5 Obstacles That May Stop You From Achieving This Financial Goal

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In recent years, the goal of saving $100k by age 30 has gained popularity among young professionals in Singapore. First written by SG Budget Babe in 2015, this financial milestone might seem challenging but is attainable with straightforward strategies, even for those with modest incomes.

Consider a scenario where a 24-year-old fresh graduate earns a monthly salary of $4,000. After contributions to the Central Provident Fund (CPF), their net salary is $3,200. If the individual receives an annual salary increment of $400 for the next six years and commits to saving 25% of their net salary each month, they would accumulate $72,000 by the time they turn 30. This calculation does not factor in bonuses, which, if included, could increase the total savings significantly.

While not a $100k (yet), achieving $72,000 in savings is an impressive milestone. This progress demonstrates that reaching a $100k savings target is quite feasible for those who save diligently.

However, beyond just developing a good saving habit, there are also other obstacles that could prevent us from attaining this goal, or any other savings goals that we set.

#1 Keep Lifestyle Inflation In Check

One of the primary obstacles to reaching our savings goal is often lifestyle inflation. As we earn more, our spending tends to increase as well. However, the problem arises when our spending increases at a rate higher than our income growth, leading to a decrease in the percentage of income we save.

For instance, if we’re used to saving 25% of our net salary and receive a $400 raise, we should increase our monthly savings by at least $100 to maintain the 25% savings rate. But if we find ourselves only saving an additional $50 each month, it indicates that our spending is growing faster than our ability to save.

Over time, even with higher earnings, we might not feel more financially secure. This escalating spending pattern can make it progressively more challenging for us to achieve our saving targets, let alone gain financial independence in the future even when our income increases.

#2 Be Wary Of Big-Ticket Purchases

In addition to managing lifestyle inflation to prevent spending more than we earn, another common obstacle that we may face is the impact of big-ticket purchases. These can range from luxury vacations to purchasing high-end watches and jewellery. Such expenses can quickly amount to five figures and sometimes even require us to take a loan.

We have to be wary of such big-ticket purchases because they can easily derail our savings efforts. For instance, spending $10,000 on a designer handbag or an extravagant holiday could negate a year’s worth of diligent savings.

While some expensive purchases might be unavoidable, like home renovations, wedding expenses or having a child, it’s essential to plan for them carefully. Setting aside additional savings specifically for these purposes, on top of our regular savings goal, is critical. Otherwise, we will find our savings quickly depleted by these costly, one-off purchases.

#3 Not Investing Our Savings

There is a saying that a dollar saved is a dollar earned. However, with inflation, simply saving money isn’t enough. We need to learn how to grow our savings.

Just like how plants, when they are taken care of properly, can grow over time to bear fruits, our savings can likewise grow over time. This can be achieved through investing.

By learning how to invest, we ensure our savings aren’t just left in a bank account earning low interest rates. Rather, they are invested into assets such as equities and fixed income that may give us a higher return that compounds over time.

Consider an example where, at age 24, one invests their annual savings of $9,600 in the Nikko AM Singapore STI ETF (SGX: G3B) (an ETF that seeks to replicate as closely as possible, the performance of the Straits Times Index, which in turn represents the top 30 companies listed on the SGX) and earn a return of 4.82% p.a. (this is based on the actual return of the Nikko AM Singapore STI ETF which is 4.82% per annum over the past 5 years based on the December 2023 Factsheet), the amount would grow to $12,147.64 in 5 years, or a gain of about $2,547 more as compared to leaving the money in a savings account.

Source: NikkoAM STI ETF

Through investing, we not only diligently work and save towards our financial goals but also ensure that our existing savings are actively contributing to help us reaching these objectives more quickly.

Besides the Nikko AM Singapore STI ETF which gives us exposure to Singapore equities, we may also consider investing in other asset classes such as REITs, via the NikkoAM-StraitsTrading Asia ex Japan REIT ETF (SGX: CFA/COI) or bonds, via the ABF Singapore Bond Index Fund (SGX: A35). The advantage of investing in such ETFs is that it gives us broad diversification within the asset class as opposed to investing in a single stock, REIT or bond.

