come before us that to be wealthy it is not hard.

The way to build wealth is ridiculously simple.

It is not about luck. It is rather scientific.

And because it is scientific, it means being wealthy is within your reach.

When I heard Todd Tressidder explained it , I just thought it represent what we tried so hard to find so well.

This is what I would tell the 18 year old me if I found a time machine to go back in time.

The crazy simple formula to be wealthy

Building sustainable wealth for the average folk involves doing three things well:

  1. Spend Less
  2. Earn More
  3. Build Wealth Wisely

That’s it. I just provided the holy grail. Couldn’t get more simple than that.

1. Spend Less

We all started with roughly almost the average amount of privileges. We went through roughly the same education system, and judging by the trend, a large proportion of the people work towards a minimum degree in university.

What usually differentiates people are their spending patterns.

The wise ones

  • Spend within their means. If they earn $2,500, they won’t spend $3,500
  • What they spend on reflects their values. You will not see them buy the best blenders, television and go for big holidays if their highest value are their kids. You are likely to see them working within what they can spend on and devoting an above average amount compared to other parents on their children
  • Are conscious about spending and have a systematic spending plan. Some use budgeting to be in control where they funnel their income and seldom encounter an emergency spending that catches them off guard
  • Sell old stuff before buying new. There is a conscious effort to “liquidate” whatever they can, think thoroughly before buying something and ensuring they get a good value for their purchases (value is not cheap, its quality at an acceptable price)
  • Will not borrow to pay for things that do not build wealth. Using credit cards or loans to boost spending will mean not knowing what  you need to cut in the future to fund purchases that don’t add value

My best friend asked me how to become wealthy. This is what I told him Ya9qXtM

We have an example here of a 25 year old that have 30 years to build wealth. He earns a modest  $2,500 a month salary at the start with 2 months of bonus. This adds up to $35,000.

With a tax rate of 20% taken off his gross salary, he ends up with a disposable income of $28,000.

My best friend asked me how to become wealthy. This is what I told him eqXhbvl

Assuming he is young, and have not set aside any cash for investments and he spends a lot such that he can only funnel 10% of his initial disposable income ($2,800 each year for 30 years) to building wealth.

Throughout the 30 years, he does not increase the amount or percentage that he adds to building wealth and that the wealth fund is only in cash.

My best friend asked me how to become wealthy. This is what I told him 27hJRAG

He ends up with $84,000 at the end of 30 years.

My best friend asked me how to become wealthy. This is what I told him BFEE8aN

Now what if instead of spending so much, he decides to spend less, be more frugal?

He would then be able to possibly funnel 50% of his initial disposable income ($14,000 per year for each of 30 years) to building wealth.

My best friend asked me how to become wealthy. This is what I told him dfM7Juh

Just by that  alone, without channelling the wealth fund into higher return assets, he can build up $420,000 in 30 years compare to $84,000 previously.

You may question, even if he is frugal on the onset, wouldn’t his future spending increase?

How would he be able to maintain that?

My best friend asked me how to become wealthy. This is what I told him KLU8cQM

He would only have $14,000 a year to spend on, which works out to $1166 per month.

However, remember that we are using a conservative 3% salary increment and that, since he has already allocated a high initial wealth funding, his 3% increment can all go to future spending needs.

The column Leftover for Spending Allocation shows  a gradual rise such that at age 30 he will have $18,459 to allocate for spending or $1,538 per month.

We will explore more later.

Spending less matters. The less you spend the more you can channel to build wealth, even when you build wealth with low return assets such as cash.

2. Earn More

Optimizing your spending is important, but doing that is working within the constraint of your existing employment situation. It is akin to working based on the size of the existing box.

Why not increase the size of that box?

The internet have made knowledge readily available, and have increase the different ways we can build knowledge and enhance our existing skillset, not to mention learn new skills.

It has also liquidfy the available opportunities that we can find to supplement our income from our main job.

