Asked on 24 Jun 2019
I’ve just hit my 1 year mark in the workforce, salary basic $3k. I also earn passive income each month by through tuition.
However, I’m still in school debt of about $28k, which I’m paying $500 a month towards.
I’m also supporting my fam ($500/month).
I invest only $100/month as I’m still trying to build my savings.
I feel discouraged when I look at my peers who has no debt at all. Any tips on what I can use as a benchmark?
Hi there anon!
I’m sure many undergrads & fresh grads are in a very similar position as they begin sorting their personal finance. Here’s my two cents worth of opinion!
TL;DR: Follow our Seedly Personal Finance Guide & Seedly Salary Allocation Model
Achieving financial independence begins with managing your personal finances well, which comprises of the following 5 verticals:
Savings & Debt
I would touch on all of them in my sharing below but do refer alongside this Seedly Personal Finance Guide for more details :) For starters, I wanted to introduce you to Seedly’s income allocation model. I’ll be using $2,400 (your after-CPF salary) in the following example:
50% expenses: $1,200
30% invest: $720
20% savings: $480
1. Expenses/Spending: 50%
Given that $500 goes to your parents every month, that leaves you with $700 for monthly expenses and insurance. I think it’s pretty alright if you have experience living on a budget from your university days but again, it’s dependent on your lifestyle.
Regardless, if $700 is insufficient for you, part of your passive income from giving tuition can be channeled to your monthly expenses!
As I’m unsure how much you earn from these monthly tuition sessions, I’ll still advice you to keep your expenses at bay.
On top of your day to day expenses, you’ve got to factor in your monthly insurance expenses too. Despite your debt situation, I would still encourage you to get health and term insurance at least!
Additionally, if you’re thinking of getting a credit card, I would say pick those that will reward you with cashback! This makes your expenditure feel a little more worth it / hurt a little less. I personally wouldn’t focus on any travel plans until my student debt is cleared, therefore, I wouldn’t suggest getting a miles credit card. Here’s a Seedly article recommending the top cashback credit cards in 2019.
2. Investments: 30%
I think $100 a month is fine right now as you still have debt to clear.
After your student debt has been cleared and you’ve set aside emergency funds (at least 6 months worth of savings), I would recommend you invest a little more and hit that 30% target.
In the meantime as you hustle your way to clear the debt and save your money, you can beef up your investing knowledge. Before embarking on your investing journey, you should do your due diligence at understanding the mechanics and risks associated with the various investment products.
Come up with a financial plan too - what goals do you have, when would you like to accomplish them, what’s your starting capital, what’s your risk appetite? You may read more about investing in our Seedly guide on investing for Singaporeans!
3. Savings (& Debt): 20%
You didn’t mention anything about the amount you save every month at the moment besides the fact that you would like to grow it. That said, I’ve got 2 things I wanted to point out:
I acknowledge that the $480 channelled to your savings based on our 20% guideline is clearly insufficient to cover your monthly student debt repayment ($500). Hence, tweak the percentages according to your unique needs. If you choose to stick with our recommended 20%, I believe some of your passive income from giving tuitions can help in this area.
Picking the right savings account helps you in growing your savings too. Read this Seedly article on the best savings accounts with high interest rates that Singaporeans should get. I would personally recommend the DBS Multiplier Account paired with a DBS/POSB credit card.
With regards to your question on what should be your benchmark, I would say your peers are definitely not it. Your peers have different jobs, family backgrounds, lifestyles, and investment preferences - it’s impossible to find someone remotely similar to you and your financial position. Therefore, you shouldn’t compare yourself against them and their financial positions, it’s not a fair match. In short, there’s no need to feel discouraged because the comparison shouldn’t even take place. I think you’re doing great because you are:
making some serious plans given your debt situation
side hustling to further aid your financial position
actively seeking advice from the community to improve your personal finance journey.
If you REALLY want a benchmark for the betterment of yourself, I would recommend the checklist in our Seedly Personal Finance Guide. Check everything on the guide while living comfortably based on our Seedly income allocation guide and I would say you’ve achieved financial independence :)
I hope this helped, all the best and keep up the good work!
1 more comments
04 Jul 2019
Debt can be either good or bad. If taking on debt to improve your value through education, that is ultimately a good thing. Hence do not despair. Focus on repaying your loan first, while continuing to invest $100/mth. Once it's cleared off, you can ramp up your monthly budget for investing. Hustling through side jobs like tuition can also be a way of increasing side income, but never forget to invest in yourself by growing your value at work. Increasing your salary rapidly is one of the most crucial things you can do early in your working career so that you can achieve a faster loan repayment and have a larger budget for investing.
Don't benchmark yourself. There will always be someone with a situation better than you. Instead, focus on what you can do to better your own situation.
