Commencing your new life (Part 2)

Damon Darlin of the New York Times (yes, I know, it is my favourite reading and if it wasn't for NYT, I will be struggling for materials) wrote recently about financial planning for the young graduates. I agree with him that even though you thought you are the smartest person in the world when you graduated and you have managed to get your first job already, you need to know how to manage your salaries. I mean seriously, most of us have never handle that much money before and suddenly you earn this much and everything that was probably on your wish list is now on your shopping list. But do that and you are looking at the poorhouse when you retire. Like Damon said, if you think it is tough living on very little now, imagine what it will be like when you are old and sick.

It is well known the current savings under TAP will be inadequate, no matter how hard my former investment officers at TAP work to get good returns. The amount of contributions are way too small. So you have to take up the retirement savings slack yourself. This can be done via many Small steps which surprisingly can make a big difference over the first 10 years of a working life.

The easy stuffs - not so easy but easier than the harder stuffs which you will read later on:-

• Stop taking coffees at Starbucks (oops, no Starbucks in Brunei), Coffeezone then. According to NYT, saving $3.50 a day will let you have about $11,500 in 10 years;
• Stop smoking - you will save $25,600 over 10 years;
• Learn to cook - any takeaway and fastfood restaurant will cost you about $10,000 over 10 years;
• Learn how to pack a lunch - this will save you around $23,000 in 10 years.

Now, the harder stuffs:-

• Keep 10% of your salary in a savings account separate from the rest of your money - make sure it is not connected to a cheque book or an ATM card - in other words, make it harder for you to take it out, so you will be less tempted;
• Make sure you save money in a private retirement fund - forget TAP, forget insurance savings - put it in a proper retirement fund - the earlier you start, the more you have;
• NYT gave an expert bit of advice: Stick the money in the broadest stock index fund offered by your plan, not bonds and not a money market fund. Sure, the markets may stumble at some point during the next 45 years, but history has shown that they will rise over a period that long. You take risks when you are young;
• Ignore your raises every time you get a raise, and you'll get them because you are working hard instead of spending money you don't have, pretend you didn't get one. Bank in the entire amount (one of my PS says his monthly budget is still based on the assumption that his salary is $2,000 - he earns 9 times more now);
• Don't borrow to buy depreciating assets - since almost every consumer product from an iPod to a sofa is worth less the moment you buy it - Use cash and do not use credit cards or bank loans as you will pay more for something that is becoming lesser in value. If you can't afford it, don't buy it. (probably an exception is a car);
• Protect your credit - you will need to borrow later on so by having good credit history - the banks might be willing to lower their interest charges - and also pay all your credit card bills and carry no balance;
• Cut down your ATM withdrawal to once a month - take just enough cash to last you - you will cut down on incidental expenses;

Over time, you'll start spending the money. It's human nature. But you'll start spending it more slowly. You'll keep the car another few years. You won't immediately move to a new apartment. All that helps money to accumulate. The psychology is - having less to spend can help you spend less on frivolous things and save for worthwhile causes. Having less will also make you work harder to get more. If you are comfortable, you get complacent. My free advice of the day.