Picture this. You’re 55 years old and you have just retired from the workforce. That’s great! You have your Central Provident Fund (CPF) that you can withdraw money from and it should probably be enough to last. Having had at least $3,000 a month to spend with your monthly take-home pay, you gain freedom now, but at the same time, lose a stream of income. This could mean no more eating out in fancy restaurants or taking the taxi everytime you travel. Retirement is great, but how prepared are you? Are your savings enough?
All is not lost, yet. Let us back-forward time to your current age. Whether you are a 25-year-old or 40-year-old, it’s time you take note of these five mistakes for your retirement:
Not having a plan
Since you will be working your whole life, and can only start withdrawing money when you are 55, you might think that you have enough in your CPF when you retire to start to travel around the world. Well, 20% of your monthly salary can add up to a lot, but what about your current lifestyle? If your current expenses come up to at least $2,000 per month, are your savings or CPF enough to maintain your current lifestyle throughout your retirement? Or, do you have to downgrade your lifestyle and spend lesser during retirement? These are all factors that you should consider when you plan for your future. A retirement is more than just a border-line retirement. We want a comfortable life. Sometimes a little splurge here and there on our favourite grandchildren, or a specially-designed mattress that conforms closely to our spine to reduce pressure on our sore backs.
So, take into consideration of your current and future expenses and start planning ahead!
Not adhering to a budget
Different people have different ways of saving money. Are you the type, aka “Budget A”, who limits yourself to spending a certain amount of money (i.e. $2,000) monthly, and keeps the remaining in your bank? Or “Budget B” who allocates a fixed amount of money for savings and then the rest for expenses, etc.? While these are useful budgets that you may adhere to, but we would suggest going with “Budget B” – why? Since you are limiting yourself to spend, “Budget B” may sound promising at first. But it may create a problem in the long-run. If you don’t have a clear plan on how much money to allocate to different areas of your life, you might end up spending a lot more than you should, and hence save a lot less.
An example of “Budget A”: Daniel planned to restrict himself from spending more than $2,000 in the December month. All of a sudden, his wife was unfortunately fired from her job and unable to contribute to the household. Having already spent $2,000 on his meals, transportation, outings, kids and household expenses, he realised that he has to fork out another $1,000 to sustain the household. This meant an extra $1,000 out of his savings. That’s not all. Murphy’s Law of “anything that can go wrong will go wrong” came true, surprising him with a burst toilet pipe. Probably another $200 gone? Then, the airlines decided to spring a surprise with extremely attractive prices to his favourite country. Hence, instead of saving the usual $2,000, he ended up maxing out his savings for the month of December.
Meanwhile, “Budget B” works the opposite of “Budget A” and takes into consideration of the different areas in your expenses. In this case, you set aside a minimum amount of $2,000 to your savings. You can do this by transferring $2,000 from your account (the one that you usually use) to another bank account that contains higher interest rate and perhaps, one that is hard to access or withdraw money from. Then, you are left with the remaining, which you allocate to every area (i.e. shopping, transportation, meals). Think you will spend more next month? Decrease the budget for shopping because that new pair of shoes can wait. Realise that one taxi ride can cost you more than $15 a time? Forgo that comfort and take the bus instead.
This way, it forces you to work around the remaining budget you have. To implement this, you may consider using a personal budget app, or create a Microsoft Excel sheet to record your expenses and budget (this may be a little more tedious though).
Not starting early
Just stepped into the wolves’ dens upon graduation and received your first pay cheque? Yes. You. Are. Young. But it also means that it is never too early for you to start planning. Here’s a scenario: Brandon (age 25) landed his first job in the IT industry with a starting salary of $3,500. Be it a sunny or rainy month, he makes sure he sets aside at least $500 every month for his savings. In five years’ time, he can expect a sum of at least $30,000 or more. On the other hand, Nolan (age 30) is working and holds a current salary of $5,000. Due to his upcoming wedding and house, he realised the importance of money and has only recently started saving $500 per month. Hence, in five years’ time, he will save up to $30,000. Both amounts are comparable, but as Brandon started saving earlier when younger, he holds $30,000 more than Nolan.
The older you get, the more commitments you might have to adhere to. So time is the key! No matter your age, you should start as soon as you can.
Not putting savings in the right places
Not a fan of investing in the stock market and would rather to keep your savings in fixed deposits or savings? Well, this can be a safe way to make sure that your savings stay with you throughout. But nflation can erode these savings and eventually lose value over time.
Or, do you prefer taking large risks? Investing in the stock market can promise you great returns, but this is also associated with great losses. Often, news reports may stir your emotions towards your stocks, and cause you to panic if the market is not doing well. Unless you do your homework well, this will require great courage, quick-thinking and effort in order to to gain plenty.
A solution that you might opt for is to have a diversified nest eggs to minimize your loss. This means you spread your money across different types of investment (i.e. stocks, plans, bonds, trusts, etc.) to keep a well-balanced scale between your gains and losses.
After all, the best preparation for tomorrow is doing it today. The same goes for your retirement plan. With today’s preparation, retiring happily can be just a stone’s edge away! Find out the passive income streams that you need for a happy retirement today with our Financial Consultants today: https://gtgroup.sg/contact-us/