DON'T BE DISCOURAGED! Everyone goes through difficullt times. Let's put your financial situation down:
Basic salary: $3k
Side income (note: this is NOT passive income, as passive income it's what you earn without you doing anything. If you stop giving tuition, you won't have that income: Say $500?
Total Monthly In: $3.5k
Total Monthly Out: $500 (school loan) + $500 (family) + $100 + $500 monthly expenses estimated = $1.6k
Your $28k student loan - with you contributing $500 a month, you would be done in 56 months. You probably are more than one year in - what are the terms of this student loan?
It still puts you in a pretty good position! The fact that you are earning a side income, and also look to contribute to your family with $500 a month is already very commendable. At your age, I would look at accelerating your monthly income. There is a max to how much you can save, but the upside you can get through various income streams is limitless. Learn new skills, pay off your debt sooner than later, invest wisely.
Looks like most of the answers are focusing on numbers and a game plan so ill try to answer this from another angle.
I think the psychological part of saving enough and training our mind to accept slow progress as a step forward is equally important. The reason why I say that is because human can feel depressed when they compare their progress with others and your absolute amount of $100 may seem really tiny. I'm not going to give you false encouragement because I think you know there is a lot more you can do.
Instead of beating yourself up mentally, my approach if I were you would be to put a monthly target and annual target of savings, and put a compound interest calculator on it (say 4% annum and additional annum funds of $1200). By doing this, you train your mind to see that amount can grow to something substantial in 10-15 years, and hopefully distract you from looking at the $100 you are putting in.
Patience is a virtue and with growing money, it's unfortunate that most of us will have to be patient and increase your income before you can do anything else. Mentality is key. If you can get past that barrier of you feeling poor, and convert that into motivation to increase your skill sets and expand your network, you will see results.
All the best!
I can understand why you are worried. Comparing yourself to your friends who do not have any study loans is demoralizing.
Instead of spending the energy being envious of them, use this reason to spur yourself to work harder.
There are many success stories of people who started off with odds against them and they turn it around. Let this be the reason to spur you up instead of bringing you down.
I would recommend you to read the book "The Richest Man In Babylon". The methods in the book is simple and effective for you to build wealth. These are fundamentals that you can use to increase your wealth step by step.
In your situation, I would attack the debt aggressively. Have a goal to clear it within a deadline. Channel all your energy to clear the debt within your deadline and doing so can build up your resilence and create momentum for wealth building.
In the meanwhile, invest in yourself. Go to the library and borrow books on personal finance, investing, personal development and build up your skillset and confidence. I equate financial independence as success. And you do not chase success, you become someone who is capable of being successful and success will come to you.
This takes time and the only way to achieve that is to keep investing in yourself to grow.
I hope what I share can help to inspire you and I would love to hear how far you can get to in a year or 2.
Your family and debt commitments are very high! They take about a third of your take home income (after considering CPF contribution).
3 key benchmarks based on your situation:
1) emergency fund and insurance is a must, especially since you are supporting your family. With your situation, I'd suggest setting not more than $100 a month on insurance, you may want to get a term plan covering 10 years with high protection plus medical and accident with it, then consider upgrading to whole life plan after that
2) investments - know your risk appetite and set your goal, how much you want to get in life. $100/ month is a good start if you're aggressive. You may want to tighten your spending further (sorry to say this because you've high commitments compared to the salary that you're drawing)
3) part time income - how much are you charging for tuition? Are you earning more dollars per hour compared to your full time job? Otherwise you may want to charge more for the tuition because you're spending extra time that you sacrifice outside of office working hours to get more money
Honestly, I don't think you need to feel discouraged - you should probably focus on what your priority is right now and allocate your income accordingly. I had a 23k loan when I was earning 1.8k a month and I managed to clear it within 1.5 years but that really took me a lot of determination and strict budgeting.
If you really do wanna get rid of your loans, I'd say do it. Just suffer for a bit for the next year or so, allocate most of your money to clearing off the loans and enjoy later.
When you start comparing with others, you will probably feel discouraged at some point, because everyone starts out differently. Eg what if one day you want to benchmark yourself against Lee Hsien Long, Donald Trumph or Warren Buffet.
Over time, I have come to terms that the best comparison and benchmark for yourself is yourself (albeit maybe 1-3 yrs ago). This is the best and fairest approach.
I have already started on this, and come up with a goal to beat my prior year budget at least by 2k on an annual basis. At least I know I am striving for improvement. And I know I am getting better, not as much as I like to, but still better.
Dont give up.
No need to compare with your peers. There are always those who are richer than us but also those who are in much worse situation than us.
Looks like you are doing fine, paying off the debt and also supporting family, plus investing. The only thing I see is maybe you can invest more. See if there are any expenses you can cut down on or perhaps do more tuition if you have the time.