7 money tips for young adults who want to retire early

Posted on Jan 7, 2021 by The Edge Singapore

When you’re a young working adult, retirement may be the least of your concerns, especially if you’ve just experienced your first taste of drawing a salary instead of just taking pocket money.

However, you have two things going on for you: your youth and the power of compound interest over time, at times, described by Albert Einstein, no less, as the “eighth wonder of the world”. 

Even if you were to set aside a small sum every month, it can still add up to become a sizeable nest egg when you’re nearing retirement.

The Edge Singapore spoke to Laurent Bertrand, the co-founder and CEO of Up, a platform that simplifies financial planning, on how young adults can start planning for their retirement, as well as other money-saving tips.

Here, he offers seven tips.

Invest your money whenever possible 

In the good old days, their parents could scrimp, save and watch the money grow in the banks as interest rates were high - unlike now, where the rates are close to 0.

“Invest the money, instead of simply saving it all up,” says Bertrand, on how young working adults can build up their nest egg or savings, apart from their day jobs.

Stock markets do suffer from regular swings but generally, they grow over the long run. If an investor is patient enough to stay invested and wait out the volatility, they have a good chance of coming out ahead eventually. “As a young working adult, you have one critical element on your side, time!” says Bertrand.

He adds that if possible, young adults should set up an arrangement to have their money invested on a regular basis instead of a one-time lump sum investment. By doing so, they are spreading out their commitment in a more manageable way. “So make sure you know when and how much money you need.”

However, Bertrand acknowledges the risks when it comes to investing.

“You never want to be in a position where you’re forced to cash out when the market is down,” he says. 

“To avoid this, it’s a good idea to build up some cash savings as an ‘emergency fund’ in case you were to lose your job or had a sudden need for a large cash outlay. A good rule of thumb is to have enough saved to cover six months of expenses.” 

Pay yourself first

The first step to looking at money-saving goals, is to start with a budget.

Then, make saving mandatory by putting the money into a designated savings account or recurring investment every month before you pay anything else, says Bertrand.

“That way you’re sure to save something each month, rather than worrying about how much savings are left,” he adds.

Reduce your expenses and monitor your spending habits

Another way to save money is to simply reduce, reuse, and recycle.

“This is not only good for the environment, but for your wallet as well,” notes Bertrand.

He also advises young adults to “track and monitor” their spending habits. A cup or two of fancy latte as a daily pick-me-up might seem affordable, but overtime, this spending habit can add up to a considerable sum.

“It may surprise you where the money’s going, and you’ll likely see plenty of places where you could save with minimal sacrifice,” he notes.

Set realistic goals

Setting realistic goals is key, too, says Bertrand, as you don’t want to get discouraged or fall off the bandwagon if you feel like you are unable to set aside some money per month.

Even if this means starting small, you are starting somewhere at least, he adds.

Saving money can become a healthy addiction as well. 

“As you see your savings accumulate, and your wealth grow, you’ll want more,” he says.

Time is of the essence

“Time is not only on your side when you invest but when you protect your future,” says Bertrand. 

For instance, insurance policies are usually cheaper when you’re young and in good health, than they are when you get older. 

“Start early to benefit from lower premiums and if you have insurance from your company, make sure it’s portable or consider buying your own, as you can expect to change jobs over the course of your career,” he adds. 

“Regardless of what investment you choose, as a young adult, time is on your side. Start early and unleash the magic of compounding interest. At 7.2% net return per year over 20 years, you would have to invest four times the money in your 40s to achieve the same results.”

“Finally, slow and steady wins the race. Invest regularly in low-cost, well-diversified investment products to benefit from long-term asset appreciation, rather than trying to get rich quick by timing the market,” he adds.

Use a financial planning app

A good app helps you grow your wealth beyond your savings.

“It starts with an understanding of their needs and capacity to finance their dreams over time. It’s difficult to visualise the impact one decision can have on your overall financial situation, especially while taking into complexities like taxes, CPF, inflation and projected returns on investment, and not to mention risks like unemployment or other unexpected events life may throw at you,” says Bertrand.

“For us at Up, we’ve designed our solution to be educational, by giving them a platform to explore different options. So young, and not so young, adults can find the solutions that fit their personal situation and start their life-long journey to financial independence and living better lives,” he adds.

On the role of Up, Bertrand is quick to emphasise that the platform will not replace financial advisers.

“Far from it. We developed it to help people see the value of financial planning, whether it’s something they’re looking to do on their own, or in collaboration with an adviser.”

Up simplifies financial planning making it possible for anyone, regardless of financial acumen, to build their own financial plan online. The tool makes it easy for users to explore different financial scenarios, such as purchasing a new home, or planning for retirement, as well as look at negative events like what they’d face financially were they to lose their job,” he says.

Make use of technology

The way Bertrand sees it, using a platform where users can explore the possibilities themselves, allows them to learn at their own pace.

This minimises the fear of having users feel embarrassed or feel that they’re asking stupid questions, he says.

Ultimately, it demystifies the world of finance, giving them the confidence to take action.

Of course, in the age of technology, nothing is too simple or too difficult to seek answers too. A simple click of the button on the internet, and you’ll find what you need, most of the time.

And if you’re still unsure, you can simply head to any financial institution to get the answers you need.