๐“๐‡๐„ ๐“๐‘๐”๐“๐‡ ๐€๐๐Ž๐”๐“ ๐๐”๐ˆ๐‹๐ƒ๐ˆ๐๐† and protecting our ๐‘๐„๐’๐„๐‘๐•๐„๐’

Many of you may have read and heard about how Singapore was able to to dip into her reserves to fund for the protracted Covid-19 war.

So, people would have thought that โ€œreservesโ€ are savings meant to be used for a rainy day. Perhaps โ€œreservesโ€ act as a piggy bank that is to be broken, so as to help us during times of need.

But in reality, what Singapore really does, is to allow her citizens to โ€œLIVE OFF INVESTINGโ€.

To Live off Investing?

What does this mean to us? Can we apply this concept to our own personal finance?

Letโ€™s say, after having worked for about 7 to 10 years, and keeping to a savings ratio of 30% of your initial monthly $3,000 income, you now have cash reserves of $50,000. Not an easy feat, but with much prudence, you managed to do so.

  • I have a friend who forced saved 50% of his salary since Cadet Days for nearly 10 years!

Your salary has now increased to about $6,000

At this stage, you spend about $2k monthly.

๐Ÿ’ฐ Your Savings (Reserves): $50,000

๐Ÿฑโ›ท๐ŸŽก Your Annual Expenses: $25,000

๐Ÿ—“ Survival Duration:

$50,000 / ($25,000 / 12) = 24 months

But, what if your expenses increases? Letโ€™s take a look at this next example.

๐Ÿ’ฐ Your Savings (Reserves): $50,000

๐Ÿฑโ›ท๐ŸŽกYour Annual Expenses: $100,000

๐Ÿ—“ Survival Duration:

$50,000 / ($100,000 / 12) = 6 months

An increase in your annual expenses, will no doubt lower your survival duration.

So, in order to maintain the same safety net of 2 years, you have to increase your reserves up to $200,000!

$200,000 / ($100,000 / 12) = 24 months

WHAT THIS MEANS TO YOU

First of all, you have to understand that this reserve is the very seed money that youโ€™d set aside for your investments.

  • And you were able to build up the reserves because you stuck to an original 30% savings ratio for nearly 7 to 10 years.

Secondly, you need to look into enhancing your streams of income to ensure more contribution to your reserves. You can think of it as finding ways to increase your โ€œrevenueโ€.

  • Forcing yourself to increase your percentage of savings towards your reserve
  • To get promoted and get a higher pay so that you can channel more money to reserves
  • To work in a job / career whereby your salary is not limited
  • To work on other sidelines so as to have more income streams

Thirdly, you need to look into asset classes that can yield the returns on your reserves higher than the current inflation rate.

  • Essentially getting your reserves to work harder!

IN SUMMARY

When you progress in life, you need to increase your cash reserves. So it is with Singapore. The strategies and plans for our reserves to grow must be planned for and executed well.

Otherwise, we will really throw away the wealth built by previous generations, within our childrenโ€™s generation.

#MARKofLeaders #XmarksTheSpot #WealthNuggetsWednesdays

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