How to be wealthy - Part 2 (Saving Aggressively)

Definition:

FIRE = Financial Independence, Retire Early
CPF = Central Provident Fund

The first item in the FIRE principle advocates savings 50 to 70% of your savings (yikes!).

In the excellent book “The Richest Man in Babylon” by George S. Clason, the advice from Arkad is to save 10% of your annual income to start building up your wealth. As and when our salaries increase, we can add to the savings goal. The key word here is annual. Should there be a shortfall on certain months due to unforeseen circumstance (life happens), we just top it up so that at the end of the year, the savings reaches 10% of annual income. If there are shortfalls on bad years, we make it up on the good years. But 50% is significantly higher than 10%!

Interestingly, if you live in Singapore, the 50% is not too far-fetched an idea with some help from the government and/or your employer.

Most folks in Singapore who have their CPF deducted automatically from their salary already have 20% saved on a monthly basis - this is a form of forced savings. Thus, the plan is to find out how to save the other 30% and then live on 50% of the salary.

The simplest answer: make a high enough salary so that 50% is more than enough to live. The other way is to budget and reduce expense – see below for more info.

In addition to the 20% that one is forced to be placed into CPF, there is an additional 17% for those age 18-55 which the employer contributes to CPF. So, the total in CPF is actually 20 + 17% = 37%. So the key is save 13% from our take-home pay and we are on your way to hitting 50% of the FIRE goal!

And seriously, 13% is not bad.

We just need to skip that coffee from Starbucks, eat perhaps 2-3 meals from the food court (or company cafeteria) rather than restaurants, more public transport versus taking taxi, use the office gym versus private gym membership, 1-2 less movies per month...pretty achievable, if you really want this.

Continue to Part 3

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Paving the Wei

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