Key lessons learnt for 2007 in financial freedom

2008 is coming soon.

Looking back, I have written a total of 143 blog posts (including this post) since this blog was started early this year. I have averaged a blog post every two to three days and I have learnt more about my own journey towards financial freedom through thinking and writing about my own adventures in fivecentstencents.

What are the 5 key lessons I have learnt in 2007 in terms of financial freedom?

1) Preserve capital
I have come to realise that not losing money is really the fundamental principle in growing my investible savings towards the levels needed for passive income to exceed living expenses. If you lose capital, you have to earn it back through work/business/investments to top it up. When you preserve capital, you have the ability to deploy that capital into defensive investments to ride out volatile climates or put that capital into growth areas for measured risk taking. If your capital declines over time, your networth also declines with it.

The market is always there for you. You do not have to be trading all the time to grow your networth. Choose your engagements with the market in your own time. If you have capital you have holding power. You can always come back to the market again in the near future.

2) Practice risk management
To be 100% in any asset class is highly risky and does not provide for any diversification. The August 2007 correction demonstrated clearly to me when I was in equities that my porfolio could submerge faster than you can say, "sub-prime". Hence, I realise I need to continuously keep a portion of my portfolio in less risky assets such as treasury bills or deposits as a counter-balance to the volatilty in the other assets.

3) Monitor your investments
Knowing what your networth is allows you to better plan the level of risks and returns you can afford to take with your investments. Currently, I am about 13% in cash and cash equivalents and 87% in equities. This is relatively aggressive as I still have a long time horizon before I hit the CPF minimum withdrawal age and hence I am focussed on growing my retirement nest egg by taking more risks now while I still have years of working life in me.

Monitoring my investments allows me to track whether I am moving closer or further away from my targetted investible savings that is sufficient to generate enough passive income to cover my living expenses. You need to take periodic stock take in order to ascertain if you are on course towards your goal of financial freedom.

4) Develop patience
The road towards financial freedom is long. Patience is required to continue each day by living within your means, saving and investing and planning for the long-term. Occasional sacrifices of not blowing bonuses away on the latest gadgets, the coolest luxury good or the exotic holiday need to be made so as to build up investment capital. Patience and a cool head is also needed to ride out the market turbulence and volatility that will be the hallmark of the equity market.

5) Enjoy the journey
This is perhaps the most critical lesson of them all. To be happy whether or not you hit your financial freedom target. Life is to be savoured each day while we are on the journey. The journey itself is half the fun! You strive towards each of your smaller objectives that help you meet your overall goal of financial freedom.

In the meantime, enjoy the process, take pleasure in the simple things in life: a child's laugher; family dinner together; an exciting movie; a pleasant stroll in a public park; feeling the cool water as you swim laps; tasting a freshly home-cooked meal; seeing your networth grow every month, year and decade.

Above all, I wish you the greatest lesson... the lesson of being thankful for the things in life we already have: health, happiness and family.

Be well and prosper!

Cash management 101

You are interested in your finances to read my blog.

You want to know about investments, personal finance and money management.

Ultimately, you want to be financially free.

Why cash management?
One of the building blocks for growing your net-worth and maximising the returns from your savings is to manage your cash well. Today's high inflation rates of 4-5% in Singapore has resulted in our savings accounts earning 0.25% having a negative return of 0.25% less 4% (or -3.75%). Thefore, just to mitigate the negative return of holding cash, you should consider cash management to hold as little cash as possible in savings or deposits and try to allocate more towards assets that generate a better return that inflation.

All investments come with risk and therefore even if you are 90-99% invested in assets such as property, stocks and shares, bonds, gold, commodities etc, you would still need to hold some cash. This cash acts as both as requirement for day-to-day living expenses or incidental lifestyle expenses such as renovations, purchase of big ticket items such as car, LCD television, washing machine when they break down or when you upgrade. Holding some cash also diversifies your portfolio and gives you some liquidity to take on larger positions in stocks and shares or other investments should the opportunity arise.

How to manage your cash?

1. Determine how much cash you need on hand
The first step is to determine how much of your investment portfolio should be in cash. Some financial planners advocate a 3 month or 6 months of living expenses as your buffer. Others advocate a percentage of your total investment portfolio, say 5% or 10%. There is no right or wrong answer as each of you vary in risk profile, appetite and personal circumstances.

My own approach is to be weighted at about 5-10% in cash which is very aggressive. This is because I am still fundamentally bullish about the Singapore economy (and hence, the stock market) for 2008 but also realise that the stock market is going to be very volatile.

2. Manage your cash among savings deposits, treasury bills, fixed deposits
Once you have decided that you will need, say 10% of your investments in cash and cash equivalents for living expenses and the budgeted big ticket item, it's time to actively decide where you will place this cash. Now cash means different things to different people. For me, cash can be broken down to:

a) Cash on hand
- the notes and coins you have in your wallet, cashcard or prepaid transitlink card

b) Savings accounts
- low interest bearing POSB /DBS /UOB /OCBC /maybank isavvy/ stanchart esaver bank account

c) Fixed deposits
- short-term 1 to 24 month deposit bearing higher than savings rate

d) Treasury bills
- short-term 3-12 month interesting bearing zero-coupon government securities

3. A suggested cash portfolio
My own experience with personal cash management is to keep 3 months expenses available. With minimal kept in the savings account. Every month, after my salary is credited into my bank account, I will transfer most of it into maybank's iSavvy account as it yields 1.68% (as at 28 Dec 2007) for balances S$5,000 to $50,000. I will monitor treasury bills and buy from Poems as it allows me to get in at a known yield less 12-15 basis points (0.12 to 0.15%). I do not get into fixed deposits nowadays because the higher interest paid is not sufficient to offset the relative illiquidity. Treasury bills bought through Poems allows me to sell and convert back to cash within T+1 working day.