The wise ones

  • Make use of company education and training to enhance their core competency.  They also developed an interest in their work to develop a valuable skill set. This makes them employable and able to seek opportunities with higher remuneration
  • Does not burn bridges and network extensively
  • Change jobs when they have learn what they can, when they do not feel challenged or seek up greater challenges or when they are not adequately compensated
  • Work overtime to gain extra money (but this is probably at the expense of health)
  • Build hobbies and interest areas into a monetary income stream. When you are interested in certain areas, you might be able to build a following and be able to sell goods and services using your expertise to supplement your main job income. E.g. A bike enthusiast who gains contacts on cheaper or not available bike parts and able to bring them in to sell to other local enthusiast
  • For some people with unique competency, the internet has liquidfy the environment such that you can take up free lance jobs. This includes, designers, artists through ODESK, Freelancer.com or you could have competent skills that can consult other contacts on the side
  • This may overlay previous, but a person can also start a side business with like minded folks or good friends to seed a business that may eventually provide a sizeable income stream

My best friend asked me how to become wealthy. This is what I told him Ya9qXtM

We continue to illustrate with the same guy from (1) .

My best friend asked me how to become wealthy. This is what I told him wPRkP5S

The only difference here is that while he channels 10% of his initial disposable income to  wealth building, he also channel 50% of future disposable income increments (which works out to 1.5% per year) into wealth building to supplement the original 10%.

My best friend asked me how to become wealthy. This is what I told him mfgefAS

Compare to the original $84,000, with the increment yearly  contribution, after 30 years, the wealth fund grew to $330,000.

My best friend asked me how to become wealthy. This is what I told him 8Y4inej

But what if, he makes himself more competent and his salary can grow at a rather much more than the conservative estimate. If we smoothed out his various job hopping and promotions and conservatively estimate a growth rate of 5% instead of 3%,

My best friend asked me how to become wealthy. This is what I told him BuFJfsO

He would have accumulated $594,143 or 80% more than previous.

My best friend asked me how to become wealthy. This is what I told him h2mWCJy

Here in this table, you can observe the supplementation to the original $2,800.

Each salary growth of 2.5% gets added on to next year, which is added on to the next year so essentially your contribution of wealth funding grows

  • Year 1: 2.5%
  • Year 2: 5.0%
  • Year 3: 7.5%

Wealth Funding as a % of Annual Total grew from a modest 10% of combined income to 40%. That is how wealth funding grows.

Side Jobs / Freelancing

My best friend asked me how to become wealthy. This is what I told him 4x00PBr

We illustrate the same guy whose salary growth is 3%, and now, he has grown more enterprising, paying more attention to his interest area and was able to create an additional stream from monetizing it.

This may be challenging to model because this stream might only be temporary and may not be long lasting but lets give it a try.

My best friend asked me how to become wealthy. This is what I told him QTIVnI9

The result at the end of 30 years is rather insignificant, $338,480 versus $330,055 had he not taken it up.

Having this additional stream might harm his time devoted to his job which may be more productive.

On the other hand it might develop to something more than $200 per month. The growth rate might change a lot.

For a person earnings low at the start, you can see he will have more  flexibility with greater spending allocation.

Earning more matters. It increases the amount and flexibility you can devote to wealth building and spending.

3. Build Wealth Wisely

If you spend less and earn more, you will have more money to fund your wealth building.

My best friend asked me how to become wealthy. This is what I told him LbBTydO

Up till now, we are merely discussing about saving, that is, putting the money channelled to building wealth in low risk basic savings.

Savings are low risk and the returns will correspond to the low risk, which tends to be lower.

A person would need to ensure that the wealth he built up do not lose its purchasing power and keeps up with inflation.

This will enable him to build wealth so that he can adequately meet his retirement spending needs.

There are a few ways to build wealth to generate higher returns. Which way you choose depends on:

  1. Risk appetite. How much short term losses can a person take that prevents him to sleep at night?
  2. Acquiring and maintaining a skill to wisely build wealth through that method. This can come from your job, going for courses or scouring the internet for different wealth building methods. E.g. learning the in and outs of purchasing a property and renting it out, understanding the returns, pitfalls, and effort require to be profitable for 30 years
  3. Active or Passive. How much time do you want to spend on building wealth? Do you want to spend more time with family? Different ways of building wealth comes with different time needed to become competent and also  different levels of recurring managing wealth time. (Read building wealth is not as passive as you think)
  4. Your Edge. Whether you have the ability to confidently build up your wealth consistently over time using your wealth building methods. Some people judge their results on a short 5 year basis as having the edge when they could just be lucky and not competence.

