Why Is Your First $100,000 So Important?
Nothing beats the feeling of having a six-figure sum in your bank account for a start (you can work towards a seven-figure one from there).
HereĀ are 3 good reasons:
- Practical: This is around 1/4 of what you need for any Singaporean financial life of around $397,056 (HDB, Marriage, Renovation, First Kid etc.) This also gives you your emergency funds buffer
- Motivational:Ā This gives you a target to work towards thus more motivation to move beyond $100K.
- Habitual:Ā Your lifestyle and habits would have been tilted towards a more financially savvy one. This includes higher saving rates, better budgeting strategies or regular investment set up
TL;DR: Your Strategy To Reach Your First $100K
- Understand your Timeframe: If you know what time period are aiming towards (eg. 5 years, 4 years or 3 years) and subsequently which financial products you need
- Understand Risk and Return: DIY or Active Funds may give one higher returns, but you will have to consider the risk appetite and investment knowledge before investing in them
- If you choose a deposit account at 0.5% return p.a: It willĀ be challenging to hit $100,000 just by savings alone as you will need over $1,700 monthly
- If you invest in a certain ETF at 6% return p.a (based on the past result, of course): You can hit $100,000 in 5 years with $1,400 of channelling to investments
Do note that we are now in the middle of a pandemic, and the returns after, can be unpredictable.
Common Investment Products in Singapore
We are constantly looking for ways to beat inflation.
In the current climate, we can either turn to cash management account, Robo-advisors, or build our own portfolio to do so. The return you wish to get from your various methods can affect the action you take next, to save up your first $100,000.
There are also investment platforms that you can invest fixed monthly savings with little money.
How Much Do You Need To Set Aside Each Month To Reach Your First $100k?
To break it down into how much you need to save each month to achieve your target within certain years, we lay out two assumptions:
- One saves/invest a fixed amount every month
- Constant annual returns % per annum with interest compounded yearly
As mentioned, we peg returns % to various financial products which Singaporeans are more familiar with!
We also take into account the amount of savings you have right now.
To Save $100k in 3 Years:
| Yearly Interest (p.a) | How much to set aside each month? | ||
|---|---|---|---|
| Initial Savings: $0 | Initial Savings: $10,000 | Initial Savings: $50,000 | |
| 0.5% (eg. Deposit Account) | $2,757.58 | $2,477.66 | $1,358.00 |
| 0.9% (eg. Singapore Savings Bond) | $2,739.43 | $2,457.10 | $1,332.24 |
| 2.0% (eg. Cash management accounts) | $2,697.59 | $2,411.32 | $1,266.24 |
| 2.5% (eg. Cash management accounts) | $2,677.80 | $2,389.43 | $1,235.95 |
| 6.0% (DIY) | $2,542.19 | $2,239.41 | $1,028.30 |
| 8.0% (DIY) | $2,466.97 | $2,156.20 | $913.13 |
| 10.0% (DIY) | $2,393.39 | $2,074.83 | $800.59 |
To Save $100k in 4 Years:
| Yearly Interest (p.a) | How much to set aside each month? | ||
|---|---|---|---|
| Initial Savings: $0 | Initial Savings: $10,000 | Initial Savings: $50,000 | |
| 0.5% (eg. Deposit Account) | $2,063.00 | $1,852.55 | $1,010.72 |
| 0.9% (eg. Singapore Savings Bond) | $2,045.31 | $1,833.28 | $985.18 |
| 2.0% (eg. Cash management accounts) | $2,002.85 | $1,786.05 | $918.87 |
| 2.5% (eg. Cash management accounts) | $1,983.07 | $1,764.18 | $888.60 |
| 6.0% (DIY) | $1,848.50 | $1,615.13 | $681.66 |
| 8.0% (DIY) | $1,774.63 | $1,533.19 | $567.45 |
| 10.0% (DIY) | $1,702.93 | $1,453.60 | $456.30 |
To Save $100k in 5 Years:
| Yearly Interest (p.a) | How much to set aside each month? | ||
|---|---|---|---|
| Initial Savings: $0 | Initial Savings: $10,000 | Initial Savings: $50,000 | |
| 0.5% (eg. Deposit Account) | $1,646.27 | $1,477.48 | $802.35 |
| 0.9% (eg. Singapore Savings Bond) | $1,628.85 | $1458.47 | $776.96 |
| 2.0% (eg. Cash management accounts) | $1,586.11 | $1,410.99 | $710.51 |
| 2.5% (eg. Cash management accounts) | $1,566.40 | $1,389.18 | $680.28 |
| 6.0% (DIY) | $1,433.28 | $1,241.47 | $474.25 |
| 8.0% (DIY) | $1,360.97 | $1,161.00 | $361.12 |
| 10.0% (DIY) | $1,291.37 | $1,083.39 | $251.49 |
Further Reading: A Median Singaporean
The median salary for Singaporeans is $4,437 indicating a take-home pay of $3,792.Ā Again this situation varies from case to case and also based on prudence to manage and invest his/her own funds.
Is It Possible To Save $100k in Less Than 5 Years?
Assumptions Taken:
- Starting withĀ $0 savings
- Looking at a 2% annual return
- Aims to save $100K in 5 years
Yes, it can be done!
As seen from the table above, this can be attained by setting aside $1,586.11 each month into the Singapore Savings Bonds, leaving him with $1,213.89. Assuming a young working adult with little commitment, the amount is potentially attainable.
The calculation above also DID NOT take into account:
- Possible year-end and performance bonus
- Any possible IPPT award money (for guys) or possible GST Voucher
- Possible pay increments over the years
All the above factors can help one increase the possibility of reaching his $100K milestone.