During year end when there are bonuses or windfalls, I will reallocate the cash to other investments but put more into treasury bills if I do not wish to buy more stocks and shares or bonds.

In general, Maybank iSavvy + treasury bills are liquid enough as I can get the cash by T+1 or worst-case T+2 which is good enough for most lifestyle expenses. Other unbudgeted big ticket items can be funded through selling some shares but this is usually not the preferred method as I would be under pressure to sell and may even incur realised losses as the portfolio of equities will have some winners and losers.

Tracking your cash
Tracking your cash is important because you should know at any point in time, how much cash you can raise should you need to make changes to your investment portfolio. In addition, I also work out what is my cash holdings generating for me in terms of returns to see how I am doing in terms of growng my net-worth.

At the end of the day, the combination of your cash flows to match your lifestyle as well as your investment asset allocation strategy will determine how much or how little cash to hold. So long as you are aware of where you cash flows go and that you manage to save each month, you are continuing on your journey towards financial freedom.

Be well and prosper.

Enjoying windfalls from punting

The picture you see above is the site of the future Integrated Resort (also known as: the Casino@Sentosa) near the northern shores of Sentosa formerly known as Pulau Blakan Mati.

The thin line between investing and speculating in stocks and shares
The stock market is a place where money can be made and lost and both at the same time as every transaction is a match at the price that the buyer is willing to buy and the seller is willing to sell at each point in time. When you have a clear investment objective and your reasons for investing appear sound you are investing. You are trying to grow your net worth and to get a better return than inflation from buying shares in a business. If you are buying shares (or short-selling them) with a goal to make a quick dollar within minutes, hours or days, you could be gambling in the stock market.

Seasoned investors sometimes joke that an investment is a speculative trade that has gone sour. :-)

The thin line between investing and speculation can boil down to what is your intention at that moment in time. In reality, no-one but yourself knows that true reason why you buy/sell that share and it could be due to fundamental analysis, technical analysis or fortune teller's advice depending on your information sources for decision making.

Enjoying the occasional windfalls from gambling on the stock market
I enjoy the occasional punt in the stock market as well. While the majority of my portfolio is in blue-chip companies with impeccable businesses, I do punt for quick gains. I do this because I also love a game of chance, and the stock market does provide that avenue. Let's be honest here, many of you buy the occasional 4D, TOTO or Big Sweep ticket all in the guise of "charity" and helping the less fortunate in society but in reality there is something in our brains that responses to the interesting situations where you can make/lose money.

I do not advocate this approach as one of the ways to achieve financial freedom but I have found that investing can be made interesting with the occasional punt. However, such punts should be limited to small amounts say 5%-10% or less of your portfolio and you must set very clear targets for cutting loss or taking profit. This is pure gambling except that it goes under the guise of investing. So be very clear that speculation is gambling and if you should be adult enough to understand the risks and returns from such speculative activity. No one is asking you to punt and in fact, the point of this post is to say unequivocally that speculating is gambling and is VERY VERY RISKY.

I make the occasional punt to see if I can read market sentiment well for a given stock at a given point in time. Also, I see this as my way of earning some pocket money for little luxuries in life such as a nice meal in a restaurant or the occasional gadget. This keeps the investing game a little interesting for me and adds that flavour to my understanding of the market.

The road to financial freedom is long
The road to investing takes patience and perseverance. It is long and it is hard. For me, the occasional windfall from punting on short term speculative activity on a very small portion of my portfolio is one way to take additional risks for potential additional returns. I also do this to learn to read the market better over time and limit myself to occasional punts and limit my exposure to less than 10% of my portfolio. It also trains me to be less emotional about cutting losses and to be more controlled in when I enter/exit specific counters.

Each one of us travels on the road to financial freedom in different ways. I do not claim that my way is the right way or the better way but I can see my net worth growing every year.

Your financial freedom, your rules.

Be well and prosper.

Appear Rich or Die Trying

There are 200-300 individuals made bankrupts every MONTH. The Insolvency and Public Trustee Office (IPTO) tracks these sobering statistics in their website.

6 to 7 individuals are made bankrupt every day.

Think about it.

The pursuit of materialism at what cost?
Our consumerist culture that defines Singapore makes those who are not financially aware think that keeping up with the Joneses or Lims, Muthus and Alis is the way to SHOW that we have MADE IT in Singapore Inc. That we are somebody not just a no-body.

Who made it so? Who said that "Making it" or being successful in Singapore has to be measured in material terms? Why is it that we tend to value possessions and trinkets and we tend to devalue human relationships and being kind to your fellow human being?

My friends sms'd me during the Christmas holiday season to complain that no-one gave up their seats for their children who are 2 years old. I sms'd back to them saying that Singapore has become a dog-eat-dog society where we try to "get rich or die trying" and being gracious and giving is a lesser priority.