My best friend asked me how to become wealthy. This is what I told him HcGUHmu

 

The methods available to build wealth are illustrated above. They are largely classified this way. And different methods comes with their start-up costs, competency required, maintenance of competency & periodic work required.

Without doing enough, failure to grasp behavioural psychology, a person may end up destroying wealth rather than build it.

My best friend asked me how to become wealthy. This is what I told him Ya9qXtM

We go back to the same guy earning the same with a conservative income growth rate.

My best friend asked me how to become wealthy. This is what I told him djOogYb

Everything is the same as the guy illustrated in the example of Earn More, except this time round he puts his wealth fund in a higher yielding asset earning 3%. This could be an insurance endowment or a bond issued from a government linked company.

My best friend asked me how to become wealthy. This is what I told him sAsXlDn

Compare to no growth, after 30 years, wealth becomes greater.

My best friend asked me how to become wealthy. This is what I told him npL0Jhl

Suppose he increases his risks and decides to put his money in a low cost passive portfolio, he has the potential to earn a 6% average return. The potential of wealth build looks higher.

My best friend asked me how to become wealthy. This is what I told him A0Pfidz

If he determines that he has a higher competence in certain areas and takes an active approach to managing wealth, the potential to earn can be closer to 9%.  The potential of wealth build is also higher.

Building wealth by taking different approaches can give you higher growth, but the wealth builder have to take a prudent approach otherwise it will result in more detriment then good result.

What matters most

The formula is simple enough. However, there are many variables that decide  your success.

What matters the most? What is within your control?

Some time ago, John Rekenthaler, head of Morningstar research wrote a piece called What matters the most.

It’s a good read. You may need to create an account to login.

John highlights a company that profiles an average aspiring retiree:

  • 42 years old  employee
  • Makes $40,000 annual
  • Salary grows 3% annually
  • No contribution to company investing account but will contribute 6% of income annually to the company account and the company will match it with 50% of the person’s contribution
  • The company investment is a passive portfolio with a 0.72% expense and looks to gain 7% per year before this cost
  • This person looks to retire at age 67 years old (25 years later)

What course of action will help this person the most to reach his/her goal?

  1. Start early. Find a time machine to go back and start earlier
  2. Higher salary. Get a 25% raise to $50,000 a year
  3. Salary growth. Grow his or her salary at 4% instead of 3%
  4. Increase wealth funding rate. Instead of funding 6% of the annual income, choose to fund 8%
  5. Increase company match. The company willingly increase how much it matches the employee’s contribution rate
  6. Cheaper investment plan. Instead of 0.72% expense, switch to a plan similar but cost 0.22%
  7. Better return fund. Get a fund that yields 8% instead of 7%
  8. Retire later. Wait 2 more years to retire, instead of 67.

So among these which are the ones that he or she have a direct control over?

  • 1 – Choosing when to start investing
  • 4 – Increase funding of wealth building
  • 8 – Retire later
  • Partially 7 – a Better return fund. A better way to look at it is taking a more active approach

They did a study to determine based on this person’s profile, which would help the person more. The result is below:

My best friend asked me how to become wealthy. This is what I told him 1856

The great thing is that the top three are the things that are within the persons control. The surprising thing is that cost (cheaper plan) matters so little, which they attribute to the original plan is relatively not expensive in the first place.

Starting Early

The question here is that there are generally 2 approach to funding wealth:

  1. Cut Spending, Earn More and funnel a high percentage at the start, then spend a higher percentage of subsequent increment
  2. Cut Spending , Earn More and funnel a small percentage at the start, then funnel a higher percentage of subsequent increment

The difficulty for most to do (1) is that cost of living might be high and large spending takes place at the start.  (2) will be more applicable for them.

(1) Work well for singles.

My best friend asked me how to become wealthy. This is what I told him Ya9qXtM

We have the same situation as always.

