PiggyBank (Adulting version)

Sudden Wealth Syndrome (SWS) is a phenomenon often experienced by individuals when they start to earn a life-changing amount of wealth. Many tend to overspend and do not have proper finance management to properly utilize the excess funds. While many think this is a problem the wealthy face, we beg to differ. It is more about the percentage of changes rather than the nominal amount of our money. When we received our first salary after graduation, that money was significant. We were so used to the meager amount of pocket money that our salary, regardless of the amount, enabled us to spend on more options in life. Ranging from exquisite dining experiences to adventurous activities, we were constantly planning to partake in such indulgence. Only after months of frivolous spending did we realize that we need to take a step back, reflect and plan for our future wants and goals. Admittedly, it was a tough process. Planning requires rigorous research and meetups with experts on top of our work schedule. In this post, we plan to share some tips that worked for us when we first started to manage our finances. We hope that they will be useful for you too.

The first step is to start tracking our expenses and allocating budgets. Coincidentally, this is one of the questions asked by many financial advisors in the first meeting. The rationale is to ensure that we are aware of our spending habits so that we can make conscious decisions going forward and plan our financial goals realistically. The next step is to allocate budgets for different categories. We researched through countless blogs for recommendations as well as tips from finance experts on the ‘optimal’ budget allocations and we found that 50% of our salary should be used for necessities, followed by 30% on our wants and to save and invest the rest. However, these numbers may vary depending on your priorities and current financial situation. The key point is to build your nest egg by saving and investing as early as possible (this point will be covered below).

In our case, necessities include rent, transportation, phone bills, insurance, food and others. Personally, we budgeted 30% of our necessity budget on rent and 3 to 8% on insurance. We consider insurance to be part of our necessities because its purpose is to protect us from financial risks should anything happen to us (e.g. death, disability, terminal illness, and others). Two key pointers that we learned during our research are

1. To get health insurance when we are young and healthy

2. To NOT opt for any of the investment products with insurance companies

Getting the crucial insurance as early as possible is important so that you get the maximum coverage from your insurance plan. When you were diagnosed with a health condition before you purchased your insurance plan, insurance companies tend to exclude claims related to prior medical history. Whereas, the rationale for not opting for investment products goes back to our understanding that insurance is supposed to protect us instead of helping us generate money. Even though there are insurance products that give you a decent yield (~5%), the management cost is usually much higher. You could have gotten a much better return on investment through other means, which we will discuss more in our later articles.

30% of our salary is allocated for our wants, a.k.a. desired lifestyle. This money can be spent to pursue hobbies, enjoy entertainment, travel, etc. We often think of this money as our new pocket money, which is ironic because as kids, we have always fantasized that we will be able to buy whatever we want when we start earning our own money. However, as adults, we still need to restrict ourselves by the concept of ‘pocket money’  because we are still bound by our limited salary and the ever-growing financial responsibilities in life (mortgages, retirement funds, savings for future kids, etc). Nevertheless, it is still important to enjoy your youth. Just remember to spend it wisely!

We have allocated 20% of our salary for investment and savings. It is recommended to build up a saving with a minimum of 6 months' worth of expenditure or 3 months' worth of salary in case of emergencies. This saving can be used in cases of temporary unemployment due to layoffs, personal reasons, and others. Personally, we decided to allocate all 20% for savings first then started our investing journey.

Honestly, we started our investing journey quite late, which is one of our biggest regrets in life to this day. We missed the opportunity to invest at a very low price when COVID-19 hit the stock market. As a comparison, when COVID-19 first affected the stock market, the index fund price dropped to USD 60/unit. However, when we started investing 6 months later, it was at USD 90/unit. We could have invested 6 months earlier and gained USD 30/unit of easy profit in just 6 months! However, to quote the common sentiment, no one really knows how the market moves so it is better not to waste our time and effort trying to time your purchase. It is always wise to start early and to regularly average out the fluctuations in the stock prices. We will go through our learnings on investing in another post as it will be a lengthy one.

Wow, it has been a long post and thank you for staying with us till the end. Many of you must think that ‘adulting is HARD’, right? As soon as you start working, there are these long lists of things to plan. That was what we felt at the start as well. But now, all these are part of our habit and it only takes minimal effort to follow it. This is also a reason why we decided to start this blog. At the time we started our adulting journey, there was rarely any platform that helped to summarize everything. As stated on our front page, it was our sincere hope that this blog will make adulting easier for you.

Finally, we would like to put a disclaimer that we are not licensed financial advisors. We are simply sharing what we deem important and what worked for us. It is always up to you to decide on the arrangements that work best for you. To end this post, we would like to emphasize the need to not only spend our hard-earned money wisely but also to work harder and smarter to increase our income. Cheers to the start of the pursuit of Excel Vita!

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