For those who don't get rich, they want to appear rich and hence leverage themselves to the hilt in order to own that car, 50-inch LCD television or that branded lifestyle. Consumerism fueled by consumer credit is a recipe for financial disaster.

Looking good only lasts a moment. Being made a bankrupt can ruin your entire life.

Only a few will achieve financial freedom
The path to financial freedom is known. It is not a secret. Virtually all personal finance books tell you to:

1. Work hard at your job/business
2. Live within your means
3. Save and invest

All of them tell you to manage your debt and to make clearing your debt a priority. Many teach you to differentiate between spending and saving. In deciding if every dollar you earn will be used to spend or to invest. Compound interest is your friend if you invest but it can be your worst enemy if you take on credit to spend on consumption.

Why are there 200-300 individuals each day who learn not the lessons that are already available in the public domain for the price of a library membership? Not all who are made bankrupt made so due solely to their own spending or lifestyles. Some were unfortunate enough to act as guarantors in loans or scholarships or bonds and ended up being played out by the person being guaranteed. Did you know that the parties to the bond or agreement can sue you for the monies or bond should the person under the bond/agreement not be able to fulfil it?

While many of you want to achieve financial freedom, some of you would have succeeded if you avoid bankruptcy. If you are some of those who still owe some consumer credit, do take heed from the advice given by IPTO on financial awareness. It may save you a good deal of grief in the near future.

Appear poor but get rich
My own personal philosophy towards financial freedom is to appear poor but to get rich by living within my means, saving and investing and not spending a lot on consumption. My wife sometimes complains because I can wear the same old polo shirts and hardly wear new stuff. I try to be always neat and presentable but am not too bothered that I don't spot any jewellery nor own a branded watch. I think the most expensive thing I own in my warddrobe is a suit that was given to me by my father.

You have to decide what is important to you. To look rich or to be financially free.

Being rich is measured by networth and not by the size of your house/car/wardrobe.

Be well and prosper.

Saving is dead! Long Live Saving!

Singaporeans are increasingly becoming a nation of spenders.

We are what we talk about
I frequent forums discussing personal finance and investments and it never fails to amaze me that in one of the forums frequented by young people from teens to late 20s, majority of the discussion topics or threads are about which is the best credit card to have instead of which is the best way to save and invest. The number of "spending" related threads and posts easily outnumber the number of threads and posts discussing "saving" and "investing" five to one.

We are how the wind blows
Singaporean society is a microcosm of the shifting winds of globalisation that are sweeping the entire planet. Our internet savvy, plugged-in generation Y or even Z are exposed to the latest trends in lifestyle, fashion, gadgets and accessories. The young are into youtube, iPod, MSN, SMS, gmail, PSP and Mp3. They are into the hip, happening and hi-bye lifestyle that goes on 24x7x365.

The unrelenting messages from the media fueled by the advertising dollar of multi-nationals selling the latest product or service is to "consume, consume and consume". Think back to last night's television programmes you watched from 8pm to 11pm. How many programs on television are about savings and investment? How many advertisements are they encouraging you to have the latest handphone, to buy that diamond ring as a symbol of your love or to visit the shopping mall to get the best gifts for your family?

Ironically, the only advertisement that tells you not to consume is the one about drunk driving. And even so the message is to drink responsibly and not to drink AND drive. No-one is telling you not to drink alcohol per se.

What is in our minds drives us as that moment in time
The messages that bombard our senses through sight (internet, television and print advertising), hearing (radio and television), and smell (bakeries and food stalls) are all screaming sublimally or overtly to eat, drink and be merry and to spend because spending is showing love.

How do we stop these messages from subverting us from our journey towards financial freedom? How do we pause and think do we need something or want something when we reach for our wallets and credit cards? How do we resist the irresistible lure of luxurious goods and pampered lifestyles?

By first pausing to think.

Training your mind to think
Our minds can be trained to accept certain thoughts and reject certain thoughts. I realised how malleable my mind was during my 2.5 years of full-time conscription in the Lion City where my body could be pushed beyond what my mind had thought it could. Once you realise you how much you can endure, the power of the mind becomes more apparent.

It is the same in your journey towards financial freedom. You think you cannot save. Then you cannot. You think you don't know how to invest. Then you don't. You think you will never be financially free. Then you will not.

Think or think not, that is YOUR choice.

It is your mind that you have to work on and it is with each and every single thought that comes into it during the day while you are conscious and during the night when you are unconscious that forms the building blocks towards training your thoughts towards financial freedom.

How I trained myself to eat quaker oats every morning from Monday to Friday
As part of my own efforts in achieving financial freedom, I realised that I had to take care of my health first but not allowing my weight to keep increasing every year. Poor health = more doctor's visits = more expenses and poor quality of life.

Even when I was required to do my annual individual physical proficiency tests (IPPT) as a reservist, my fitness was not very good as I would only train 1 month before my IPPT test and clear it and revert back to my relatively sedentary lifestyle. After I had completed my last reservist, I realised that I would not have the annual IPPT to push me to exercise and therefore I had to control my food intake.

My mother-in-law told me about the benefits of oats and I decided to try it out by eating it for breakfast from Mondays-Fridays. I still allowed myself to eat regular hawker breakfast fare such as cha-beehoon, wanton noodles or carrot cake on weekends so that I wouldn't binge.

