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Monday, 18 January 2010

Good post by CNA forummer on getting rich

Courtesy of CNA Forummer: bhsh

What the magic number? I understand that it will be different for everyone depending on the lifestyle they would like to maintain so this is my take on how much and how to get there assuming you start from ZERO ie no help from parents.

Rule Number 1, Savings will not get you there.
at an interest rate of 1.00%, it will take you 40 years to get the final Amount of $1,000,000 if you set aside a mthly saving $1695 (a bit tough for the early years).

Rule Number 2, Start early.
From the time you start working, you'll need to start saving cash for the initial capital for your investments and keep the CPF for your first HDB. Always start with a HDB(not the $700k ones), it's your entitlement as a citizen.

Rule Number 3, If you are getting married, do it early and stay married.
One of the conditions for getting a HDB is to be married and a new HDB is almost a sure way to make some money that will come in handy for your investments. Staying married will ensure you do not lose half of what you have and end up paying alimony or child support and screwing up someone else's life and your own. Starting a family early also ensure that you have the energy and drive to make it work, imagine having a kid at 40 would mean that you cannot retire till 65. Child support does not end when they leave school, trust me.

Rule Number 4, Don't over insure.
Insurance is a good way to protect yourself and your love ones and is a responsible way of ensuring that they have something to fall back on if something goes wrong. I would suggest term insurance at various stages of life ie. getting married, when the children arrives, buying a property and also a medical insurance in case you don't die.

Rule Number 5, Stay invested and and persevere
Dollar averaging and compounded interest are the magic words that you should keep in mind. It doesn't matter how much you start with or when you enter the market, the end result is pretty much the same.

Rule Number 6, Don't F@#K around with your own roof
Sell high and buy high, sell low and buy low. Chances are that if you switch property you will end up with a higher loan unless you are ready to seriously downgrade. Your chance of making some money would come with your second property, start with a small private collecting rental and hope one day it will be enbloced and in the meantime someone is paying your loan for you or worst case they will be paying the interest while you pay for the principal, think of it as a forced savings.

Rule Number 6, Live within your means.
Credit cards are a necessary evil, if managed wise it will give you flexibilities and 1 month of free interest on your spending and also points to redeem and discounts on necessities. GIRO so that you will not incur late charges and interest.

Rule Number 7, Stay healthy.
Staying healthy would ensure that you'll be able to work and earn. Also you would not waste money on medical and also save on the undesirables ie a packet of cig cost 11+, think in terms of the savings that you would have in a year.

This is a rough timeline of how all these should happen

20's-30's Accumulation of capital, save and speculate a little bit, you can afford the risk at this stage. live with your parents and aim to settle down by 30 with a HDB and start procreating.

30's-40's You are in the stage of life when your career is moving forward, so more money for savings and investments(not speculation). midway to the 40's you'll probably change house due to the need for more space or children's education(nearer to the choice primary schools). This will be your first break, MAX out the loan on your second HDB(still HDB, the ruling here is that you cannot remortgage you HDB for a higher loan ie. take out cash even if your valuation has gone up a lot). Together with the saving, investments returns and cash out from the sale of your first house, start looking for your second property.

40's-50's By now you would be at breakeven point, that means that you should be worth as much dead(insurance payout) as you are alive(investments). If job security is not a problem, you can start looking for your dream private home while keeping the second property for investments. More conservative ones would look at a bigger, better location HDB and prepare for the second private property.

50's-60's Investments should focus on dividends rather than speculative gains, now is the time you don't want to blow away your retirement funds, there are good companies that will give 4-6 percent return and hold pretty steady prices in crisis, slowly accumulate these stock to supplement your retirement fund.

60's-70's About time to call it a day. Your income would come partly (40-50%) from rentals(more inflation proof), 30-40% from dividends, and the rest from savings and FDs. This way you'll have the flexibility to cash out from the property or stock market during your retirement for special occasion while still make your funds work for you.

So what's the MAGIC number? a million$ today returning 4% and drawing $5000 a month will last you 26 years till you run dry(life expectancy 85) of course inflation would eat some of it along the way. So roughly, $2500 from your rental returns, $2000 from your dividend/bonds(not Hi Note) and $500 form FDs and a bit of punting. at the end of it you'll still be able to leave you house and rental property to your childrens so they won't start at ZERO.

single income, met objectives at 42, now just waiting to double it.

2 comments:

Health-news said...

Thanks for the posting.

Anonymous said...

theres two rule number 6's.

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