Compounding interest - How it will make you a millionaire

Compound interest (or compounding interest) is the interest on a deposit calculated based on both the initial principal and the accumulated interest from previous periods.

 

In a way, compounding interest can help you achieve your financial goals faster as it allows your money to grow more using the time available and also the growth.

To be a millionaire is everyone’s basic retirement goal, it can be achieved easily by some or takes longer by others. But compound interest, the 8th wonder of the world will help and if you can put it to good use, you will definitely benefit from it.

The earlier you start, the earlier compounding can happen and the earlier you can reach your financial goal. Recently, i came across an article published by CNBC which was about how compound interest can make a difference if you start saving and investing your money early. The author came across this chart and it changed his life.

The chart shows two different scenarios:

• You start investing at 19 and contribute $2,000 to your account every year until you reach 27. From 27 to 65, you contribute $0.
• From 19 to 26, you don’t invest anything. You start investing at 27 and contribute $2,000 to your account every year until you turn 65.
  

In the first scenario, you’re only saving and investing for eight years; in the second, you’re saving and investing for 39 years. Still, the person who starts at age 19 would end up with more money in their portfolio in the long run.

Assuming a 10% rate of return, the first person would have $1.02 million by 65, while the second person would have $805,185, a difference of more than $200,000.

As the chart shows, the sooner you can start putting your money to work, the more you’ll benefit from compound interest and the less you’ll have to save to reach your retirement goals. 

For compound interest to work, you cannot just put your money in a savings account, you have to invest it or put it in a vehicle that grows at a substantial rate. Of course, putting your money into these can carry a certain amount of risks and you can mitigate or lessen the risk through many other ways as well like diversification and making sure you have emergency funds available.

The main thing is to start investing early if you aren’t sure of how you like to invest, read up more and decide if you will buy index ETF and DCA or lump sum investment into individual companies. Whatever it is, the earlier you start, the earlier compounding can start.

Hope you like the video that I have prepared, do hit the like button and subscribe to my channel for more content.

Reference article for video content:
https://www.cnbc.com/2019/07/08/self-made-millionaire-david-bach-a-chart-changed-the-way-i-think-about-money.html

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September 2020 Portfolio Updates and Job Updates

"Wake me up when September ends~~~" Green Day sang this song which is one of my favorite songs, though the meaning of the song is not literally about September, it was written by Billie Joe Armstrong about his father, who died from esophageal cancer in September 1982.

Another month has passed and I guess this month gave me a good news about my job. Since my contract will be ending soon, my boss told me that my contract will be extended, it will come with a pay increase though I am not sure of the amount yet considering this period.  

It comes as some sort of relief but also that being converted to a permanent staff is another long journey as I will have another year as a contract worker and conversion usually will not happen so soon. 

I went for about 2 interviews so far but I realized that I am not able to build on any defining traits/experience/projects and it kinda makes me lose out to others. I do understand that for the employers, they are definitely looking for someone who is able to handle the job and do well.

Otherwise, I am just glad to have some sort of update on my contract. Searching for jobs hasn't been smooth, not much interviews as I am rather fresh considering my work experience to be only a year plus. 

On the portfolio side, another 1.1146 units of Vanguard S&P 500 ETF (VOO) was added to my portfolio and 2.5526 units of Vanguard Total World Stock ETF (VT) was added. Recent prices have dropped for both and definitely wish to scoop some up at a lower price however I will wait for the normal RSP buy date which is the 8th of every month.  

I am glad I started on this RSP and I am seeing some slight results from it. The amount that I am buying every month is not huge and so the snowballing effect is not seen as very obvious at the moment. 

RSP Portfolio since additions were done here:

Units of VOO: 2.2105 (Current RSP)
Units of VT: 22.7889 (Current RSP)
Units of Hang Seng Index: 138.6615 (Stopped)
Units of STI ETF: 352 (Stopped)

Dividends received: 

This month was a good month for dividends as $150 was received from Far East Orchard Ltd (O10), 21.14 from Capitaland Retail China Trust and $18.54 from Far East Hospitality Trust bringing the total for the month to $189.68

The year is going to be ending soon in 3 more months. Its been a tough year and recovery will take awhile. I am grateful for my current situation but I think I can still do much more to improve on it. Take care and stay safe.

5 Tips on How I Save More Money

Saving habits can be cultivated from young and it is good to start saving as you develop a routine to put aside a sum of your income every month. 

There are many different areas that you can save on in terms of your lifestyle, I will be sharing the 5 ways I make changes in my lifestyle to save more money. 

• Pack meals to work and spend almost nothing on weekdays

I currently pack food to work about 4 days leaving Friday for me to spend it with my colleagues. I understand that socialising with your colleagues is essential to some jobs like sales or if you like to eat with your bosses.

