Saving $100,000 before 30

Is it really that tough?

So it came to my attention that some writer had penned some article about saving up SGD$100,000 before reaching age 30. First all, I commend the author for managing this feat. From what I gathered from his blog, he started at age 25 and the 100K excludes CPF. I thought this was an interesting article to dissect and examine from an insurance person's perspective.

Looking at the numbers at face value, he would have needed to save $20,000 per year over 5 years (or $1,667 per month). Conversely, he needed to save $18,300 per annum (or $1,525 per month) over 5 years based on a 3% investment return. As you see in my table below, the writer only avoided saving $1,000 less per annum for any additional 2% return. Logically, attaining investment returns of anything above 7% can take a seasoned or expert investor.

So what am I trying to say here? Well, for such a short period of 5 years, a higher investment return compounded over such a short period of 5 years is not meaningful (compounded interest works more beautifully over a long investment horizon). The trick for anyone trying to achieve such a similar feat is actually to increase their earnings, manage their savings, and to cut their expenditure; investment returns did not account for much in such a short time. While this was stated in the article, I thought the message was kind of lost in the lengthy post.

Of course, if the writer had placed his money in traditional endowment plans or investment-link policies, there is no way he can attain $100,000 in 5 years since many of such policies mature much later. In any case, I am glad the writer is on the right track towards retiring in Singapore.