Become rich on S$10 a day

While it might seem like saving just S$10 a day wouldn’t add up to much over time, the results are actually quite dramatic. By saving S$10 per day for 30 years, for example, you can end up with more than a quarter million dollars if your savings earn 5 per cent per year. Save for another 10 years, and you can have nearly half a million dollars.

SAVING A LITTLE MAKES A BIG DIFFERENCE

Saving a relatively small amount every day can indeed provide a tidy sum that will give you a comfortable retirement. And the majority of your savings will actually come from investment income rather than from the part of your salary you set aside. While you’ll have put in S$109,500 over 30 years, you would also accumulate nearly S$150,000 from your investment income.

The reason you’ll end up with so much is the power of compounding. Saving S$10 a day means that you’ll have S$3,650 by the end of the first year. Earn 5 per cent on that amount and you’ll have about an extra S$182 the next year. The year after that, you’ll earn investment income both on your original S$3,650 and also on that S$182, meaning that your money will “compound” into ever-larger savings. That compounding effect continues and grows for as long as you save.

Even if S$10 is too much and you save S$5 a day, about the cost of a fancy latte, you can still end up with nearly a quarter million dollars by the time you retire, if you start saving early.

The result of saving small amounts every day, then, can be a large sum available for your children’s education, your retirement or other goals.

The benefits of this saving go beyond simply having enough money for future needs. Studies show that modelling good practices for saving means that your children are more likely to save for their own financial future, according to the United States Consumer Financial Protection Bureau. Your savings can, then, help your children have a more secure future too.

Saving can also build your confidence about your future. Research by AXA Insurance in the United Kingdom showed that committing to regular active saving towards retirement is a significant factor in levels of confidence about the future. AXA managing director Simon Smallcombe said that “contrary to what you would expect, wealth in and of itself is not the key driver of confidence in your future retirement. Instead, regular and active saving is more important.”

HOW TO SAVE

To accumulate the funds and gain the extra benefits, you’ll need to save regularly and invest it so your money can grow. Although finding S$10 a day may seem challenging, there are actually many ways to make saving easier and more affordable.

One is to pay yourself first. Westpac Bank suggests setting up automatic withdrawals from your account rather than putting money into an account or a cookie jar every day. “Money you don’t see is money you don’t miss,” the Bank found in its research, “so you have to set up direct debits. Make it so it doesn’t require a conscious decision or some form of human interaction.”

Another is to analyse your spending and figure out where your money is going. Start by logging every expense every day, from bus fare and lunch to groceries and electricity bills. Then, analyse how you’re using your money. Author Andrew Hallam writes that “after doing this for a couple of months, most people are amazed at how much money they’re spending. And because they write it down, they start feeling accountable; they start cutting back by differentiating between their wants, their needs and their wastes.” Once you know where you’re spending, you can change your habits, spend less and save more.

Singapore’s POSB also suggests going through your regular habits, such as channel viewing subscriptions and letting go of some premium channels if you don’t watch them often, downgrading to a lower-cost phone plan, or cooking at home more often rather than eating out.

You could also look at new opportunities to develop a side income by parlaying your skills in writing smartphone apps, cooking or other hobbies into cash. You can advertise your home-cooked food on Hcook, your pet-sitting or app-writing services on Locanto, or do something else, and bring in extra income.

Reviewing your finances and paying down debt can save on interest payments, too. If you owe S$1,000 on your credit card at 28 per cent interest per year, you’ll save more than S$20 per month by paying off the bill.

Along with starting to save that S$10 a day, investing well is also essential. Rather than putting the money into a savings accounts paying less than 1 per cent per year, it’s important to invest the funds. Options range from automatic exchanged-traded fund (ETF) investments at a number of banks to selecting shares or bonds, as On the Money has highlighted previously.

START SAVING

Whether S$10 a day is too much, or you find that you can save a little more, it’s important to start saving. By making daily savings part of your lifestyle, you’ll build your confidence, increase your wealth, and be prepared for a far more comfortable future.