Here's the 10% savings scenario:
Take home pay $2000 at age 24, save 10% and have $24,000 at age 34
Take home pay $3000 at age 24, save 10% and have $36,000 at age 34
That doesn't seem like your money is growing fast enough isn't it?
What if we bump up the savings to 50%?
Here's the 50% savings scenario:
Take home pay $2000 at age 24, save 50% and have $120,000 at age 34
Take home pay $3000 at age 24, save 50% and have $180,000 at age 34
A 6 figure savings is not difficult if we save 50% of our take home pay. That is assuming that we take home about 2k-3k per month which is on average what most of us would be getting. If your pay is higher, that's good news for you. If it is lower, you may want to consider upgrading your skills to increase your pay.
Before you say its difficult to save 50% of your salary, here are some ways which will make it easier:
1. Record your expenses daily
Why record your expenses? The primarily reason is you will see where your money goes to when you review it at the end of the month. This will allow you to cut down on the unnecessary stuff in your life. It'll also allow you to tweak some of your expenses and use creative ways to reduce wastage. Recording your expenses everyday seems like a difficult task to do but with mobile apps now, it is much easier. You just have to key in at the end of the day in your phone while you're on your way home.
I personally use an app called expense manager. It's easy to use and you can set your salary to be automatically input in every month.
2. Set up an automatic savings plan
Saving money need not be done manually. I've wrote a few times on setting up an automatic fund transfer to transfer out a portion of your salary once its credited into your bank account.
Here are the steps to do it (For POSB accounts):
If you've not set up any bank accounts payee to be linked to your existing account yet, start with step 1 below. If not, you can go straight to step 2.
Step 1
Add a new payee to be linked to your existing account.
When you log in, you'll see fund transfer at the left hand side of the page. Go to Funds Transfer -> Manage Payee List and Settings.
Then, select either Add new DBS/POSB payee if you're going to transfer to another DBS/POSB account or Add New Other Bank Payee if you're going to transfer to an account in another bank.
Step 2
After you're done with the add new payee, on the left side bar, go to Standing Instruction: Manage Instructions & Settings.
Follow the instructions and select your debiting account and beneficiary's account. Type in the date you want it to be deducted (ideally 1 day after your salary is paid to you). Under the standing instructions, select the frequency of payment to monthly.
There you go, 2 easy steps and your money will be automatically transferred out as savings for you every month.
For other banks, I suppose you have to add new payee and set up standing instructions also. Shouldn't be that much of a difference.
The good thing about setting up this automatic fund transfer is you can just spend all your money in this bank account without worrying about having no savings at the end of the month. Just remember not to touch the money in the other bank account which you had transferred to.
Not Just Cutting Expenses but Increasing Income
Saving money is important. It is a good habit to have. However, there's a limit to cutting down our expenses. If you're alone and living a pauper life, probably nobody would care about you. But if you got a family with your spouse and kids, or you need to go out for dates, there is a need to spend a certain amount of money. There is some reality we have to face here. In the next round of readers' challenge, look out for ways to increase your income. Stay Tune!
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