#4 Making Speculative Investments

While investing is essential to growing our savings, it also requires a disciplined approach to be effective.

Unfortunately, many individuals are also tempted by the potential of quick returns offered by speculative investments. Such investments often promise high returns, but this means that they correspondingly come with a much higher level of risk. This risk can stem from market volatility, economic downturns, or just the uncertain nature of the ventures themselves.

Speculative investing might involve trading in volatile stocks, options, cryptocurrencies, or other financial instruments where the chance of significant price swings is high.

While these opportunities can be alluring, especially when we see our friends or people on social media claiming to make high returns, we may also suffer considerable losses quickly if we are not careful.

Instead, opt for steady and sustainable growth over time rather than rapid gains. One approach we can consider is investing a fixed sum of money each month via regular savings plans (RSP).

Offered by multiple banks and brokerage firms in Singapore, including DBS, FSMOne, OCBC, Phillip Securities, and POSB, RSP allows us to invest a fixed sum of money each month in the investment of our choice (e.g. ETFs). All we need to do is put in our RSP order with the bank or brokerage firm we are using, and this would be automatically executed each month on our behalf. This allows us to take a disciplined approach towards investing as we grow our portfolio over time.

Read Also: Why Regular Savings Plans (RSP) Makes Sense If You Are Starting Your Investment Journey In 2024

#5 Not Using Our Year-End Bonuses Effectively

Most of us would usually get a bonus of at least one month a year. While this may be just a small percentage of our annual income, the additional month of income can go a long way if we redirect it to saving and investing, instead of just spending it away for immediate gratification.

Assuming a one-month bonus each year, if one were to save all of the bonus earned each year, it would amount to an additional savings of $24,000. If the bonuses were invested instead, the total amount may be even higher.

In essence, by investing our bonus, we’re not just saving it; we’re putting it to work. This approach may be a more productive use of the bonus, enabling us to build on our existing savings and accelerate our journey each year towards financial milestones such as the $100,000 goal.

Investing means having to be comfortable with taking some risks, as our investments may increase or decrease in value, depending on market conditions and the performance of the assets that we invest in. This is why we need to be informed investors and aim towards building a well-diversified portfolio with a long investment time horizon to ride out the volatility of the financial market.

Read Also: Hongbao Investing: How Much Returns Could You Have Made If You Invested Your Red Packet Monies Since Young

The $100K By 30 Journey

Are you a young professional aiming to build a $100k portfolio by the age of 30?

Whether you’re just embarking on this financial journey or looking for strategies to accelerate your progress, we invite you to an investing seminar on Saturday, 23 March 2024, from 10am to 3pm at the SGX Auditorium.

Organised by NikkoAM in collaboration with SGX and DBS, the event feature a lineup of investment experts ready to share valuable insights. Learn how to kickstart your investment journey with various ETFs available on the SGX, with presentations and panel discussions by professionals from NikkoAM, SGX, and DBS. Additionally, Sara and Aaron Wee from the popular finance TikTok channel, The Weeblings, will discuss the feasibility (and challenges) of accumulating $100k before turning 30.

DollarsAndSense will be at the event with our Managing Editor & Co-Founder Timothy offering his perspective on investment strategies suitable for beginners. If you are a young working adult looking to make your first investment, we are confident that you will find this talk valuable.

There will also be a panel discussion on How To Reach $100k By 30 where Timothy will be joined by Dawn Cher from SG Budget Babe and Gerald Wong, Founder & CEO of Beansprout, to share their experiences and tips.

Admission to the event is free, but space is limited. Register today on the event page to secure your spot. Registration will close once maximum capacity is reached.

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The performance of the ETF’s price on the Singapore Exchange Securities Trading Limited (“SGX-ST”) may be different from the net asset value per unit of the ETF. The ETF may also be suspended or delisted from the SGX-ST. Listing of the units does not guarantee a liquid market for the units. Investors should note that the ETF differs from a typical unit trust and units may only be created or redeemed directly by a participating dealer in large creation or redemption units.

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