Quaker oats plain without milk or anything sweet are not the most flavourful breakfast you can have. But I disciplined myself by telling myself that this was for my health and wealth. I filled my head of thoughts of having a slimmer waistline and my pants being looser over time. I stuck to the regime and occasionally lapsed but stuck with it 95% of the time. I continue to equate health=wealth=quaker oats breakfast and now find it easy to prepare and consume 3 tablespoons full of rolled oats on weekdays. I also consume rolled oats on occasional weekends when I eaten too much the night before.

In less than 1 year I had lost 1.5 kilogrammes in weight and shaved off 1 inch plus off my waistline. This is a great accomplishment because I didn't increase my level of exercise but I try to eat a balanced 3 meals a day with 2 servings of fruits and veggies as far as possible.

You can control your financial destiny
There are many things in our lives that are outside of our control, but our minds and our thoughts are within our control. It is not easy and even for my simple example of eating rolled oats Mondays to Fridays I don't claim that I can do it 100% of the time. But I do it 95% or more of the time and that is good enough for me to slim down and maintain my weight without significant increase in my exercise. The next step for me is to start to exercise again regularly as studies have shown that a 30 minute daily brisk walk can yield significant health benefits compared to doing moderate exercise of a higher intensity for three times a week.

Saving and investing can be done at various income levels. It is easier at higher income levels if you live a simple life. It can still be done at lower income levels. The question is whether you want to take the first step in controlling your thoughts one thought at a time, one day at a time.

Remember, every day in every way, you attract, health, happiness and wealth into your life!

Be well and prosper!

Wishing all my readers a blessed Christmas and a Happy New Year 2008

In our quest for financial freedom, let us all take time to reflect on the various things we have done (or not done!) in our quest for financial freedom.

Ultimately, financial freedom can be achieved if we are dedicated, disciplined and have an overwhelming desire to do so. I believe that such desire flows stronger from motives that resonate with each one of us personally. For myself, it is the motive of providing for my family both financially and with my time which can be achieved if I have some degree of financial independence away from my job.

For you, it could be to serve the greater good of your fellow humanity through volunteer work or charity which comes only if you can spare the time away from earning a living to do so. Financial freedom from a stream of passive income that supports your living expenses may be the means to do so.

For others, it could be to enjoy live without being a slave to your career, your dwelling place or your expenses and to truly connect with what matters most to you... to people - family, friends and loved ones.

If you truly desire financial freedom, you must focus and be driven from the innermost wellsprings of your heart to serve a greater good than just yourself.

I wish all my readers every success in their individual and diverse paths towards financial freedom and as always,

BE WELL AND PROSPER.

A Bird in Hand is Worth Two in the Bush

You have heard of the phrase, "A bird in hand is worth two in the bush". What does it mean to you as an investor who puts your money into stocks and shares as part of your strategy towards beating inflation and moving towards financial freedom?

Investing is not a guaranteed thing
In my limited experience of investing in stocks and shares (equities), I have realised that the term bandied about in investment forums, "expect the unexpected" really rings true. Those of you who believe in the random walk theory of stock prices will know that the price of a stock reflects all the available information about its future earnings, prospects and possibilities at a point in time. Market players will take positions to buy, sell or do nothing in response to what is happening or not at any point in time.

When you buy a stock of a company on a quoted exchange, you would like the company to do well and have more earnings so that it's future stock price will go up thereby allowing you to make a capital gain. In addition, if the stock you invest in pays a dividend, you would also like to partake in that return. However, in reality, how many times can you time the market perfectly that the stock price will go UP from the price you buy or it will go DOWN from the price you sell?

PG's personal style of investment
My own approach to stock investing has been to achieve a rate of return from realised/unrealised capital gains of at least double the higher of inflation rate or treasury bills risk-free rate. Given that inflation will be around 5%, that means trying to hit a return of 10%. This is challenging given the low savings and treasury bills yields (around 2%) and hence, equities provide a realistic but risky way to achieve that type of returns.

Deciding when to sell some of your stocks at a particular point in time is one of the most challenging things you will find in investing. Our human nature makes us want to sell at the highest of the highs while buying at the lowest of the lows. Hence, when the market is volatile, one is tempted to hold on to losers to avoid realised capital losses and also hold on to winners to realised the maximum of realised capital gains.

If you have strong holding power and believe in the Warren Buffet style of investing, then you will hold very long term and not cash out. In reality, most of you would need periodic cash payments for big ticket items or for certain lifestyle expenditures at some points in your journey towards financial freedom. You may have to sell some stocks. Should you sell your winners or should you sell your losers?

I recently chose to sell one of my winners because it had already achieved net 7% return (annualised 25%). I would have loved to keep holding it because it was in the money and it was a fundamentally strong counter. But faced with taking realised losses by selling my losers, I decided that this bird in my hand was worth two in the bush and hence sold it to lock in capital gains and also to free up some cash that I wanted.

Realised vs unrealised gains
The stock market unpredictable. Even big boys can get it wrong, what more retail investors like you and I? When you lock in realised gains, it is real and present. Something that literally adds money back into your bank account on T+3. When you continue to hold it, the market and the price of your stock can go up or it can go down. If you chose fundamentally sound companies, if you have holding power, you can ride out market fluctuations so long as the overall trend of your company's stock is up.

I choose to realise profits periodically partly because the market can be volatile as the last quarter of 2007 has shown and that when you can take money off the table, it's good to do so selectively. I aim to have at least 10% of my investments in risk-free assets such as treasury bills or relatively risk-free assets such as fixed deposits or money market instruments.

