Yeah!

“After 16 years of studying, I can finally start work to earn money! And I can spend freely on food that I crave, shoppings that I could only “window”, holiday as if i’m a multinational citizen!”

Wake up! Stop dreaming. Today is your first day of work and you are very excited about your career. You will probably ask yourself, what should you do with your first pay-cheque? Is it ok to go for a big celebration to commensurate your financial independence? Go ahead by all means. The key is, do not develop the habit.

So before the habit is formed, it’s imperative that you start it right so that changes are not necessary in the future. Change is painful.

You may consider setting up 5 pots to put your income into, to achieve a balanced life in the long term.

Your Upgrading Pot

Your education is not considered over when you start work. In fact, it’s just the beginning of your education for your life and career. The past 14 to 20 years of education only prepare you to start work for survival, to live a life with some intelligence.

As you move on in your career, you will start to realise that there is much knowledge that you do not have but you need them to progress in your career. These courses do not come cheap. eg, a MBA easily cost between $30,000 to 50,000 for a one year course. This will take you a few years to save for it.

Your Indulgence Pot

This is the best pot that everyone will love. As the saying goes, all work and no play makes Jack a dull boy.

After working hard for a whole month, you must reward yourself with things that you enjoy most. Feast, spa therapy, shopping, etc…

There are two benefits in doing so. First, by pampering yourself, you know that all the hard work in the past month is rewarded with things you would love to have, to do, to consume, etc… and you will always look forward to this day of indulgence.

Secondly, as you have scheduled your reward day, you will subconsciously tell yourself not to spend anything unnecessarily during the month. You have just developed another good habit!

Your Retirement Pot

What? I just started work and you are telling me to retire? The earlier you start, the easier it’ll be.

Let’s say you are 25 years old and want to retire at 65. You need $1 mil for your retirement. Ignoring inflations and investment rate of return, you will need to save $25,000 each year on average. However, if you start saving only at 40 years old, then you will need to save $40,000 each year. In fact, with proper planning and good investment strategy, it’s not unrealistic to retire after 15 years of working.

Your Give Away Pot

There are many reasons why you should give away some of your money. By doing so, it naturally develop within you a good heart to appreciate the life that you are blessed with.
Some of the give away may includes:
• parents – as a gesture of appreciation for raising you up and shower you with love and care.
• charity – to provide for the others who are less fortunate
• religion – as a contribution to your belief

Your Personal Expenses Pot

This will be the pot to receive the biggest portion of your income. But how big should this be? Is this enough? Habits are developed over times, some take longer, some just take a few weeks. For sure, it’ll not develop overnight. Think of it this way, how much pocket money did you receive when you were in school, just before you start work? $500? $700? $1,000 or more? When you start work, there is no reason for a sudden surge of a few folds in your expenses. A 50% increase in your personal expenses will give you a very good lifestyle as compare to your school days..

How much should you put in each pot? There is not hard and fast rule on this. As a reference, you may put them as follows:

• Your Personal Expenses Pot ~ 50% or less
• Your Upgrading Pot ~ 10% or more
• Your Retirement Pot ~ 15% – 20%
• Your Indulgence Pot ~ 10% or less
• Your Giving Away Pot ~ 10% – 15%

As your progress, your income increases, your life status changes, your expense and commitment will probably increase too. You may make minor adjustment to the proportion accordingly. The success of this 5-pot theory does not rely on the proportion alone, but more importantly, building the system and habit to to manage your finances successfully.

What kind of personal financial system do you have currently? If it’s serving you well, continue with it and share them here with other reader. If you have not develop any, then consider creating the 5-pot system and let us know how it fairs…

Happiness is … living a balanced life style with abundance for your future and others.

Disclaimer: This article may contain personal views, thoughts, and opinions, which may not necessarily reflect the same for Professional Investment Advisory Services Pte Ltd. The information provided herein is intended for general circulation and are not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use will be contrary to local law or regulation. This presentation may not be copied, either in whole or in part, or distributed to any other person without our specific prior consent. Please seek advice from a Financial Adviser Representative or consult a professional regarding the suitability of any financial product, taking into account your specific financial objectives, financial situation or particular needs, before making a commitment to purchase the financial product. In the event that you choose not to seek advice from a Financial Adviser Representative or a professional, you should consider whether the product in question is suitable for you. This newsletter may contain product advertisements which have not been reviewed by the Monetary Authority of Singapore.

Photo credit:
https://www.wallpaperflare.com/wellness-carafe-purple-towel-rolled-herbs-bamboo-relaxation-wallpaper-aowva
https://www.pikist.com/free-photo-sinju

Pathwise Advisory Group is a group of financial adviser representatives representing Professional Investment Advisory Services Pte Ltd.