Tuesday, November 15, 2011
$500,000 by 33 years old
To achieve $500k in investable assets by age 33, I have made several assumptions:
(1) My wife and I will save at least $2500 monthly combined($30,000 yearly) from age 28 to 30 and $3500 monthly($42,000 yearly) after I turn 30
(2) At least 2 major bear markets in the next 10years: Invest lump sum periodically during downturn to achieve an average return of 8% per year.
(3) The money in my CPF OA combined with my spouse's is enough to pay for the down payment and other miscellaneous fees - cash will only be used for renovation
(4) Spend no more than $50,000 at age 28 for renovation of house and wedding($150,000 left) : Ang Pow money can cover at least 70% of wedding dinner.
Here is how i calculate my net worth to be $500,000 based on the information given in point (1) to (4) above:
Based on the information that I will save $30,000 yearly from age 28 to 30 and $42,000 yearly after 30, I use a return of 8% to calculate future value of cash flows and initial principal of $150,000 at age 28:
33: [FV of principal and cash flows from age 28 to 32] + $48,000(amt saved at age 33) = $470182 + $48,000 = $518182
Note: Cashflows in arrears
Some of the assumptions might sound unrealistic but for point (2) to (4), I realized that it is quite feasible after some thorough research and calculations. Only point (1) has the most uncertainty because I did not take kids into account and saving $3500 a month might be quite an arduous task after setting up a family. Also, I did not consider that my wife or I might be retrenched during this period. Once again, a goal should be slightly unattainable and I look forward to overcoming these challenges and uncertainties.