Your money, your style
Investing your own money is a reflection of your own personality and approach towards the risk-return continuum. I know that I cannot time the market at the peaks and the troughs. But what I know I can do is to lock in some realised profits and to periodically reallocate my portfolio to always have some risk-free assets to help mitigate the risks of the market.

Understand your own style and play up to your strengths but be aware of your weaknesses.

Be well and prosper!

Work-earn-spend-work Cycle

The endless cycle
You wake up. You wash up. You start the endless cycle of working, earning, spending and then back to working again. This cycle appears to be never ending, to consume our very souls as we wake up and go on autopilot. You wake up. You wash up. You start the endless cycle of working, earning, spending and then back to working again. You wake up. You wash up. You start the endless cycle of working, earning, spending and then back to working again.

STOP!

Pause...

Reflect...

Is this my life? Is this your life? Is this our lives?

Do you want to change?

Are you willing to do what it takes to make a change?

Then read on. :-)


Breaking free
Unless you were given a large inheritance or were born rich, you have to work for a living. If you want to do something else other than work (especially in the job you dislike), then you need to CHANGE in order to break free from what is universally known as the rat-race or working life.

The work-earn-spend-work cycle is necessary for us to feel valuable in society. To contribute by giving of our productive effort and to receive returns through the monthly paycheck. However, this cycle continues to perpetuate itself where you generally have to trade time for money. Each of our 24 hours or 8-10 hours or work a day are valued differently by different employers. Some of you could be making close to what our Ministers make, i.e. a few million Singapore dollars a year. Some of you could be making close to minimum wage or McWage of less than $1,000 a month or $12,000 a year. Some of you are still studying and haven't worked in a permanent job.

If you wish to break free of the rat-race, then you need to consider changing what you are doing in this cycle. I have come to realise that in order for me not to be still caught in this cycle by the time I am 67 or eligible to draw out my CPF monies, then I need to make some adjustments.


Adjusting your spending
This is one of the areas where we have the most control of. Some of you may think that you have power over your earning capacity. If you are able to work harder or longer or get promoted or clinch that bonus, you can improve you pay. But having achieved that, many of you may be tempted to spend more and you are back to your original position.

Adjusting your spending is one of the most direct ways you can control. In doing so, you can save more. Life is not about consumerism. If you do not agree with this, then you will have to work very hard at always increasing your earning capacity in order to save more if your spending pattern stays the same.

If you are able to control your spending, to consistently spend below your income, you will find that extra cash every month to save, save and save! These savings are the seeds of your financial freedom because it is through savings prudently allocated into investments that will yield you the returns passively to help you slowly be less reliant on your earned income.

With savings you can pay off debt. With savings you can have a buffer in case of emergency expenses. With savings you can withstand even short-term periods if 1 spouse's income becomes at risk. With savings you have more flexibility in financial planning.

When do you want to retire
Your retirement age is controlled by the Central Provident Fund Board if you only rely on the CPF system. Having savings IN ADDITION to CPF savings, you start to gain control over when and how you can retire. My goal is to develop my own retirement fund outside of the CPF system so that I can choose to retire when my investments have grown enough to generate a stream of recurring income that covers my living expenses. Having established a relatively simple life, I can live at a relatively low income level if I need to.

I don't need to keep up with the Joneses. My working watch is a Hamilton watch received from Mindef upon completion of my 10 year reservist obligations. I only have 2 pairs of black working shoes that I alternate each day. I have taken public transport as my main mode of transportation for the past 12 years. I live simply but I live well. My pleasures are simple. Books from the library. An occasional McDonald's sundae or cone. Movies. I take plenty of yummy fresh fruits and enjoy the occasional cup of Coffee Bean latte. I am happy with my simple life.

Rolexes don't move me. Designer clothes don't excite me. Expensive renovations don't thrill me.

Health and happiness through simplicity in life gets me going.

Family and friends makes me happy.

What are you willing to do to get out of the work-earn-spend-work cycle?

Be well and prosper.

To be or not to be (in debt): that is the question

Different people see debt differently
The issue of debt raises many points of views among different people.

Debt is an issue all of us have to deal with in one way or another because there are some things in life that we are unable to finance it fully in cash at the point of purchase. Your home for instance. As long as you have aspirations to own your own little abode, in most cases, you would have to finance it with debt besides using cash or your Central Provident Fund (CPF) monies to pay the downpayment of 10% or 20%. If you have aspirations to own your own car, chances are, you would take on some form of car loan to finance it. Some of you may want to splurge during the Christmas season on holidays or spa treatments but your bonus will only come after December in January and you make use of credit cards or personal credit lines to finance your consumption.

Debt makes you a slave
Whether you like it or not, if you want to have your own home, you will have to take a housing loan unless someone gave you your home for free or you are paid so much income that you can afford to pay for your home in full after working for some time.

Taking a loan to buy your home will be the single largest purchase you will make in your life. It changes your financial situation totally because of the quantum of the loan (typically in the range of $100,000 to $1 million or more) and the loan tenure (typically in the range of 15-30 years).

Getting your home through taking up a mortgage makes you a slave to your home like it or not. It also makes you a slave of your job or business that finances the loan taken up to pay for your home.

