TL;DR – It’s not THAT hard.
There’s a story of a certain Mike Yeo going around new media. He apparently wrote a letter to MP Dr Lam Pin Min seeking some help for his financial situation. He used to work as a regional marketing/sales manager and was earning SGD15,000 a month. He was retrenched in 2015. He managed to join a start-up, where he earned SGD5,000 a month. Unfortunately, the start-up let him go after six months.
Mike then became a taxi driver. He also managed to get real estate agent license. However, it seems like Mike has been spending most of his time driving taxi instead of being a real estate agent. This presumably because he had debts to clear. How much are his debts? About SGD100,000.
From the article, it seems that these debts don’t include his housing mortgage. It’s not clear from the letter how Mike managed to wrack up SGD100,000 of debts. Perhaps someone in Mike’s family has some medical condition which requires huge expense. Or it could be that Mike had been leading a fairly luxurious life. Whichever the case is, Mike’s story doesn’t seem to be an isolated one. We all have friends or have heard of people who spend more than they should, and who don’t plan for rainy days or retirement. Some people spend like the good life, the good job and good pay will never end.
It seems that many Singaporeans are concerned about how they can earn enough for retirement. A survey done in 2014 found that most Singaporeans do not have a financial plan for retirement. With an ageing population, this is certainly something we should be concerned about.
So how can we be rich enough to retire comfortably? I think my parents are great examples of what we can do.
A bit of background. My parents aren’t well educated. Their income is at most close to median, probably slightly lower, than the media income of Singaporeans. Yet, they have enough now to be quite comfortable in their retirement. How did they do it? Here’s how.
Live well within your means
My parents have very simple needs. They prefer eating at home most of the time. And even if they eat out, they prefer hawker centres and coffeeshops. They don’t see the need to drive, so never got a car. They dressed simply. They would invest in good pairs of shoes. Because good shoes mean no backaches. But they would only have two pairs each at any point of time.
Watching television (not even cable) was a good enough way for them to relax. They never saw the need to go on overseas holidays when they were working. Their biggest expenditure was on my brother and I. Other than that, they really didn’t spend a lot.
Did they begrudge their seemingly-spartan lifestyle? Not really. Perhaps they are wired to take pleasure in the simple things in life.
As a result, they were able to…
My parents saved at least 40% of their take-home pay. That’s right. In addition to CPF, my parents saved at least 40% of what they took back at the end of every month. To them, saving isn’t something that happened after spending. Rather, they saved first before they spent. In other words, they were disciplined enough to first put aside 40% of whatever was credited into their bank accounts every month.
Their expenditure was then budgeted based on the remaining 60%. This 60% was used to pay for their mortgage, daily expenses, and everything else that the family needed. Do they then spend all the 60% of their take-home pay? Of course not. They still try to save some of that at the end of every month.
This allowed my parents to…
My parents are super risk-averse. They only invested in fairly safe products and bought shares in companies like Comfort Delgro, SingTel, ST Electronics. They bought insurance. They got annuities. Safe products. The one time they decided to take a risk was in 1998 (or was it 1999?), during the financial crisis.
That was their stroke of luck. Property prices fell quite dramatically then. Not knowing if the property prices would pick up, they decided to buy a condominium apartment. They had to tighten their belts even more while waiting for the apartment to be completed. And they also had to pay for my brother’s education in Australia during that time.
The only way they pulled it off is really because they were and still are able to live well within their means (see first point). After the apartment was completed, they were able to rent it out. The apartment then paid for itself. When my parents sold the apartment last year, they had capital gains of in excess of 30%.
Together with the rent they collected, the insurance they bought, their shares, they can now retire very comfortably. Especially since it takes so little for them to be happy. To them, they see themselves to be very rich. Why? Because the money they have now allows them to live in a way that they find very comfortable.
The lessons I have learnt from my parents are that to be rich doesn’t mean that you need to have more than others. If you can be happy with simple things, then it’s not difficult to be rich.