8 steps to get rich in Singapore

So how do I start investing in my twenties?
September 11, 2016
Singapore: An overview about Bonds and what to expect
September 16, 2016

Most of us want to get rich. But what does being rich mean?

There are many different definitions and opinions. To some having a million dollars in cash is being rich, to others it means owning multiple properties and businesses.

Regardless of what your definition is, I this article aims to put you on the right path!

The following are the 8 basic steps to follow in order to get rich:

  1. Spend less than you should

This is actually a no-brainer; if you are spending more than you earn, you will be in debt and maybe even in bankruptcy soon enough.

The first step to riches is to start cutting down on excessive luxury expenses and saving up.

In Singapore, many necessities like food and public transport are very affordable compared to other developed nations.

However, housing and cars are pretty expensive. Thus it would be prudent, especially in the early years of your career, to avoid splurging on a car and other luxury goods and save up.

  1. Have an emergency fund

When we are all young and just starting out, we think nothing bad is going to happen. They will fire the highly-paid seniors first and I am safe. However, with the uncertain economic outlook and the shaky finance sector, you never know when you may be out of a job. Finding a new job could take months! Thus, it is essential to have an emergency fund to help you tide over those bad days. Ideally you should have an emergency fund that can cover at least 6 months of living expenses.

  1. Get insurance coverage

Similar to having an emergency fund to cover for unexpected circumstances, it is essential to have sufficient insurance coverage.

Insurance coverage to cover unfortunate events like death, disability, critical illness and hospitalisation are some of the basics that almost everyone ought to have.

Would you rather use your own hard-earned savings for medical expenses or get the insurance company to pay for your bills?

For just a small percentage of the potential medical expenses or loss of income, you can transfer these risks to an insurance company.

  1. Don’t just save up in the bank, Invest!

Many Singaporeans especially the older generation were thrifty people who worked hard and used to saving money in the bank.

However, in recent years, interest rates on savings accounts have dropped down a lot. It does not make economic sense to just save all your money in the bank especially when inflation is more than 2% and bank interest rates are barely 0.5%.

There is so much information on investment on the internet and the Government too provides us with investment opportunities via the Singapore Savings Bonds (SSB) and the like. 

If you were to simply saving up in the bank, the value of your money will be eroded by inflation.

  1. Actively find more streams of income

The typical Singaporean way has been to study hard and land a good job. Many are brought up with the 9-5 mind-set. Entrepreneurship and similar careers are not encouraged as many parents think it is too risky and our culture isn’t too kind towards failures.

However, in order to get rich, we must find alternative sources of income- be it a part time job on top of your current job or a small business that you run on the side. One cannot merely rely on his/her day job.

Many self-employed people take on risks (uncertainty of income) in order to potentially earn higher incomes via commissions and share of profits.

  1. Create passive income

Despite differing definitions or opinions on what it means to be financially rich, I am sure everyone can agree that rich people tend to have passive income coming in.

One type of investments that Singaporean love is property. Property investments give rental income on top of potential capital appreciation.

However, rental income is taxable along with personal income. In recent year, Real Estate Investment Trusts (REITs) have become popular. A REIT is an investment vehicle for real estate allows both small and large investors to acquire ownership in different types of properties.

REIT investors derive passive income from the dividends paid out which are pretty much the same as rental income that property owners get. However, dividends are tax-free in Singapore.

Thus, it may be wiser to invest in multiple REITs and get a diversified portfolio than to lock up all your capital in one investment property. Utilising schemes such as the SRS account can enable you to grow your money while saving on taxes.

  1. Re-invest your investment returns

Whether it is interest income, rental income, business profits or dividends from stocks or REITs, it would be wise to re-invest these returns again.

As long as you are still gainfully employed and do not have liquidity needs, re-invest your investment returns and benefit from the power of compounding returns.

  1. Be consistent

It is important to formulate a plan with the above steps in mind and even more important to stick to the plan.

Many of us will see that our expenses increase over time as we get married and have kids later on in life.

Thus, it is very important to start early while we are still young with little commitments and consistently set aside money towards our dream!

The power of compounding works, but it takes time to see results. $10,000 growing at 8% a year becomes $21,589 in 10 years but if you re-invest and hold that same investment for 40 years it becomes $217,245!

Just like how your CPF fund grows over time, setting aside some money to invest will go a long way and supplement your CPF life pay-outs for retirement. Don’t just go for the short term gratification, be consistent and focus on your goals and dreams.

This is not a conclusive article on getting rich, but I believe the 8 steps above will be useful in guiding you.

For more information on how to get rich, and keep the most of your wealth safe on this sunny island, drop me a note at sashti90@gmail.com. I will be more than happy to help you out.

Leave a Reply

Your email address will not be published. Required fields are marked *