How are you a slave?
In ancient times, a slave was someone indebted to his master or owner and had to do his master's bidding until he was granted his freedom or he bought himself out of his status. In modern times, slavery is outlawed in most civilised countries but it has been replaced by the current model of the home mortgage. In a mortgage, you are obliged (indebted) to pay the bank your monthly instalments which covers interest payments as well as repayments of your principal without fail in order to discharge your debt to the bank. In return, the bank lends you money to buy your home (normally 80% or less if you manage to save up or use more cash/CPF to pay for your home) and to enjoy its use. You are the owner of your home SO LONG AS YOU PAY YOUR MONTHLY MORTGAGE INSTALMENTS. Once you miss even a single payment, the terms of most mortgage loan allows the bank to seize ownership of your home and realise it to discharge your debt to them. Home mortgages are secured by the value of your home. Therefore, the bank doesn't just lend you money based solely on your income or ability to service your loan. The bank will require you to pledge your home to the bank in the event of your default so that as a last resort, the bank has some collateral it can use to discharge your debt to them.

So you cannot afford to lose your job as if you are unable to make your mortgage payments, you risk losing your home. In the worst-case scenario, if you are in a negative equity situation, even after the bank takes back the home and sells it, you may end up still owing the bank money!


How I felt when I was a slave
During the years when I was paying off my home mortgage, I felt some pressure every time I examined my statement of networth as I was basically in a net liability position during the initial years of taking the loan. Whenever I encountered a work situation that was not going well, the work stress that I felt was exacerbated knowing that I cannot afford to just quit and would have to be careful to ensure my job security and financial security.

It didn't help that during 2001-2002, I witnessed several colleagues working in different departments in the organisation being asked to leave as part of a cost-cutting exercise to increase profit margins. That means the company asked people to leave even when it was making money because the owners wanted even more profits to help improve the return on equity figure.

These and my own conservative nature made me very aggressive in paying off my loan early and I disciplined myself to plough back my bonuses, windfalls and savings in cash and CPF to pay off my mortgage. Some of the sacrifices I made included taking public transport for 12 years of my working life. It also included not taking many long holidays to far away destinations. Opting for closer and short trips and cruises. I lived and continue to live a simple life. My working wardrobe hardly changes and I try to cook more meals at home for health and cost reasons.

I have to admit that I didn't do all these by myself. I am blessed with parents that helped by giving me an interest-free loan which I have paid back to them after these 12 years. Their help was invaluable as it allowed me to take much less than the maximum 80% of valuation for the mortgage. This has made me also want to give the same assistance to my daughter who will be born next year. :-)

Going forward debt-free
Now that I have managed to buy my own freedom from debt, my savings now are all channeled towards my retirement nest egg as well as providing for my family. This frees me to enjoy life that much more without the yoke of mortgage loan hanging around my neck. It also makes me less worried about my job, to do my best professionally but no worrying too much about being a slave to my boss and the big bosses. I do my job to the best of my ability but I am not a slave that has to be at the beck and call of my superiors.

I value my job but am not a slave to it.
I enjoy my home but am not a slave to it.
I live a simple but fulfilling life and also want to leave a positive financial legacy for my family by providing for my retirement without needing them to support me financially in my old age.

How will you manage your own debt? Only you can answer that question!

Be well and prosper.

Multiples sources of income: diversification in action!

What does diversifying your income mean?
If you read investment and personal finance books, some authors suggest that you consider diversifying your sources of income. This means that your job or business should not be the only form of income that you have.

Diversification can come in many forms. For most of us, if you are married and both spouses work, there is some degree of diversification as the family budget is supported by two sources of earned income from different jobs. If you are single, and living by yourself, then you may have earned income from your job or business as well as passive income from savings, fixed deposits, treasury bills or dividends from holding stocks and shares or yields from bonds.

On an individual basis, diversification means to have more than your job as your only source of income.

Why do you need to diversify
Diversification is a risk management strategy. During our parents' time, during the 1970s to 1990s (subject to blip in 1985-86 recession), with full-employment and Singapore Inc growing as one of the four Asian tigers, jobs were relatively plentiful and life-long employment was realistic. CPF contribution rates were high and people could stay in the same organisation until they retired.

Today's globalised market place has forced companies to rely on workers from the region and beyond. The changing nature of the economy meant that skills and expertise relevant previously may not be relevant for today's market. The compact between organisations and workers also unravelled as increasingly the balance of power shifted to the employers with the Asian crisis and dot.com burst resulting in organisations restructuring, retrenching and remaking themselves, usually at the expense of headcount cuts and downsizing.

Job security went the way of the dinosaur as employers were free to hire from overseas and fire locals in the name of profitability and making more money.

Hence, diversifying your sources of income is one of the ways to mitigate the risks of your job disappearing into the annals of history. By all means keep up your skills and expertise to what is relevant to today and tomorrow's market. Network, network and network and keep your ears peeled to the ground. But recognise that despite your best efforts, no one is irreplaceable and no job is secure forever.

How do we diversify?
The easiest way to diversify is to practice the most fundamental approach in financial freedom: to save and invest!

When you invest, your investment monies becomes your workers, day-in-day out even as you are at your workplace earning your income, your investments make 1.68% if employed in Maybank iSavvy savings or up to 2%+ in treasury bills and possibly to 5%-100% in equities (with a risk of also losing 5% to 100 or even 200%!). Depending on what is the risk-return profile of your investments, these make up another passive income source that is independent of what you do in your job so long as you live within your means and have savings to invest.

