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Old 23-11-2015, 08:36 AM
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Default Money Matters

The way to handle the money issue in life is not to ignore it, but to tackle it head on, and as early in your career as possible.

Many financial bloggers (worldwide) have one common goal - to achieve financial independence. Financial independence (FI) is a stage where you no longer have to work for your money. Where your investment incomes are enough to cover your expenses. Many of these bloggers aim to achieve FI before a certain age, usually way before the official retirement age.

The way they go about it is to know exactly what lifestyle they want to lead, the expected expenses for the lifestyle, the investments to put their hard earned money in, the expected ROI and buffers for inflation, medical and other emergencies. Once you have achieved FI, you can truly proclaim money does not matter.

So, what is the "number" required for FI? Here are some numbers for 3 types of lifestyle for a couple with the following conditions: No more loans (housing, car, student etc). No big medical problem.

Basic lifestyle
Housing type - 3/4 room HDB
No car, no maid
No holidays to ANG Moh countries
Monthly expense -$3.5k
Yearly expense - $42k
Now let's see how much capital you would need to generate a passive income of $42k pa. At 5% return, you will need $840k!

Comfortable lifestyle
Housing type - 5/exec/small condo
No car, no maid
Holidays to Ang Moh countries possible
Monthly expense - $5.5k pm
Yearly expense - $66k pa
Capital needed to generate $66k pa at 5% return = $1.32m

Luxurious lifestyle
Housing type - condo/landed
Got car and maid
Holidays to Ang Moh countries 2 x yearly
Monthly expense -$8.5k
Yearly expense - $102k
Capital needed at 5% ROI to generate $102k pa = $2.04m

The capital sums above should not include the value of your home. The above calculations are theoretical of course. It assumes the ability to generate 5% ROI year after year and does not consider inflation! You would also want to put in buffers for emergency expenses.
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