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Build your first million: How to be a millionaire in Singapore
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Here're a few things you can do to become a millionaire in Singapore before you hit your retirement age.
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The beginning is the hardest part of any journey. While there’s no secret formula to earning your first million dollars, you can make it happen with hard work, discipline, and financial literacy. You may face many obstacles on your way to having SGD1 million in your bank account. You may have existing financial commitments such as a mortgage or a student loan repayment while managing living expenses, and weathering health costs. However, this picture isn’t static. Your financial situation will improve over time as long as you become more proactive with your finances—yes, it all goes back to getting started.
If you want to be a millionaire in Singapore before you hit your retirement age, here are the things you can do:
1. Shop wisely
The Buy Now, Pay Later (BPNL) scheme is increasingly popular in Singapore. While it lets you buy the stuff you can’t pay in full upfront, having so much to pay in the following months makes it tough to balance your budget.
According to Credit Bureau Singapore’s second-quarter 2021 report1, young adults aged 21 to 29 are borrowing too much and failing to settle their monthly credit card payments.
To avoid falling into this trap, stay out of debt as much as possible. Buy only what’s necessary and give up the things you don’t need. You may reward yourself with a little something and look first at how much money you can afford to spend.
2. Earn passive income
You have probably heard of the saying “Nobody ever got rich working for a living”. The truth is that working eight hours a day for someone else can’t make you a millionaire. After all, you won’t also be spending your whole life working.
Find ways to generate extra cash flow with minimal-to-zero labour—and investing is one. Before exploring investment opportunities, it always helps to evaluate your financial health. Here’s how to do it:
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Estimate and track your expenses. Monitor your monthly spending (ie housing, food, entertainment, etc.)
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Determine your net worth (ie your assets minus liabilities)
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Calculate your debt-to-income (DTI) ratio (ie total debt payments divided by monthly gross income). A good DTI ratio is 35% or less.
If your financial situation shows you have excess cash, use that to earn more money. Here are some investment products that work as alternative sources of income:
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Investment-linked insurance products: An investment-linked insurance policy protects you against many life uncertainties (ie death and terminal illness) and offers a guaranteed maturity benefit and cash payouts.
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Government bonds: Singapore Savings Bonds (SSBs) is a less volatile bond that pays a step-up interest rate each year, up to the 10th year.
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Dividend stocks: Dividend investing is a popular strategy for creating an income stream for the long haul—or should we say building your first million. It’s ideal because dividends preserve their value, are tax-advantaged, and provide a sustainable cash flow.
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Unit trust (UTs): When you invest in a unit trust, your money is pooled with money from other investors and invested in diversified stocks or bonds. Fund managers manage your UT investments, saving you time and trouble.
3. Use the Power of Compounding
When you jump into the world of investments, make sure you do it as early as possible. It pays to start now for the compound interest to do the heavy lifting for you. What’s compound interest, by the way? Here’s how it differs from simple interest:
Simple interest refers to the interest you earn from your investments.
Compound interest is the interest you earn from reinvesting your earned interest.
Suppose you have a savings bond and accumulated interest for the first six months. You can redeem a minimum of S$500 and reinvest it on other investments such as stocks, mutual funds and exchange-traded funds (ETFs).
If you’re curious how long it will take to double your money through compounding, follow the rule of 72 (ie divide the number 72 by the yearly interest rate). Here's an example:
Your investment’s expected annual return is 8%. So, 72 divided by 8 is 9. You will double your money in 9 years if you compound your interest.
4. Get the Most Out of Your CPF (SA)
It’s common knowledge for Singaporeans that employed nationals and permanent residents (PRs) have a compulsory savings plan, a.k.a. Central Provident Fund (CPF). The big question is, do you use it to your advantage?
Your CPF savings doesn’t only help cover your housing and healthcare needs but also play an integral part in living that millionaire dream. Here’s a quick refresher on CPF:
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Ordinary Account (OA) – savings used for buying housing (ie HDB flat or private residential property), and paying for your children’s education
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Medisave Account (MA) – savings used for healthcare, hospitalisation expenses, and approved medical insurance
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Special Account (SA) – savings used for old age; a portion of OA and SA can be invested in retirement-related financial products
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Among the three accounts, SA can help the most in saving for future retirement needs because of its investment feature. Since SA has a higher interest rate (4-5%) than OA (2.5%), transferring extra funds from your OA to SA gives you better chances of getting higher monthly payouts, not to mention that it guarantees tax relief.
Get started now
It’s never too late to practise healthy spending habits and build your wealth. But if you don’t know how to get started, get in touch with us to speak to one of our Financial Planners. We can help you reach your financial goals and protect your loved ones from financial difficulties with our wide range of savings and investment solutions.
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This article is for general information only and does not take into account the specific investment objectives, financial situation or needs of any particular person. The views expressed herein do not necessarily reflect the views of HSBC Life (Singapore) Pte. Ltd. and should not be construed as the provision of advice or making of any recommendation. There is no intention to distribute, offer to sell, or solicit any offer to purchase any product. We recommend that you seek the advice of a qualified financial advisory professional before making any decision to purchase an insurance or investment product. Whilst we have taken reasonable care to ensure that all information provided was obtained from reliable sources and correct at the time of publishing, information may become outdated and opinions may change. We are not liable for any loss that may result from the access or use of the information herein provided.
Information is correct as at 1 February 2023.
This advertisement has not been reviewed by the Monetary Authority of Singapore. |
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