The other way to diversify that I am exploring and is earning me interesting returns is my AdSense revenue. I have managed to earn another USD 100 for the past 3+ months from this blog. It's small change but when converted to SGD is around $140. Now if I were to get a return of $140 / 3 mths or $560 per year, I would have to invest an equivalent of $28,000 into treasury bills at 2% for one whole year before I can get $560 a year or $140 every 3 months.

Wow... it will take me some time to manage to save up $28,000 not counting the amount of time I would have to spend working to get that amount of money!

Question your assumptions
Some of you may think, hey, I get get $140 a month or even $200-$300 giving tuition or doing some overtime. Yes, you can. But you need to trade time to earn that amount of money. In addition, you would have to be actively working to get that amount.

For me, AdSense does not bring in a lot but it develops my writing skills and is already something I would do even if I didn't earn a single cent. Just look at my other blogs that were set up mainly for me to write about my various interests in public speaking, my reflections of my national service experience.

The reason I started AdSense was to try something new. To train myself to become a better writer by writing articles that help articulate my thoughts about financial freedom and at the same time share a bit of my interest in this journey that I have undertaken to be financially free!

Job insecurity is a real threat in our journey to financial freedom. If you are serious about achieving your goals in reaching financial freedom, free your mind to think about what ways you can diversify your income sources. You will never know how thinking about this possibility would open up potential ideas towards having multiples sources of income.

Have a good week ahead and remember to be well and prosper!

Christmas: Spread the Gift of Your Time!

We are at that time of year again as the clock winds down the last few weeks of December 2007. The end of the year is typically capped by the period of Christmas. Ah...Christmas! What does Christmas invoke in you? Some of you may think of Christmas trees, Santa Claus, Christmas carols, turkey and ham, reindeer... Some of you may think of the Christmas shopping for party clothes, accessories and blowing your bonus on the loveliest presents that money can buy for you and your loved ones. Some of you may feel that Christmas is over-rated because the commercial aspect of retailers making use of the season to urge you to spend more has spoiled the true spirit of Christmas.

What is the true spirit of Christmas?
Christmas means different things to different people. As this blog is ultimately a blog that focusses on financial freedom for you, I would like to spread a different message about the true spirit of Christmas that my journey towards financial freedom has revealed to me.

Christmas is about caring and sharing, it is about being with your loved ones and cherishing them for some of the unsung sacrifices they made. It is about giving not physical gifts but rather the precious gift of your time!

All of us are given the same 24 hours a day, 7 days a week, 52 weeks a year and years to our lives. Each day is the same for all of us. The defining factor in how we live our lives is what we chose to do with that 24 hours. Christmas has been tainted by the mercenary nature of capitalism, which tries to turn it into a guilt-free orgy of spending and splurging. To indulge yourself and your family's hedonistic tendencies all in the name of love and sharing. Fiddlesticks! There is nothing wrong in spending your money to buy things that you and your family can appreciate. But to see this as the only tangible way to show love is missing the point.

The gift of time is more precious that trinkets and toys. Time is a limited commodity and is doled out in the same 24 hours to everyone rich or poor, happy or sad. When you give someone your full attention, when you offer to run an errand for someone, when you take time out to think about a person, these are contributions of your precious time to them. So instead of giving in to the Christmas commercialism, chose to spend less and do more gifts that involve time than money e.g. write a short note affirming and acknowledging him or a simple sms to say "hi". These are gifts of time are more valuable than what money can buy.

Chose to give the gift of your time
As we move towards this festive period where feasting, followship and feverish spending is the norm, consider spending less in terms of money (and use it for investments! :-) and spend more time appreciating and loving your family and close friends. Send a heart-felt e-card to them. Go out for lunch with them and really listen to what they have to say. And take time to hug and say "I love and appreciate" you for your loved ones.

These gifts of time are powerful. They are enduring and they will leave footprints in their hearts to know that you care about them.

Christmas is beckoning and I would like to wish all my readers of this blog, "A Merry Christmas and a Happy New Year 2008!"

As ever, my gift to you is the continued articles to this blog. Even if I manage to touch just one person through fivecentstencents, it would have been worth this gift of time.

Be well and prosper!

Holding the course: investing for the long-term

This is one of the toughest challenges facing us in our journey towards financial freedom. The ability to buy and HOLD and not to be tempted by what is happening in the markets to sell either to cut loss or take profit.

Equities have a role to play in our investment portfolio
Stocks and shares (or equities) have a role to play in our financial freedom journey. If you have an interest in general knowledge, about business and companies performance and are able to understand basic economics and how it works in the real world, investing in equities is one way to grow your money if you take a measured, responsible approach to it. Punting or speculating on share fluctuations on a hourly, daily, weekly or monthly basis is NOT investing.

Even I get caught up in share speculation. I have done my share of buying stocks in companies in anticipation that by tomorrow, next week, next month, the price will go UP without fully understanding my reasons for picking up those stocks. Suffice to say, I also pay my due of tuition fees to Mr. Market in terms of losses on sale of such stocks.

However, the more I invest in the stock market, the more I realise that buying and holding quality blue-chip companies is still a strategy that works for me. It may not work for everyone since your style of investment and your tolerance to risk would be different from me.

Here are some of my stock pick considerations in no order of merit. They are simply factors I consider before I make my decision to buy.