My best friend asked me how to become wealthy. This is what I told him wwZZ3ot

We simulate the first case where the person save more of his starting disposable income but allocates very little of his increment to wealth building. Only 0.75% of his 3% annually increment goes to funding it.

My best friend asked me how to become wealthy. This is what I told him ZCijpPq

After 30 years, he will build up a wealth of $543,027. Not bad for simply putting this into savings.

His spending starts off 50% of his total disposable income but ends closer to 36%. As time progresses he can increase his spending.

My best friend asked me how to become wealthy. This is what I told him oGSrenj

Case 2 is simulated with the person funding only 20% instead of 50% for the initial year but funding a greater percentage of his increment (2.25% out of 3%) to building wealth

My best friend asked me how to become wealthy. This is what I told him XpIpCFh

The amount funded in at the end of 30 years is $537,000 which is close to case (1) $543,000.

The difference is that spending allocation becomes much more manageable. At the end of 30 years you end up funding MORE than case (1).

So does this mean whichever approach doesn’t matter?

Not quite.

Note that the wealth growth rate is set at 0%.

We know the concept of time value of money means that money over a longer period of time compounds and build wealth with less capital required. (Read Rich Man Poor Man)

And because of that case (1) will build more wealth than (2).

My best friend asked me how to become wealthy. This is what I told him mJQtuoC

My best friend asked me how to become wealthy. This is what I told him TEnoO6z

In the case of top (case (1)), the wealth build is $76,000 more than bottom (case(2))

It make sense to funnel more to build wealth and let compounding work its magic as early as possible. If not, the returns are not shabby as well. Only if its compounded over a longer period. Only then will you see a bigger difference between the 2

Higher wealth funding

Another determinant of wealth built within our control is how much we choose to fund to build wealth.

To fund more, it means we need to earn more and spend less.

My best friend asked me how to become wealthy. This is what I told him 27hJRAG

Here is the result of an initial funding of 10% of disposable income ($2800 fixed for 30 years)

My best friend asked me how to become wealthy. This is what I told him dfM7Juh

Here is the result of an initial funding of 50% of disposable income ($14,000 fixed for 30 years)

My best friend asked me how to become wealthy. This is what I told him izdTpee

There is a lot of focus on getting better Wealth Returns, but in the example above, Vanguard have highlighted that the amount you funnel to wealth building matters more than your wealth returns.

If your savings rate is high, it makes up for not having great returns (10% annual savings increases at 4% wealth returns almost similar to 5% annual savings increases at 8% wealth returns).

The result is very obvious and it shows that if a person were to meet the retirement goals or build greater wealth, he should channel as much as possible to wealth building

A tale of a hard-working person

Having said all, it looks like the formula to put to work is

  1. Spend less and strive to earn more. He will funnel 40% of his initial disposable income of  $3,000 with 2 month’s bonus to building wealth. Subsequently 30% of his annual increment of 3% will go to building wealth.
  2. Learn to build wealth wisely. He decides to quarterly invest in a passive portfolio of stock and bond exchange traded fund, growing his wealth at 4%.
  3. Start early. He decides to start building out of university and will have 30 years till age 55 to build wealth.
  4. Contribute more

My best friend asked me how to become wealthy. This is what I told him kgK6xVL

He would have funded a total of $580,360 to building wealth and with his investing increase this contribution to $1,011,109.

His monthly gross salary would have increased from $3000 to $7069.

What was a 40% contribution out of disposable income slowly went down to 34%.

He will start of having $1680 per month to spend growing to $4338 per month to spend.

This estimation is carried out for one person. When the person gets married, further expenses can be optimize further and income will be likely supplemented if the spouse is also working.

Will $580,000 be enough for financial freedom? How about $1 mil? That is a topic for another day.

A high income earner who hopes to be Financially Independent by 40

So we hear stories, of people who was able to retire in their 30s and are so envious of their situation.

They must have rich parents or high income earner. How close to the truth is that?

Perhaps some have overestimate what is required to retire, but financially independentis a correct phrase for them.

By that, it means that they have acquired wealth that sufficiently provides for their daily needs that they can take up choices in life that are otherwise not possible.

Some folks have worked hard in school, or managed to get into a profession with a high starting starting pay, would he or she be able to be financially independent at a young age?