For me, my bosses do not eat with us and considering the current covid situation, only 5 ppl can eat out at one time and since we alternate our work week, bringing food to work now really makes much more sense. If you are not able to bring food, at least make sure you are not spending too much on your lunch.

With me bringing lunch to work daily, honestly the only thing I spend on is transport which I take public transport to work and that usually adds up to about $3 plus per day.

Bringing a water bottle out with you during lunch or the weekends really helps to save money because you find it really unnecessary to get a drink unless you will be sitting at the cafe for a period of time. 

• Not buying new clothes except once every few years

Dressing up can make a difference but try to alternate your outfits and also being in comfortable outfits are great.

For me, I do have 5 or 6 different sets of working outfits and over the week, I just choose one each day and since it covers Monday to Friday, I don't have to think about it and just go through the routine.

It really frees up my mind in deciding what to wear the next day because after a day of work, thinking what to wear the next day can be tiring.

But I understand that some ppl are involved in jobs that they need to meet clients or new ppl and they have to dress to impress. Alternatively, they can buy some lower end clothes to match

• Indulge in restaurants/cafe only on weekends or special occasions
  

Sometimes we do need a little treat and I have developed a routine where I wait till the weekend before I get a cup of bubble tea or fast food. This pushes me to only spend during the weekends and my weekdays as previously mentioned usually consist of home cooked food which really saves me a lot of money.

Going for expensive food can be because it’s an anniversary or birthday just to make sure you are not bursting your budget every month. Making sure it really is special and eating at these ‘nice’ places once in a while makes them more delicious. Know that you can have quality food elsewhere without burning a hole in your wallet.

In Singapore, hawker food is a really good place to have your meals and they offer a wide variety of food at affordable prices. Cafes used to be a thing where I would be going but food at the cafes can be really expensive especially when you spend almost $30 every weekend on a meal.

• Give yourself a few days to think before making a purchase
  

Impulse buying is also something to avoid if you are planning to save money. For example, the 9.9 sale recently, where shopee had Phua Chu Kang sing you their song, it was very catchy and definitely attracted a lot of ppl to go online to purchase stuff.

There will be 10.10, 11,11 and 12.12 coming up soon too. Online shopping can sometimes be a lot cheaper than physical shopping but you have to make sure you are buying essential items and not splurging on items you will not use.

Giving yourself a few days to think can make you analyse if it really is an impulse buy or is it a need for it. This has certainly helped me in not making non-essential purchases.

One good tip is to not save your credit card details in any online sites for safety as well and not to download any shopping apps basically to remove any easy access to shopping apps.

• Put your money somewhere not easily accessible and automate
  

Out of sight, out of mind. This means that you should put your money in a savings account where there is no atm card or you can leave the atm card at home. It will be even better if the bank does not have many atm machines around.

It is also good to automate your savings as well. To ensure that you are putting money aside on a regular basis and it will build up over time.

You have to know that it will be a long journey to saving a substantial amount of money, it will not be short term and things will be hard in the beginning but if you can make it a routine, it will get easier.

Definitely, you will need to give up a little on your social life as decreased spending means that you will not meet up at expensive places so if your friends are not willing to accommodate then you will be meeting them less often.

Building up your income is a huge part of saving as well, cultivating the habit of saving + having a high income can push you further ahead in accumulating your wealth.

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Resigning from your job - Should you quit when you can't take it? Or stay on for the pay?

A recent article, Why are Young People Quitting their Jobs in this Economy by Rice Media describes a few individuals who chose to resign their job for various reasons during this difficult period. For me, I can roughly relate to a few of them on why they chose to resign on their end. 

I actually also considered resigning and am also still considering but in my case, as I am currently the only one working full-time in my family, I need a job to be lined up for me before I quit. 

Read more: How much money do you need to be earning to be happy?

During this uncertain period, a lot of people have realised that the company that they work for really just needs them to complete the mundane or repetitive job to a certain extent and when they are no longer needed, they will be asked to leave to made redundant. Seeing all the large numbers of retrenchments going on does make me feel afraid that my main source of income is so dependent on the company that I am working for.  

We really just don't know what might happen to us if we are not able to work or reach the standards set. One of the interviewee in the article mentioned that he resigned from his job and his parents were okay with it because since WFH, he works till about 2am during the weekdays and even his weekends are not spared. 

I try to complete my tasks for the day and whatever that can be done the next day, I try to do it the next day but often, I will stay late because the work piles up and deadlines are also set. I see many of my colleagues log on late in the night to complete their work as well. 

Since going back to the office to work on 1 Sep 2020, my colleagues have commented that working from home is so much more productive as lesser distractions are around. As a restructuring was done recently, 3 departments were grouped into one department and lesser manpower as some of the contract staff were not renewed. This means that we face more new and daily work but lesser manpower to cope.

