What Magic Number?

Throughout my investing journey, I’ve met some financial consultants (some good, some bad) and had the opportunity to discuss on financial independence. Most of them would give you the standard presentation package that was hardwired into their brains. At some point, they will assist you to calculate your “magic number” that will guarantee financial independence. Yes, the amount of money that once you have it, you can say IDGAF to anyone else (or”screw you money” for short).

However, why would I want to quantify my future over a single number? Isn’t retirement planning far too complicated for us to be using such a simplistic approach? Of course, after these meetings I will come out rather depressed as my number is usually unattainable. Rather than debating on what is your number, it is more important to remember the primary goal of financial planning – following a course of action intended to achieve your objectives. There is no need for a magic number, my point is that getting the process right is more important.

The most important step to start your journey off right is to identify your goals and how much (rough estimate) you need them. You must have a reason for wanting to invest no? Investment is not so much about the money as it is only a tool for you to use to create the lifestyle you want.

Secondly, work out how much money you have or are willing to put aside for investing. I would suggest to work backwards by eliminating expenses from utility bills, food & mortgage expenses. Work out a budget which includes the amount you need to save. From this, it’s clear for you to see how to reduce those unnecessary expenses.

Third, knowledge is power. To improve your investing capabilities and your investment portfolio performance, it is important to learn as much as you can about investing. SGX offers investment seminars which is a good place to start. I would also suggest to do find a investment guru, learn about their investment thesis and biases and see if it suits your risk appetite.

Lastly, you have to start investing in order to see any results. If you dont really have the time to do your own research, it is also possible to invest in exchange traded funds (ETFs) that acts as index funds for stock or bond markets. Interestingly, 2017 marks the fourth year the S&P 500 Index outperformed legendary investor Warren Buffet’s company, Berkshire Hathaway.

Coming back to the topic of ‘magic number’ what is the targeted rate of return that you should work towards? Many pointed to anything greater 4% as that is the interest rate that one will get if you put your savings into CPF’s Special Account. My personal target is 10% per annum.

All in all, an alternative to having a “magic number” when planning for one’s financial independence is to invest and follow through the whole process. The journey may seem complicated, the road rarely direct, but starting now and having a plan to navigate its twist and turns can bring you a far better financial future.

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