The premise

In our simulation here, we have the following scenario

  1. Stay single and choose not to get a dwelling
  2. Assuming he is privileged to start off with a high salary relatively. He will funnel 80% of his initial disposable income of  $5,000 with 2 month’s bonus to building wealth.
  3. Subsequently 20% of his annual increment of 3% will go to building wealth.
  4. Learn to build wealth wisely. He decides to quarterly invest in an active portfolio of stock and bond exchange traded fund, growing his wealth at 6%.
  5. Start early. He decides to start building out of university and will have 15 years till age 40 to build wealth.

My best friend asked me how to become wealthy. This is what I told him I9JCxG5

The Result

My best friend asked me how to become wealthy. This is what I told him 1RLxY68

At the end of 15 years, he would have accumulate a portfolio wealth of $1.1 mil. Note that an assumption here is that he would have to build wealth rather wisely.

He funded nearly $45,000 of his first year $56,000 salary. At the end of the 15 years, his wealth funding only increase by $5,000 more.

At this point, with a safe withdrawal rate of 3% per year, he would have $32,654 per annum or $2,737 per month, which will be able to take care of the necessities in life.

3% looks conservative, but if you want the amount to conservatively last through a volatile stock market cycle, you would want a lower withdrawal rate.

Young enough to choose how life goes

What this means is that at 40, this guy is young enough to make a profession decision that will more likely satisfy him.

He could have choose to find love then.

He can choose to start a business with the knowledge he has accumulated up till then.

How can anyone live on $11,200 per year?

A common question readers will have is how can anyone survive on such a low amount per year?

This will work out to $933 per month in expenses.

How one decides to live is a matter of where their values and priorities lie.

Different people have different values and a person like that may be sacrificing much (you can’t earn back time), but that is his or her choice.

$933 is a sum that you can work with, you have to optimize your spending.

And at the end of the 15 years his allocation to spending actually increased to $34,000 per annum.

Summary

We start off with a conservative profile of an average university graduate starting salary with a conservative wage growth.

To be wealthy is simple. The reality is that you have to

  1. Stop giving yourself excuses, take action today and find ways to optimize your spending
  2. Never let go of improving yourself to stay employable, get promoted at work
  3. If you believe in financial freedom, pick up one of the wealth building methods to grow your wealth further
  4. Sacrifice things that hold low value to you to funnel more to build wealth
  5. If you are constraint to not able to fund with a high amount now, commit to use your increment to fund wealth building. I shown that it is a viable route.
  6. The less mistakes you make, the more wealthy you become

There are no lottery here. No gambling. Luck is but a small factor here.

80% of what is  suggested are within your control. It is whether you will do it.

Pick out one area that you need to improve and work on it. Share with me what are the potential problems building wealth this way.

Share this with your friends who you think will benefit from.

Start by using this Wealthy Calculator here (which we use above) to project how much of your income you would like to channel to building wealth today and the wealth build at the end of X years.

After learning the simple way to start building wealth, let me share with you how important it is to make a decision to build wealth >

Grow Wealthy, start Building Wealth, start with the Best Resources section.

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  • LP

    Long but good post. Most of life’s challenges can be met by simply being present. There’s enough people that will give all sorts of reasons not to do it. In this case, just don’t avoid the problem and face it head on instead of giving excuses.

  • http://www.productiveorganizer.com/ Kyith

    Hi Lp, I thought I try to illustrate a bit that most of the main determinants are controllable stuff. There are difficult situations and one have to see if the couple wants that hard enough. Merry Christmas.

  • Pingback: Get Rich: How to Pay Yourself First

  • My 15HWW

    Hi Kyith,
    Enjoyed the various strategies that you have illustrated.
    Most people believe that saving 10% is ealready a huge achievement. However, it’s pretty clear that this is not enough if one wants to accumulate sizable wealth for retirement.
    There are many factors influencing wealth accumulation and I agree with you that it’s best to focus on factors that we have direct control over. Since I definitely do not want to delay “retirement”, it’s really about starting young and channelling a higher % to savings.
    Lastly, a Merry X’mas to you and your family!

  • http://www.productiveorganizer.com/ Kyith

    Have a blessed XMAS.

