With GE2020 around the corner, we thought it would be nice to jot people's memory on a rally speech Senior Minister Tharman Shanmugaratnam once gave on budgeting.
In GE2015, Senior Minister Tharman gave a rally speech about how important prudent budgeting is for the country.
We felt that his points were not only suitable for managing the country's finance, but also for everyone's personal finance!
As such, we will be elaborating how it can be used for our personal benefits.
Video Link:
Start from 27:27 if you aren't interested in the whole 37 minutes speech.
First 4 Minutes of video: Prudent Budgeting & Asset Management.
Next 3 Minutes of video: Explaining CPF returns.
We will be talking about the first 4 minutes in this post
Video's First 4 Minutes
In the video, Senior Minister Tharman mentioned that in Singapore.
1) We've had more than 30 years of the budget surplus being saved away in reserves.
2) We sold the land for money and kept the money also in reserves.
3) The reserves are then invested, which allows us to draw continuously on the reserves every year by using the income on reserves.
4) Half the returns generated from the investments are used to spend for many different purposes (education, infrastructure, medical etc).
5) The other half is kept away in reserves, re-invested to create future cash in-flows.
Recommended Read: You Should Not Choose the CPF LIFE Basic Plan
Translating to Individual Personal Finance
Translating this to a personal level.
1) When we are working, we should always save away a portion of our income (a budget surplus).
2) If we have additional income (ang baos, bonus, etc), try to save most of it also.
3) Your savings should be invested.
Only then, will it be able to generate income every year, allowing you to draw on it continuously.
4) You can choose to spend half of your annual returns from investment on things you need or want (an overseas trip, a new laptop, renovating your house etc).
5) The other half of your annual returns should be saved and re-invested to generate even more income in the future
Our View:
1) We think that if you are young, if and when possible, try to re-invest as much of your annual investment returns back and draw it only when you are older/retired.
Grow your future income while you still have a stable monthly income.
Although this is rarely possible (it is always tempting to spend, I totally agree!), try to save and invest as much as you can.
2) Singapore saved vast reserves and invested them, thus have huge annual investment incomes that can be spent for many different purposes.
You too can do that for your future.
Save and Invest Continuously!
IF you end up spending only your annual investment returns for retirement, you can pass your "vast reserves" to your kids.
If they too follow this prudent budgeting, they can add their savings to your "reserves", benefiting them and their future generations even more!
Recommended Read: Answering the 2 Common CPF "Complaints"
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