The larger workload affects us to a certain extent and what more when our boss doesn't appreciate our effort because she thinks we are not doing our best working from home. Our weekly meetings have become a dreaded thing as we always get scolded by her on our work. I have to say that part of it is our fault as well, we used to not on our video cameras and not respond to her thinking that we can hide behind our computers. 

Read more: No such thing as an iron rice bowl

I think that gave her the impression that we didn't respect her in a way. Since the hybrid work model started on 1 Sep 2020, our meetings have gotten better as she can physically see half of us (due to split operations). 

Mental health is definitely very important, if the stress from work is really too much to handle, it might be better to leave. For me, I am still coping okay and understand that my job scope has changed and widen, it is a good learning curve and definitely hope it can make my resume look more impressive. To be honest, some times I do doubt my own capabilities on handling my work. 

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Are we too picky with our jobs?

So recently, a Facebook post by an employer who interviewed different candidates for a job was taken aback by the request or feedback from the candidates. He concluded that young talents are no longer hungry for a job and finds it difficult to employ Singaporeans. Below is his Facebook post for reference.

As someone who is applying for jobs right now, I have to really say that definitely we do have some expectations of our jobs. For me, I would feel like at least benefits and salary would be of a certain amount, of course, a short post like that does not do any justice to both sides as it doesn't give us the full story. 

Interviewing just 7 candidates and coming to a conclusion like that is a little too generalised as the sample number is pretty low. I am sure many young people are very willing to work hard especially more so if it is something they are interested in. Comparison in Singapore starts young, during CNY everyone suddenly seems interested to know what you are doing and HOW MUCH YOU ARE EARNING. I think this has really made me relate pay to how good a job is.  

But is this really the case? This pandemic has made a lot of people realised that their jobs are not everything and many are trying to create other sources of income as they feel insecure on their main job which can be so easily outsourced or be replaced by a robot particularly through this pandemic.

Read more: How much money do you need to be earning to be happy?

I would say that on both sides, it is really not easy. The employer definitely wishes to have someone capable and salary not being too high depending the level of skills and level of the job scope. On the other hand, the job interviewees want something that to them is worth working for and also matches up to their expectations or previous job experience. 

This really depends on individuals and the interviewees need to know what they are looking for and whether are they asking for too much. For me, job interviews are really way to express yourself to your future employers and if you have certain demands to be met, it is good to express it like being honest like applicant F for the employers to be aware. 

Jobs take up a huge portion of our lives and I am sure everyone wants a good job meaning in terms of work and compensation/benefits. 

All in all, I think the whole work during weekends and OT really can drain you out and I think after this whole pandemic, for me, work-life balance really matters a lot. 

Tesla 5 for 1 split, current value in portfolio and bought more?

Previously in my video where I talked about my portfolio and Tesla video, I mentioned that I bought one Tesla stock at about USD 989 and on 31 Aug 2020 there was a 5 for 1 split. I was rather excited about it because it is my first time having a stock split and it really drove the stock up in the past few days.

 

So I bought my Tesla stock through FSMone and you can see the WAC and price as of 28 Aug 2020 before the stock split. So the next image is after the stock split and now I have 5 shares of Tesla and I also added 3 more stocks of Tesla at a price of about $445. So right now my weighted average cost is about $219. 

So will I be buying more Tesla shares, definitely, I do see a lot of potential in the company and also it’s innovation in EV although definitely a lot of other car makers are also in it. As the leader in EV, it definitely has a head start and a lot will determine on it’s innovation, discovery and research and development. With battery day coming soon it will also be interesting to watch Tesla. Elon Musk is also the person to watch as he leads all product design, engineering and global manufacturing of the company's electric vehicles, battery products and solar energy products.

As sexy as it sounds, stock splits generally are super positive on the stock although there are no changes to the value of the stock as with many explanations, it is like you having a $2500 bill and I exchange it with you for 5 $400 bill.

This definitely makes the stock look more attractive as it is at a lower price and if you feel that the company does have a huge potential then you will surely buy it at a cost of $400 where if it is at $2500, you might hesitate as it is a huge number to begin with. The intention behind a stock split is to enhance liquidity and to make the shares more affordable.

For example, Apple's stock has split four times since the company went public. Had Apple never split its stock, shares would currently sell for roughly $28,000 apiece. Meaning that after it’s every stock split, Apple went back up again and fundamentally, if you believe that the company is going to continue to deliver results then it is good to purchase more but definitely think twice and also make sure you have the basics right like holding power and an emergency fund on the side.

US stocks has recently seen a drop particularly in tech stocks. Some say it is a correction and some say it is going to continue to drop. Whatever the case, my ETF RSP will buy VOO and VT monthly. With no extra cash on hand currently, I don't think I will be buying in anything else but will continue to hold my units. Very exciting times ahead and no one really knows what is going to happen.