    I think 10-20% is rather stretching even for some just graduates. the requirements of life is so much that a 50% savings is very difficult.

    Note that because it is possible in the short term its going to be volatile you dont want to touch it. hence the best way is to do 10-20% like $400 and a large amount of your future increment for it.

    Allocate like 1600 for the expenses and wedding prep and all. after all these are settle this will go to the child

  • Singapore Man of Leisure

    Hello Kyith,

    Your writings have become better and better!

    There’s a subtle change I noticed. There’s a mellowness in your writings now. I can still remember a time when you will fly into road rage mode whenever you read something that’s “not you”. LOL!

    I am not sure, but the catalyst seems to be after you start using your real name and picture in this blog. Talk about confidence and self-assuredness!

    I am happy for you.

    Have a Merry Christmas and Super New Year!

  • http://www.productiveorganizer.com/ Kyith

    Hi SMOL, merry XMAS to you as well!

    I think i didn’t change much. The pic and name have been there since 2 years ago, its just that i don’t have to bitch about things haha.

  • MatthiasKauer

    Hi Kyith,
    this is a great post. Thanks for taking the time to write this down.

    Merry Christmas,
    Matthias

  • http://www.productiveorganizer.com/ Kyith

    Hi Matthias Kauer, Merry Christmas to you too

  • http://www.productiveorganizer.com/ Kyith

    Hi Matthias Kauer, Merry Christmas to you too

  • Snoopy168

    Hi Kyith. nice updatd layout & theme for the blog. or was it that ihad not been reading for a while.

    Thanks for timely reminders with the 3 basic advice. Of course, recurring expenses like insurance, mobile phone & internet plans have to be reviewed regularly, for the better deal & requirements. wishing you and all readers, 3H (a Happy & huat holidaysl

  • http://www.productiveorganizer.com/ Kyith

    Hi Snoopy, i changed it not too long ago. was thinking of for sometime but thought its a chore and couldnt get away from writing.

    i guess this is more assuming we can cut down or optimize a fair bit for expense. a lot of cases the guy still have 1.6k disposable income to work with so hope its conservative enough.

  • http://www.productiveorganizer.com/ Kyith

    Hi Snoopy, i changed it not too long ago. was thinking of for sometime but thought its a chore and couldnt get away from writing.

    i guess this is more assuming we can cut down or optimize a fair bit for expense. a lot of cases the guy still have 1.6k disposable income to work with so hope its conservative enough.

  • Low Key Person

    Hi Kyith
    I have just started reading your postings. Thanks for taking the trouble to share. They are good plans. I hope many more will heed your advice.
    regards,
    Low Key Person

  • http://www.productiveorganizer.com/ Kyith

    hi Low Key Person, thanks for visiting. its rather generic that i think it applies not just to locals but other folks as well. its rather immutable. the application of it will depend on individual.

    thats where the Wealthy Calculator is for to play around and understand how different it could have been

  • Low Key Person

    Hi Kyith
    I have decided to add my 2 cents.
    I am in my 50s and happy with my financial planning to date. I would like to share what has worked for me.
    (1) I am a non-graduate and have been working happily in the same Singapore company since graduation. My wife was a full time homemaker till my children were old enough to care for themselves. I was the only incomer earner for almost 20 years.
    (2) We don’t own a car, live in HDB flat (got our second HDB flat few years ago, fully paid for using CPF) surrounded with amenities. My family lives simply and happily with the basic necessities.
    (3) I am a saver but not a Shylock. My family goes on a holiday once a year lasting 7-15 days. This is our only major annual expense.
    (4) I keep track of my Income / Expense and a chart that goes by year showing major future expenses e.g. my children’s education. For each child, I bought $100k education insurance with maturity date at university-age. When my children got into local university instead (and I paid the fees through my CPF), I ploughed the insurance monies into equity market. If all my children go into local university, I can enlarge my investment portfolio even further.
    (5) I am a passive and conservative investor, and started equity investment in my 30s. I am still a novice player and go for dividend yielding shares and have built up a portfolio that gives return in all months except 1 todate. It is as good as having a lifelong job.
    (6) When we hit our limits in using CPF Ordinary funds for equity, my spouse and I topped up our Special accounts with our Ordinary acct funds. We see our Special accts swell over these years.
    (7) We do not touch our Medisave accounts and would rather pay medical bills in cash.
    (8) As my parents / parents in law are retirees receiving monthly CPF payouts, my wife and I top up their CPF retirement accounts annualy instead of giving them monthly allowance so as to get the tax relief.
    (9) I also contribute yearly into SRS since inception, again to get the tax relief. With the SRS monies, I invest in equities. The investment has grown more than twice the sum I put in.
    (10) In summary, we live within our means, never on future money, loan-free, avoid being asset-rich but cash poor. I might have done better by monitoring the market more closely but unfortunately this is not of my interest ( :) ) ). It has turned out well enough for me and my financial state of Nirvana has enhanced my quality of life. I hope my sharing will help others in their planning for it is never too late to plan.

