Some people are frugal. They spend only to meet the essential expenses and save the remainder of their earnings for the future. They are willing to forgo their current spending and enjoyment - no vacations, search for cheap offers and bargains, take public transport, find inexpensive eating places.
There are many opportunities to leave frugally and still enjoy the pleasures of life. The parks and public spaces are free. Activities and courses in community and sport centers are affordable. Walking is free and good for the body.
As a rule of thumb, you should save 10% to 15% of your earnings and keep it for future needs. After meeting your essential expenses and savings, you can still have a balance for the discretionary spending, such as vacations, branded goods, tuition, entertainment or the pleasures that do cost money.
It is very important to avoid getting into debt, including borrowing on credit cards, that charges a high interest burden. It is already difficult to earn money and set aside savings, yet some people have to pay interest that takes away 10% or more of their earnings!
Do not invest in a property that requires more than 40% of your earnings to service the monthly repayment. Do not buy a car that needs more than 20% of your earnings to meet the monthly repayment. You have other options that should be explored. If you take these loans, you must make sure that your job is secure, as the monthly repayments can be a heavy burden when you are out of a job.
If your spouse is also working, which is now quite common, the above rules should be applied on the combined income.
To recap: as a rule of thumb, save 10% to 15% of your earnings. When you are clear about your financial goals for the future, you can adjust the amount that you need to save.
Tan Kin Lian
5 comments:
Dear Mr. Tan, Very good advice. My plan for my children is for them to stay with me for about 5 years after graduation before getting married and to save 80% of their income in the first 5 years. This is what my parents offer me too for me to accumulate my personal wealth quickly. For a graduate, he should be able to accumulate close to 300k if he does not buy a car. The kid should have about 40k in their saving account when they graduated making up from childhood savings, NS pay, bursary and scholarship and allowances I gave them.
Hi Mr Tan,
Your advice is very true and honest. We should only spend on what is needed and essential.
But if everybody behaves in this way, I think many retail outlets such as restaurants, travel agencies etc can't survive for long.
Though Singapore is becoming more expensive city to live in as each day passes, it is possible to enjoy life within one's affordability. I agree that it is not necessary to own a car as the transport system has improved over the years. Having a car puts more burdens on one's shoulders, like having to pay ERPs , carparks, maintenance, insurance besides repaying the loan for the car.
If only life insurance and investment products can be bought off the shelves in the supermarket and the buyers are savvy enough to make the purchase, there won't be any problem.
The problem lies with having a human being in between the product and the buyer. It is good or bad.
It is bad if the human is greedy, dishonest and not competent.
It is good if the human is honest and competent and the advice not motivated by the commission but by the interest of the customers.
So to obtain a fair dealing honesty and competence are important and no commission.
Commission causes facts to be distorted and truth taking the back seat.
To deal with the situation MAS MUST deal with commission which is the evil and the cause of all mis-selling and unethical practices.
Honesty and competence are already required by FAA fit and proper provision and it only needs to be enforced stringently and seriously.
It looks like commission must be eliminated and replaced by a fairer model. What about FEES?
Teach your children Money Management
http://news.bbc.co.uk/cbbcnews/hi/newsid_1840000/newsid_1846400/1846486.stm
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