Bitter First, Sweet Later

Sharing one amazing piece I come across from our very own government board: The $5-latte problem.

I suggest reading through it before continuing further.


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Essentially the article presents 2 common school of thought to retirement:

1) Work and save reasonably for 30+ years.
2) Focus all energy to increase income, and spend freely to reward yourself.

Both are perfectly viable strategy.

And then, somewhere along the way, a small group of people "discovered" a third method.

"At age 25, instead of thinking of saving just S$500 a month like everyone else, you can go all out. You draw on all the resources of youth and time to accumulate as big a stash as you can while you're young, such that you hit a six-digit sum in your 30s and use the power of compounding to do the rest.

In the meantime, you live in a simple and self-sufficient manner, spending money as efficiently as possible. This way of living is not about extreme miserliness, but more about reorienting yourself with what is meaningful in life that happens to be free or costs little."

 

This sums up the essence of my saving strategy.

Let me strip it down further using the example in the article. Assuming same rate of return, which one gives you more money in the end?

1) Saving $500/mth for 30+ years.

2) Saving $2500/mth for the first 5 year of your working life, then never saving a single cent for the next 25 years.

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Yep! Scenario 2 results in a higher retirement nest!!! Doesn't that sound unbelievable and counter-intuitive?

The absolute numbers are not what's important. The message here is to demonstrate the power of time and compound interest.

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"The philosophy behind this idea is known in Internet circles as FIRE, or financial independence and retiring early."

I have shared many bloggers in previous posts who have achieved FIRE, and the article introduced even more local and overseas ones.

Need more inspiration/living proof? Here are 5 active bloggers drawing 5 digits passive income a year.

I am working hard to follow in their footsteps -  Not as extreme as some of them, but at a pace that I am comfortable with. (I still drink bubble tea, eat restaurants, buy expensive gadgets... occasionally)

That day can't arrive soon enough.