Friday 10 July 2015

How I hoarded $20k in 9 months

9 months is a significant milestone for many, from the birth of a beautiful baby from conception to the faces of proud officer cadets in the passing out parade after months of tough training. 

It is of no exception for me, as I have managed to save $20k of savings from my salary alone over the same period. This is excluding CPF contributions, allowances to parents, contributions to the company stock plan as well as miscellaneous spending.

For better understanding, many would ask what my current salary is, given it is the main contributor to my savings at the moment. As a fresh graduate of almost a year into my working life, I am considered to be an average wage earner amongst my peers, getting about $2k after accounting for CPF, stock plan contributions and allowances to parents.

So in 9 months, simple maths would mean that I had managed to save about $2.2k per month. Now, that is funny you might say, how was I able to save even more than how much I take home from my day job? And to add to that, I have not even accounted for miscellaneous spending, which would result in me saving slightly less than $2k per month.

First, the year end small bonus did help a little, but that only added about $1k to overall savings, after the pro rated adjustment as I started work only from the second half of the year onwards.

Second, I was able to limit miscellaneous spending, partly because I am not seeing someone currently, and that helps me to save a fair bit. Spending at lavish restaurants and clothes are basically limited to only moments that call for celebrations and limited by necessity respectively. I am currently living with my parents so that cuts down on a major cost, i.e. rental and that also takes care of utility bills and dining options. The next bigger expenditure would be lunches during workdays, which I have always brought my own lunch to work wherever possible. Same goes with my breakfast, eating a simple bread and spread suits me better than having an oiler alternative in my company in-house canteen. On days without home-cooked lunches, spending at the in-house canteen is relatively cheaper, limited to $3, as compared to my peers working in town, where prices of food range from $4-5 to the high tens.

Third, where we put our money to work provides an invisible helping hand to our finances. We might not think that the income is substantial, but do not underestimate the power of compounding returns. Do refer to my previous post on the power of compounding for more information.

Where we put our money would depend on which gives us the biggest bang for our buck. On the back of miserable interest rates provided by bank saving accounts, it may seem a daunting task to get higher returns for our money. Fortunately, OCBC's 360 account had provided me with probably the best solution so far. Most of my idle cash is currently with OCBC, where I feel is the best interest paying account for my situation at the moment. Do refer to this post for more information.

It has been less than a year with OCBC360, but it has been largely rewarding so far. It has been providing very good returns for the almost no risk taken. Seriously, where can we get that kind of deal? It has been so significant that I found myself considering whether the opportunity cost of taking funds out of the account to invest into certain counters for a potentially higher return, BUT this involves taking substantially larger risk!

Fourth, my investments has helped to play a role in providing some spare cash to cover for much of my expenses. I would consider myself lucky to have my strategies working out so far, and am currently reviewing all strategies as I go along. However, the risk aversion in markets currently is a tricky environment to navigate and I think there has to be a greater consideration for risk management has to be part of my future strategies.

And there you have it, this was how I did it. It requires quite a bit of discipline and patience, but delaying instant gratification would definitely provide for a stronger platform to grow your wealth much significantly in future when the power of compounding kicks in. If Dividend Simpleton can do it, so can you!

1 comment:

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