Which would you choose - $9k per month stagnant salary from the age of 21 (didn’t complete studies) or $2.5k/ month at age of 25 (just complete studies) and salary will increase over the years?

Question

Which scenario will you choose?
1. $9k per month stagnant salary from the age of 21 (didn’t complete studies).
2. $2.5k/ month at age of 25 (just complete studies) and salary will increase over the years.

Zac · Accepted Answer

I'd go with 9k/month for starters. Having a high income is under-rated. Having a high income early on, is even more under-rated. Think about that for a moment.

Think of all the opportunity cost you gain by having 9k/mo at age 21. Low liability, early start on saving and investing. If you can survive on 2.5k/mo as a 25 year old, you can do the same at 21yo. That's already an extra 6.5k/mo just for saving/investment.

2.5k/mo with annual wage growth may work out to a much higher lifetime income in the end - but realistically at 50 or 60 years old, how hard does your money have to work to gain returns at that point?

We always talk about time in the market. Earning your first 9k at 21 will give you plenty of time in the market. Every dollar invested earlier reaps a better return than the same dollar invested 10 years later.

I'm not sh*tting on life long learning and wage increments. I'm just saying opportunity cost matters as well.

Sandy · Answer

If the 9k salary allow you to have an early headstart in investing, not too bad a deal.

For 2.5k/mth scenario, there's no guarantee that it will eventually grow to 9k/mth either? It depends on the career prospect and how soon it can hit the 9k/mth range.

Money aside, interest, job stability and many other factors should be considered.

Randy Reinaldo · Answer

In personal finance, we have less control over how many salary you get, so we focus on what we can control more (lifestyle, deliver work result, savings rate, asset allocation). Being rich is mindset and there is No guarantee that Constant $108k a year will give you contentment.

Simple NPV of $108k a year for 44 years vs growing annuity of $30k, constantly growing for 40 years, discounted at the risk free rate (1.4%) gives you about 6.5% constant growth rate for the 2nd options to be worth the same with option 1. I’ll take option no. 2

Jessica Teo · Answer

This is just my opinon. Scenario 1, 4 years headstart with a higher capital gain. Education is constant, with the massive amount of e learning even without completing studies. 
Many have advised that having a side income is important, without a side income we're just one step away from no income. Hence, having a early start with a higher pay, allows more chance to explore interest that needs to start with monetary exchanged.

Tan Shen Li · Answer

1

Daniel Kok · Answer

Hands down 9k a month. in most cases, people don't even earn 9k a month even when they are in their 40s thus you can calculqte the head start you get by earning that much more at an early age! You could even retire by 40 :)

Lyon Lee · Answer

Option 1.

- $9k of salary is guaranteed but wage growth percentage is not

- assuming conservative wage growth of 2% per annum, it will take about 64 years for option 2 to get 9k salary. By that person in option 2 would be at age 89. if he decides to stop work at 65, he would never ever see that kind of salary.

- the reason for working for most is money and it is an enabler for us to achieve what we want and need in life. option 1 would have better cash flow for savings and investment/passive income with good time horizon. Therefore, achieving those goals earlier and faster.

- assuming a crisis strikes, person in option 1 may be better protected with the relevant insurance as he can easily afford the premiums while person in option 2 may be still struggling with cashflow for getting insurance(2.5k after cpf is 2k and maybe paying study loan instalment?)

- Lastly, we'll never know when we need to punch hole(not referring to renewing) in our IC so i guess it's better to have more than less?​​​

Finance and Toast · Answer

I'll choose Option 2, $2.5k / month at age 25 plus completing your studies which I assume is getting...

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Yes, $9k / month at age 21 is incredible. But note that you stagnant throughout. The one earning $2.5k / month may seem to be "losing out" at the beginning, but he or she can gain valuable working experience, get promoted internally, jump a few jobs, and easily reach that salary in a couple of years. Plus, there is upside to earn more than $9k if he or she takes up a managerial role.

Gerald Ho · Answer

9K salary is probably a ceiling already for most ppl so might as well start with 9k and then massively milk the salary by investing at least 2/3 of it, by 40-45 you'll be able to retire.