Compounded Expenses

In a previous post,  “How much do you need to retire” , i concluded that the key component to that question lies in your expenses and that will determine how far are you away from reaching financial independence. In a separate post,  “Knowing your real hourly wage”, we also discussed our “real hourly wage”, where work related expenses are also taken into account.

In this post, I’m going to quantify what are you actually spending when your expenses is instead invested and compounded over a period of time.

I listed below on all the possible working expenses that one might incur throughout the week (all in Singapore Dollars):

Commuting (City Express Bus – $50 both ways)

Meals (Starbucks coffee – $25, executive set lunch -$100,  tea break snack – $25)

Other worklife related expenses (Gym membership – $25, massage – $25)

Total working expenses per week = $250 ( $1000 per month)

Below is a compounded expenses table if expenses is invested instead of being spent. (Returns @ 5% annually and compounded over 30 years)

Compound interest – meaning that the interest you earn each year is added to your principal, so that the balance doesn’t merely grow, it grows at an increasing rate – is one of the most useful concepts in finance. 



Lets say you spend $100 per month on your Starbucks coffee:

If $100 per month / $1200 per year is save and invested instead of being spent on your coffee, this amount compounded annually @ 5% will turn to $83,712.96 at the end of 30 years. So this $100 per month expense actually turns to a potential future value of $83,712.96 (refer to above table) .

So the $1000 you spend on a monthly basis on the above expenses (commuting, meals and others) might be worth a potential future value of $837,129.60. This amount at the end of 30 years will be very significant contribution towards a secure and comfortable retirement.


A lot of people will complain that they are working too hard nowadays and they really need to spend that money to make them feel “happy” or to justify the hard work they have put in. I’m not asking you to stop drinking Starbucks coffee altogether but try to drink it once in a while to ensure that you save some money. It helps you to manage your short term happiness against the long term effect you might have towards a more comfortable financial future. And to me, its more about making little changes everyday to reduce your expenses and conscientiously ask yourself if drinking Starbucks coffee everyday will really make you happy. This will make you change your perspective about spending that mere $5 Starbucks coffee forever.

Recently, we just moved into our new minimalist home and was contemplating if i should sign up for a cable TV  with our local telco Singtel Mio TV with sports channel for about $70 a month (that is a potential $840 a year of expense). As you might already know, the prices of this kind of cable TV packages will only go up and never go down. And once you sign up, you will be hooked and will always have to upgrade your plan to maintain your lifestyle.

So i was explaining to Kate that we should instead invest this money in Singtel stock instead as i think they are making good money out of consumers like us. They also pay a steady dividend of 4-5% annually and is the largest Southeast Asia telecommunication company (brief description below).

Singapore Telecommunications Limited, commonly abbreviated as Singtel, is a Singaporean telecommunications company, with a combined mobile subscriber base of over 600 million customers in 25 countries at end of July, 2016, making it one of the largest mobile network operators in Singapore and the 20–30 largest in the world.

I also mentioned to Kate that once we invested enough in Singtel stock to pay us annual dividends that is equivalent to  $840, during then we decide whether to subscribe for cable TV or not (but I guess end of the day, i might not miss cable TV at all). This will act as a motivation for us to save and invest instead of just spending all the money without weighing all our available options. As an alternative , we watch shows/videos online and frequent the library.

You might be thinking of retirement at age 60 or you might fear not being able to retire at all. For other people, it might take 30 years to reach financial independence, but for us with a minimalist lifestyle, we might reach it within 10 years.  I guess life is all about choices and it is possible if you are willing to make small changes to your lifestyle.


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