  • http://www.productiveorganizer.com/ Kyith

    Wow, thanks a lot for sharing!

    And perhaps thats how most used to live conservatively. I’m glad i wrote this and brought out such a comment that should give the young guys something to compare to.

    There is a level of margin of safety in the way you life and perhaps most of us should when it comes to decision making.

    How big is the tax relief over time?

  • Low Key Person

    Hi Kyith,

    Your query “How big is the tax relief over time?”
    I had no ready answer and decided to trace back my last 10 years Tax returns.
    In all years, I contributed in full amounts allowable for the cash top up and SRS. Excluding the direct effect of lowering my tax bracket (which would mean even more saving), the ballpark total tax saving was > $20k. Quite a tidy sum :) )

  • http://www.productiveorganizer.com/ Kyith

    Wow thats a really big sum!

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  • Snoopy168

    Low just demonstrated that happy life can be achieved, just watch your impulsive buys and stop comparing with the next door neighbors.

    Perhaps today’s economics requires better dressing instead of 3 Rifles shirts. Heard that my late-father’s fav, CYC @ Bras Basah Rd, is now an atas custom tailor. Not forgetting that must have smart phone & tablet (for the kids mostly). Some, like an ex gf, demanded should we settle down – a maid to do the housework is a must. Not forgetting that status symbol of a car.

  • Snoopy168

    Perhaps a lot of your readers are grads where the starting pay is in the high S$2k+ bracket and up. I started at the bottom, with S$400 as allowance for management trainee, then S$1200 then $1600, then $2200 and then $3500 … and then. Last drawn pay was an expat package with housing and home visit on SQ. Since my semi retirement this June, I am back to taking MRT & Buses, flying Jetstar & Air Asia – yes, I missed my Gold Status with Qatar Airways, who greeted me at every turn, served me fresh milk & spicy food, celebrated my birthday 30,000 ft in the air last year. A few kind words and smile on SQ flight, ensured that my Singapore sling glass is always filled. Doesn’t matter that I am in Economy class. Made friends with the crews too.

    The point is over time, I had learned and adapted to spend within my means. The only credit card I had then , was a sub card from my brother, which is carried only when I am traveling. To fall back to the roots of being humble, is no issue. At least I can proudly say that I don’t have to wait for the next pay cheque. Can the younglings of today, with access to all the experiences and info from the web, learn and adapt accordingly ?

  • Snoopy168

    Perhaps a lot of your readers are grads where the starting pay is in the high S$2k+ bracket and up. I started at the bottom, with S$400 as allowance for management trainee, then S$1200 then $1600, then $2200 and then $3500 … and then. Last drawn pay was an expat package with housing and home visit on SQ. Since my semi retirement this June, I am back to taking MRT & Buses, flying Jetstar & Air Asia – yes, I missed my Gold Status with Qatar Airways, who greeted me at every turn, served me fresh milk & spicy food, celebrated my birthday 30,000 ft in the air last year. A few kind words and smile on SQ flight, ensured that my Singapore sling glass is always filled. Doesn’t matter that I am in Economy class. Made friends with the crews too.

    The point is over time, I had learned and adapted to spend within my means. The only credit card I had then , was a sub card from my brother, which is carried only when I am traveling. To fall back to the roots of being humble, is no issue. At least I can proudly say that I don’t have to wait for the next pay cheque. Can the younglings of today, with access to all the experiences and info from the web, learn and adapt accordingly ?

