Tan Kin Lian's Blog: Advice to the young - save 15% of your earnings

Saturday, July 19, 2008

Advice to the young - save 15% of your earnings

I gave an advice to young people - to save 15% of your earnings. Someone commented that this is not possible. Young people do not earn enough, and will find it difficult to save 15%.

I believe that this goal is possible, and here are my reasons. Many young people stay with their parents and do not have to pay for housing and other expenses. Due to their low expenses, they can have savings, if they wish to.

Their priorities should be:
1. Essential expenses for travelling and food
2. Contribute a monthly allownane for household expenses
3. Repay their education loan
4. Set aside money for their savings
5. Use the remainder for other expenses, such as luxury items and holidays.

If they save now, the can use their savings for future expenses. They do not have to take a consumer loan and pay a high interest rate. By avoiding interest payment, they have more money to save and spend.

8 comments:

Crazy Aries said...: it still depend on how much you earn. For example, I'm 30, single, earning $2k/mth after CPF deduction.

after my expenses for travelling and food, monthly allowance for household expenses & my insurance. I manage to save close to 30% of my saving.; July 19, 2008 2:18 PM
Yong Kiat said...: Actually, for a single young person earning more than S$ 1,500 monthly, they can actually save 40% of their gross monthly income.

http://ykbean.multiply.com/journal/item/63/Lifeissues_Nov_06_-_Mid-20s_issues_Part_2

"For a single who have just started work and earning a gross salary $1,500 or more monthly, one should do the following five 20% rule.

20% of your income to Contribute to your Central Provident Fund (CPF). Your employer will contribute another 14.5% to your CPF if you are employed. Rates are for those before 50 years old.

20% of your income to Long term savings, for example, Retirement.

20% of your income to Short and mid term savings, for example, shopping for product and services, vacations, further studies, degree and courses, wedding, paying for loans etc.

20% of your income to Personal Expenses, for example, meals, transport cost, term insurance and bills like hand phone and broadband Internet access.

20% of your income for Family Commitment and other purposes, for example, parent allowance."; July 19, 2008 3:11 PM
David said...: If take home pay is at least $1K pm, should be comfortably sufficient for 1 person and with 15% saving, provided:
1. no smoking, drinking, gambling.
2. no loans to repay (except bills & utilities)
3. no chronic illness that need regular treatment.
3. no need to support others
4. weekend entertainment <$100.
5. no car, of course.
I think most young working people take home pay >$1000 pm or even much more. But very few can satisfy, by choice or otherwise, all or most of the above.
Hence depending on the severity of the above, it's a fact that many, and not just young people, will find it difficult to save.; July 19, 2008 3:23 PM
Yong Kiat said...: My comments on spending S$ 300 as monthly expenses is too little:

"If you think that spending S$ 300 / month is totally no life, then you have to earn more, do more overtime, work hard, upgrade yourself, prove your worth, so that your personal expenses could be more.

S$ 300 / month is the minimum to survive in Singapore for a single and stay with his parents.
Staying with parents than living out your own save lot of cost. Yes, it is totally no life, but it is a wake up call for you to strive and earn more.

If you have a engineering diploma, try to get jobs that work in night shift and lots of overtime, you are likely to earn more than S$ 2,000 monthly, with some S$ 2,500 or more monthly.

With this income, your personal expenses could be more, and you are able to give more to your parents.

If you are 20 and wants to have at least S$ 500 monthly income when you retire at today dollars, when you are age 60 at year 2048, you need at least S$ 1,631 at only 3% inflation each year (The amount is much more with around 6% inflation today)

From age 60 to 80 years old, you need at least S$ 525,913 for your retirement fund at only 3% inflation each year.

For that, you need to save at least S$ 1,096 per month, for your 40 years of your working life from age 20 to 60. This amount is provided that you just save and put inside your piggy bank.

You need to save at least S$ 345 per month, if you put in unit trusts and it have a net return of 5% compound yearly returns for 40 years.

You need to save at least S$ 891 per month, if you put in Fairpriceplus Super Account and it have a net return of 1% compound yearly returns for 40 years.

S$ 345 is more than 20% of your monthly income of S$ 1,500, which I mentioned put in long term savings."

http://forums.hardwarezone.com.sg/showthread.php?p=29574811#post29574811; July 19, 2008 3:32 PM
nhyone said...: How much are the "young people" earning? Are they poly grads? Uni grads?

It's not just that young people do not earn enough, but they also want everything now.

It's usual to scale your living up with increased pay, so it'll never be enough.

It requires discipline and some sacrifice to limit your expenses.; July 19, 2008 11:27 PM
zhummmeng said...: Remember, please Don't use a wholelife or an endowment plan to save your money.
All that you will hear from insurance salesmen are rubbish. Use the 'buy term and invest the rest' formula and I guarantee that your financial life will be better.
Read my posting on wholelife below and you will understand why WL is a lame vehicle to use for protection and saving. ( see MAS website for statistics)
Don't be like many of us who were ignorant, naive and innocent and became victims of glib tongue insurance salesmen. We are now shackled for a life time , helpless in the face of schizophrenic insurers who do whatever they like.
Get help from a qualified adviser . Test of a qualified and one who has your interest at heart is one who WILL NOT SELL and push YOU A WHOELIFE but one who looks into your financial circumstances first before prescribing you the solution. In other words products are known only after an analysis .
Beware of those glib tongue product pushers and traffickers at roadshows. Hold on to your saving tigthly and don't LOSE it so easily to the salesmen and women.
ALL insurance salesmen and women are unethical and have no conscience at all. Your pets are more grateful.; July 20, 2008 1:48 PM
nhyone said...: Let's not be too negative.

Who hasn't been "fleeced" before? What is more important is to learn from it and move on.

As a saying goes, fool me once, shame on you. Fool me twice, shame on me.; July 20, 2008 8:55 PM
Yong Kiat said...: If the person is earning S$ 1,500 monthly, then his personal expenses should be S$ 300.

This is how you spend your S$ 300:

a) Transport: S$ 100
Make use of SBS Transit maximum fare cap of S$ 1.90
You take a maximum of 4 bus trips with a 2 hour time frame
This is enough for 52 such trips, enough for those working on a 5-1/2 to 6 day week.
If you don't work on that day, don't take transport at all.

b) Lunch meals: S$ 60
Eat only S$ 2.00 to S$ 2.50 hawker centre/coffeeshop/canteen meals.
Don't buy any drinks.
This is enough for 24 S$ 2.50 meals, enough for those working on a 5-1/2 to 6 day week.
If you don't work on that day or having a half day work, eat at home.

c) Broadband Internet access: $ 30
Chose the cheapest available broadband internet plans

d) Mobile plans: S$ 25
Chose the cheapest available free incoming call plans:

e) Insurance: S$ 45 (Not more than 5% of your monthly income)
(Below rates is for 25 years non-smoking male)

i) Hospitalisation & Surgery (H & S): S$ 30 / year - Medishield (Use CPF - Medisave)
(or Private Medical Insurance Scheme (PMIS) or Private Shield Plan (Use CPF - Medisave))

ii) Disability Income Policy: About S$ 20+ / month for benefit S$ 1,150/month (75% of your monthly income) up to age 60 with 3% escalation / 6 months deferred period
Aviva
Great Eastern

iii) Term Policy:
S$ 25.60 /month for sum assured of S$ 200,000 till age 65 (10 years of his income)
Aviva-SAF Group Term Life Insurance scheme

You have S$ 40 /month for others.

http://forums.hardwarezone.com.sg/showthread.php?p=29543337#post29543337; July 21, 2008 8:29 AM