Lecturer of DNU Banking and Finance Faculty reveals the secret to turning 1.4 million a month into 7 billion VND

As quality of life improves, you can expect to live longer than the current average life expectancy of 73.7 years in Vietnam.

Living longer may sound like good news, but you'll have to work hard to save enough money to live comfortably for that long. A common mistake people make is not planning for retirement early enough. The longer you wait, the more you have to work or save to make ends meet. Saving more for the future means you'll have to spend less in the present. Even early planning doesn't guarantee success, as it depends on your investing ability and your time, but it's better to plan early. Learning how to budget, save, and invest is an essential part of retirement planning.

Inflation is the cause of the loss of purchasing power of money, your money will lose value every year due to inflation. Therefore, to make the personal financial plan as realistic as possible, in the assumption of this article, the average annual inflation rate included in the estimate is 4%.

MSc. Le Tuan Anh - Lecturer of Banking and Finance Department.

Typically, a student graduates at 22 years old, with an average starting salary of 7 million VND/month (equivalent to 84 million/year). At each stage of life, your income will also have a different growth rate. In this article, a person's working time will be divided into three stages. Stage 1, from 22 to 32 years old, is the start-up stage of a person and also has a good income growth rate. Stage 2, from 32 to 42 years old, is the stage where income has the best opportunity to grow. Finally, stage 3 from 42 years old onwards, an individual's income tends to be more stable, with a slower growth rate than the previous two stages. In this article, the salary growth rate in the three stages is assumed to be only higher than the average inflation rate, at 5%, 6% and 4% respectively.

Because of the compounding effect of “compound interest”, the return on the initial principal will become more positive over time. If you invest when you are young, the total value of your investment will increase many times the original amount by the time you retire. Compound interest was described by Albert Einstein as the 8th wonder of the world, however, compound interest can only be fully effective when investors are disciplined and invest for the long term. The beauty of a “wonder” can only be brought out when the beholder knows and understands its true value.

According to the 50-30-20 effective spending management principle, the standard monthly investment and savings ratio is 20%. Therefore, in the article's assumption, the investment and savings ratio is 20% (1.4 million VND/month). The average profit of the VN-Index in the past 10 years is 12%. Therefore, the assumed annual investment profit of 10% in the article is completely feasible.

Statistical table of hypothetical data in the article.

Source: calculation based on AFA Capital Financial Planning tool

Thus, from the start of your career at the age of 22 until the retirement age of 64, with a clear personal financial plan and discipline in financial investment, you can completely achieve the goal of owning 7 billion VND with a savings investment of only 1.4 million VND per month.

MSc. Le Tuan Anh - Lecturer of Banking and Finance Department