  • http://www.productiveorganizer.com/ Kyith

    you can have those stuff, but you gotta note that if you want it, you gotta make sure you earn more and find methods for it.

  • http://www.productiveorganizer.com/ Kyith

    perhaps you start off much earlier than us so its rather different when it comes to starting salary. but you made it good. not many do.

  • Snoopy168

    Bro, i am only 10 years ahead of you only lah. Me not CW or some old ginger.

    Bottom line is, have many out there managed own bills (& rent/mortgages) without a handout from their parents ?

    My last “pocket $” was during NS days when I was doing night classes, (dad) paid for my school fees & that NS concession pass, about S$200/mth. All others I pay myself.

    I see my classmates with ipad-carrying kids & maids in the tow. Good luck to them lah. when they turn 24-30, HDB 3 room will be about S$1m. Go figure lah.

    I should be enjoying my Orh Wa Mee Sau in Southern Taiwan.

  • Snoopy168

    Seriously, if I were to ignore the savings & reinvesting / compounding part, I can well afford the car and (i think) club membership. Still, i felt that there is no need to be seen lah. If I have to buy myself a label to say “I got a lolex, therefore me huat big time” then something is definitely wrong with me then.

  • http://www.productiveorganizer.com/ Kyith

    i think that is a large enough difference, the pay 10 years ago of 2.5k at 3% is around 1.8k haha.

    i think taiwan may be a retirement location.

  • http://www.productiveorganizer.com/ Kyith

    your next question to ask is whether you can retire in the next 5 year or to move to semi retirement or do something you like

  • Snoopy168

    Yes. will be back there for 2 weeks in May for a short trip. Thanks to cheap Jetstar tickets.

  • http://www.productiveorganizer.com/ Kyith

    ok do enjoy.

  • Snoopy168

    Have to take that bold step to walk away from the job. While my passive income is nowhere as generous as AK’s, I felt that I should have sufficient to walk away. For a while at least and had been for the past 6 months.

    I will tell you. I am even more busier than when i has at work. Damm, those la kopi & photo shoots & travels & groupons deals buffets really takes up a good chunk of my time. yes, my bucket list is relatively untouched. OoooO, my bad. If I hadn’t a gf here, I will be writing this from Southern Taiwan, in the mid of the cold weather and while eating mango ice.

  • http://www.productiveorganizer.com/ Kyith

    Wow i am a bit confused. it seems you have reached semi-retirement stage in that case congrats. Wish we cab be as such when we are 45.

    Probably not on my puny salary. In any case, here are some good podcast that would challenge what is required in retirement. it is seldom talked about > http://financialmentor.com/category/podcast

  • Snoopy168

    Thanks for the link. Helpful.

    Erm, I am semi retired for the past 6 months. My passive income is nowhere as big as AK’s but it is manageable lah. Just don’t buy a car or get married or have kids. My pocket $ should be able to stretch even further, if I am in places like Thailand and Taiwan.

  • Dan Koh

    Hi Kyith! Thanks for your article! It certainly was very illuminating, especially since it was written by a local for locals! Just a question, I just touched 30 (and just freshly emerged from the debt-pit of ROM – in fact, reading your post on marriage costs was how I stumbled on your blog), and all along I have been purchasing endowment plans and etc.

    After reading your article, I would like to funnel my monies into ETFs. As a beginner, where and how should I begin looking at to buy ETFs?

    Thanks so much! :)

    I look forward to your advice! :)

  • http://www.productiveorganizer.com/ Kyith

    Wow that’s good. When you say semi retired, are you still in your last worked profession or more like ad hoc consultation?

  • http://www.productiveorganizer.com/ Kyith

    Wow that’s good. When you say semi retired, are you still in your last worked profession or more like ad hoc consultation?

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  • How to Buy Stocks

    Hey hey.. what a great post here.. very detailed.. will surely remember what you elaborated here..

  • http://www.productiveorganizer.com/ Kyith

    Hi, you have a name that I thought is more of a spam.

    Hope you benefit from this

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