Filed under: Financial Planning | Tags: Financial Freedom, Financial Planning
How to gain financial freedom in Singapore? When i ask my friend about financial freedom, they will usually said what! how to gain financial freedom in singapore! We have to work, pay loan and don’t think have enough money for retirement. Most of them does not do financial planning.
The first tip is to start planning as early as possible. The earlier you plan, the better chance to gain financial freedom. For myself, I only start financial planing when i am about age 33. The problem with me i that i felt that i do not have the money and how do i do financial planning. I had the wrong mindset initially. I know start financial when i know the power of compound interest. So start financial planning as early as possible.
The power of Compounding
Example
Two students, each 18 years of age, graduate from High School. For their graduation gifts, Tan’s father offers to put $20,000 into a savings account and Goh’s father offers to put $20,000 into a mutual fund. In both cases the graduates can not touch their graduation gift until they are retired.
Tan’s father goes a step further and says that he will automatically add $20,000 into the savings account every year until Tan is retired. After Tan and Goh discuss their graduation gifts.
For simplicity, we will assume that inflation is equal to 3%, Tan’s savings account earns exactly enough to cover inflation and Goh’s mutual fund account earns 10% on top of inflation.
10 Year Reunion: At their 10 year reunion, Tan and Goh compare notes. Goh’s graduation gift turned into $51,875. Tan’s gift is now worth $200,000.
20 Year Reunion: Once again, Tan and Goh compare notes. Goh’s graduation gift grew to $134,550. Tan’s account balance was $400,000.
3 0 Year Reunion: Although it seemed unnecessary, Tan and Goh compared notes. Goh’s graduation gift turned into $348,988. Tan’s gift is now worth $600,000.
Don’t worry, there was not a 40 year reunion. However, when it was time for retirement at age 65 Goh did give Tan a call and they ended up talking about their graduation gifts. After 47 years, Tan had accumulated $940,000, all out of his fathers pocket year after year. After a one-time investment of $20,000, Goh’s graduation gift grew to a whopping $1,763,950!
In what seemed an unfair comparison, compounding interest was powerful enough to overcome a much smaller investment. If we put the two investment on even ground by adding in $20,000 each year to Goh’s account, the resulting balance would have been $17,599,856.
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