As an overview, I thought it was nice that she was contributing 10% of her salary to her parents, plus more than 10% in savings. But at the same time, she still has substantive education loans to pay off.
Being a 27 year old with a post-graduate degree, she must have just started work, with zero savings to boot. So the savings is probably to build up some emergency funds first. Else, it would probably better to pay off the loans first and be debt-free.
As a mental exercise, I was thinking of how such a person could try to save even more, pay off the loan earlier, and start a serious investment going. So here are some possibilities:
- She may be paying too much for insurance. Probably some whole life or investment-linked type. Better to buy term, hospitalisation, critical illness, and invest the rest.
- Transport expenses seem to be on the high side. I'm guessing taxis and Grab rides. Perhaps she could cut back some, although of course, this would be at the expense of time.
It is probably too early for her to want to consider Supplementary Retirement Scheme as she is still in the lower tax bracket. No spare money for donations yet for some tax deductibles either. The rest seems decent.
All in, maybe she can save another $200-$400 per month. That's $2,400 to $4,800 a year. Assuming $2,400 savings a year, increasing at a rate of 2% each year, and invested at a total rate of return of 7%, by age 55, she would have over $300,000. That's one third on the way to becoming a millionaire, and at 4% extraction rate, generating an additional passive income of slightly over $12,000 per year.
But if she doesn't make the additional savings, her current savings of $500 a month (lower bound) would already put her at over $600,000 by age 52, generating $24,000 passive income a year.
Not bad. Of course, in reality, this isn't going to happen because of marriage, kids, housing, unexpected emergencies, etc. Still, not bad.
What do you think?
