Financial independence and early retirement are the aspiration of many in Singapore. However, the Manulife Asia Care Survey 2024 reveals that nearly 70% of respondents in Singapore rely on cash savings and bank deposits to reach their financial goals.
This strategy could jeopardise your financial health, as factors like rising living costs, increasing loan interest rates, and escalating healthcare expenses are already draining savings. How can you avoid these pitfalls and unlock financial independence?
In this article, we’ll explore:
- what financial independence means,
- why relying solely on cash savings and bank deposits is a critical error, and
- how you can achieve financial freedom through smart investments.
Table of contents
- What is Financial Independence?
- A Common Mistake — Prioritising Cash Savings And Bank Deposits for Financial Freedom
- Now, How Do You Achieve Financial Independence?
- Embrace the Journey Ahead In Your Path to Financial Freedom
What is Financial Independence?
Financial independence (FI) means having enough personal wealth to cover essential expenses and long-term goals without relying on a regular job or others for financial support.
A Common Mistake — Prioritising Cash Savings And Bank Deposits for Financial Freedom
The survey revealed that 70% of survey respondents in Singapore rely on cash savings and bank deposits to achieve their financial goals. This can be a precarious strategy if you are relying on it to retire. With inflation, the actual value of cash savings and bank deposits tend to fall as bank interest rates tend to be lower than the inflation rate.
Why Relying on Cash Savings is a Mistake
Here are three reasons why you should reconsider your financial strategy if you’re only focusing on cash savings to fund your retirement:
- Low Returns: Cash savings and bank deposits typically offer low-interest rates, often not even keeping pace with inflation.
- Erosion of Purchasing Power: Over time, inflation erodes the purchasing power of your money. If your savings are not growing at an interest rate that outpaces inflation, you are effectively losing money.
- Missed Opportunities: By not investing in well-researched opportunities, you might miss out on potential returns that could help accelerate your journey to financial independence. Keep in mind that investments come with risks, so it's crucial to approach investing with informed decision-making.
Now, How Do You Achieve Financial Independence?
There are five things you’d need to do to achieve your financial goals, which we’ve broken down below.
1. Determine How Much You Need to Live Comfortably Without Working (your “FI number”)
The Financial Independence (FI) number refers to the amount of money you need to accumulate in order to live comfortably without working. To determine this, a general rule of thumb is to calculate your annual living expenses and multiply by 25. You can consider increasing or decreasing that number based on your desired lifestyle.
2. Start Investing Early
Investing early can improve your long-term wealth. By starting young, you benefit from compound interest, which can turn small investments into substantial amounts over time.
For example, consider a 35 year old male purchasing Manulife’s InvestReady Growth 15 Years Flexi 10 plan. With an annual basic premium of S$12,000 and an illustrated investment rate of return of 8% per annum plus additional bonuses and without any policy changes, he could multiply his savings by 286%1 when he reaches 60 years. Download the brochure to learn more.
1 Based on an illustrated investment rate of return of 4% per annum, his savings could multiply by 130% when he reaches 60 years.
3. Diversify Your Investments
Contrary to what most may think, investing aggressively doesn't mean taking on uncalculated risks. It means allocating a significant portion of your portfolio to higher-risk investments with the goal of achieving higher potential returns.
But we need to be mindful that this approach certainly does not equate to higher returns.
What we can do is diversify, which helps to manage risk while optimising returns. You can consider a mix of:
- Fixed-income instruments e.g., bonds
- Stocks: Equities offer growth potential but, come with higher volatility and risks.
- Real Estate Investment Trusts (REITs): REITs provide exposure to real estate markets with the added benefit of liquidity and regular income, but offer little capital appreciation.
An Investment-Linked Policy (ILP) gives you the ability to diversify by offering you a range of funds with various risk ratings. You need to assess your risk appetite before deciding how much risk you want to take on for your investments.
4. Invest Regularly to Smooth Out Market Volatility
One strategy to mitigate market volatility is investing in regular amounts over time, known as dollar-cost averaging. This approach can help smooth out the effects of market fluctuations by buying more shares or units when prices are low and fewer when prices are high.
5. Cut Down On Non-Essential Expenditures
The survey also highlighted how respondents are tackling inflation. More than 50% of respondents were cutting down on daily life spending, entertainment activities, luxury products or services, and other non-essential items.
Embrace the Journey Ahead In Your Path to Financial Freedom
As we’ve explored, the dream of financial independence is an achievable goal that requires a thoughtful approach to managing your money. While many find themselves in the comfort of cash savings and bank deposits, this strategy can leave you vulnerable to inflation and missed growth opportunities.
By embracing smart investment strategies and taking control of your financial future, you can pave the way to a life free from financial stress. So, take that first step today and transform your financial independence dream into a reality.
Disclosure
This article is sponsored and contains paid promotional content. The views and opinions expressed herein are those of the sponsors and do not necessarily reflect the official policy or position of the site. Readers are advised to exercise their own judgement and discretion when engaging with the products or services mentioned in the article. Prices indicated are subject to change.
Important Notes
Manulife InvestReady Growth and its supplementary benefits are underwritten by Manulife (Singapore) Pte. Ltd. (Reg. No. 198002116D). This advertisement has not been reviewed by the Monetary Authority of Singapore. Buying a life insurance policy is a long-term commitment. There may be high costs involved if you terminate the policy early, and your policy’s surrender value (if any) may be zero or less than the total premiums paid. Your investments are subject to investment risks, and you may lose the principal amount invested. The performance of the InvestReady Growth Fund(s) is/are not guaranteed. The unit prices and any income accruing to it may fall as well as rise. The fund managers shall have the absolute discretion to determine whether a distribution is to be made in respect of the InvestReady Growth Fund(s) as well as the rate and frequency of distributions to be made. The intention of the fund managers to make the distribution and the distribution yield for the InvestReady Growth Fund(s) is not guaranteed, and the fund managers may review the distribution policy depending on prevailing market conditions. Distributions may be made out of income, net capital gains and/or capital. Past distribution yields and payments are not necessarily indicative of future distribution yields and payments. Any payment of distributions by the InvestReady Growth Fund(s) may result in an immediate decrease in the net asset value per unit. You should read the Prospectuses and the Product Highlights Sheet and seek financial advice before deciding whether to purchase units in the InvestReady Growth Fund(s). A copy of the Prospectus and the Product Highlights Sheet can be obtained from a Manulife Financial Consultant or our Appointed Distributors.
This article is for your information only and does not consider your specific investment objectives, financial situation or needs. It is not a contract of insurance and is not intended as an offer or recommendation to purchase the plan. You can find the full terms and conditions, details, and exclusions for the mentioned insurance product in the policy contract.
This policy is protected under the Policy Owners’ Protection Scheme which is administered by the Singapore Deposit Insurance Corporation (SDIC). Coverage for your policy is automatic and no further action is required from you. For more information on the types of benefits that are covered under the scheme as well as the limits of coverage, where applicable, please contact us or visit the LIA or SDIC websites (www.lia.org.sg or www.sdic.org.sg).
We recommend that you seek advice from a Manulife Financial Consultant or our Appointed Distributors before making a commitment to purchase a policy.
Information is correct as at 26 September 2024.
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