Friday, 1 January 2016

The "Onepunch" Financial Training

Image result for one punch man image

For those who have not watched "one-punch man"; Saitama (the main character), is the most powerful hero who blows villains away by his superhuman strength in punching. When being questioned on the origins of his superhuman strength, Saitama replies he of his daily repetitions he does without fail:
Saitama training

  • 100 Push-ups
  • 100 Sit-ups
  • 100 Squat
  • Run 10km 

And no matter how tough the training gets, he never stopped hit not even for a single day. It took him three years to reach that strength and perhaps, the strengthening of his mind. 

Maybe "one-punching" our way to financial freedom could be simple too. Instill financial discipline, sprinkle some repetitions, never give up on the regime and we become "powerpuff hero". 

So without further ado, here's the (possible) secret recipe to financial superpowers.

Save 20% of your monthly bonus 
You would have probably heard this phrase over and over again: "Income - Saving = Expenses". So yes, just save 20% of your take home monthly income (and 100% of your bonus). Always save 20% of your income first before you think of other expenditures. To summarise, save 20% of your take home pay and feel free to indulge with the remaining 80%.

100% employment 
If possible, keep working until you are 55. This is because when during the initial stages of your working life, your invested capital is very small. Any magnitude in gains and losses in your portfolio will not be as great as the amount of savings you add. 

Quoting from the business insider: 

"Buffett made $62.7 billion of his $63.3 billion networth after his 50th birthday. $60 billion — nearly 95% — is from after his 60th birthday."

This shows how the compounding effect on your wealth will only be significantly felt after you have amassed a sufficient amount of capital.

100% on term and medical insurance
Focus your insurance expense/need into buying only term and basic medical insurance (Don't buy any other kind of insurance for now). This insurance expenses should be part of your "80% expenses".

100% of what is saved equally into STI ETF and CPF 
Do it monthly. While people will ask what happens to the money in your CPF, let me share. Firstly, the money you deposit is automatically set aside for your minimum sum. This means when you turn 55, you can't withdraw the money if the rest of your CPF savings don't meet the minimum sum. 

However, if you have been working till 55 and earn about $2,500 per month, it is likely you would have met the CPF basic sum ($80,5000 currently) with ease, especially for Singaporean males. Using a simple illustration: 

CPF savings: $100,000; Contribution into CPF under this plan : $40,000

Assuming you decide to go with the minimum sum of $80,500. The $40,000 you have deposited on your own will be first used for the $80,500. This means the other $40,500 will be taken from your "$100,000 CPF saving", allowing you to opt for a withdrawal of $59,500.

If you are gungho enough and wish to skip the complexities of the CPF system, just channel the entire 20% into the SPDR STI ETF.

Train your mental resilience
Ignore those "trading seminars which promises high profits", keep to the regime. Alternatively, you may be tempted to take a break and indulge or your friends may suan you. But no! Keep to this regime! 

You are already indulging with 80% of your take home pay.

A small Diclaimer

However, I will like to do a disclaimer: " I do not think the STI will do well in the short run, the key is to buy in monthly as over the long run, the SPDR STI ETF has always done well - about 6.6% annual returns since its inception in 2002." Hence, I believe this strategy will outperform the numerous financial plans out there over the long run.

(*The author is merely a "B-ranked hero" who just started out on the hero journey. He is only a financial hero as a hobby, so please don't take him too seriously. Please note the publication of posts is solely for informational purposes and is not to be construed as a solicitation or financial advice)

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