1) Profitability and Dividends
This goes without saying but you'd be surprised at how valuations of companies as reflected by stock prices during the dot-com days of the late 90s and 2000s sky-rocketed even when the companies were losing money year after year! When you buy a share, you are buying a part of the company because you want to participate in its profits and not its losses. But as a shareholder, you are exposed to both and hence you have to pick and chose those companies with a proven profit record and who pay you dividends. That is what I look out for.

2) Long-term business prospects
This is more subjective because your assessment about the company's future is as good as mine and as good as the man-in-the street. No-one can predict the future, but we can have some idea on the overall prospects for a company that we understand based on available information now.

I typically like blue-chip companies with monopolies in Singapore as they are in a very strong competitive position and are a price maker and not a price taker. They tend to be big and are able to reap economies of scale. Currently I have Comfort-Delgro, SPH and SPC in my portfolio that meet this criteria.

3) Price
There are many companies that satisfy my first 2 criteria but they are expensive to buy relative to their earnings and prospects. This is where a lot of judgement is involved because everyone wants to buy low and everyone wants to sell high. No-one wants to sell low and buy high. So how do you decide if the price is what you are willing to pay given the available information about the company and its prospects?

I use dividend yield as a gauge. Since most of my counters pay dividends, I typically would only buy at a price where their dividend yield beats treasury bills or fixed deposits returns of 2%. If the company is unable to do so at the price its shares are trading, I will buy the company IF I am bullish about its prospects or think that the general market sentiment is bullish and will buy. But this is risky because if market sentiment changes, which it does very quickly, you can get stuck in counters that pay low dividends (worst than fixed deposits/treasury bills) and yet you face paper capital losses if the share price goes down a lot.

Holding power and patience
The ability to beat inflation by investing in equities takes holding power and patience. Holding power is important as it makes you less susceptible to market sentiment, i.e when market is bearish, you sell (worst time!) or when market is bullish you buy (also can be bad). You tend to invest based on your investment principles and make choices more in line with your investment philosophy. Patience is also important. I learn from stockmarket forums that the market is always there for us, so it is important not to risk all your investible savings at the roll of the dice and take a measured and balanced approach to investing. I continue to keep 10-20% of my investible savings in fixed deposits and/or treasury bills and cash equivalents. I generally do not use contra or margin to invest and hence can ride out short-term market volatility.

Investing is an art and not a science, but I believe that all of us can do better than what we are achieving now with our portfolios prudently using a measured approach that takes into consideration our skills, abilities, risk tolerance and investment objectives.

Be well and prosper!

How do you live?

You work. You save. You invest.

What does the savings and investment do for you?
What does your money do for you?
Why do you work, save and invest?

Understanding the time-money trade-off
This fundamental question is key for us to understand the time-money trade-off. Most of you work for a living. Some of you run businesses or own investments that generate income for you. No matter how your money is earned, it is used to do something for you.

You trade time for money. The 42 to 60 hours you put in a week into your jobs or businesses yields a return in the form of a monthly paycheck or profits from your business. You then spend that money to buy some time in the form of dining out, having a car to save travelling time and outsourcing your leisure needs.

Only when we have accumulated sufficient wealth in the form of investible savings that can yield cash flows exceeding our living expenses then are we truly free of this time-money trade-off.

What you do with your money
Some of you adopt a consumerism lifestyle. You live to eat, you live to shop, you live to spend. You enjoy this lifestyle, it is why you work hard and earn money to fund such a lifestyle.

Some of you adopt a ascetic lifestyle. You live to save, you live to set aside something for a rainy day, you live to store up your wealth.

You determine the lifestyle you lead knowing the consequences and the impact of the choices you make. One of the challenges many of us will face when we travel on our journey to financial freedom is understanding the true impact of our choices.

Live for now approach
The supporters of live for now approach who adopt a high living high spending lifestyle is that we won't know when we will die either through accidents, old age or lifestyle diseases. So we might as well make merry while the sunshines and so long as our incomes continue to support our lifestyles. Why worry?

I make no judgements on whether this lifestyle is "right" or "wrong". It is a lifestyle that works for those who really see life as something to be experienced to the full using the wealth they have on hand. It works when your retirement can be funded through CPF or through your children supporting you. It can be funded if your job is secure and your income continues to flow. It can work if you die relatively young, i.e. before retirement age of 67. It works if you are able to continue to work or find some form of income even after your main career comes to a close.

Live for tomorrow approach
The supporters for this approach adopt a live within their means and save the rest way of life. They live simply and plan to live a long life funded by a retirement nest egg beyond the CPF. They do not assume that their job will be secure and hence use their time during employment to maximise savings and minimise debt. They invest prudently knowing that compound interest helps them grow their investible savings to the time when they escape the time-money trap or the rat-race.

Their lives can be too simple for some. Those who take these to the extreme become miserly and do not share in the good things in life that can be bought using their income. Some make themselves so miserable and curse their lifestyles without thinking about why they are doing this besides avoiding job insecurity and fearing to be broke and homeless.

Deferring today's wants for tomorrow's needs helps you to save and invest. But without a balance in allocating some to meet today's wants, those who take this approach to the extreme feel unhappy each day because their happiness is contingent upon them achieving financial freedom.

How do you want to live - You Choose!
The two approaches I have painted are deliberately extreme and most of you do not live at either extremes. Most of us tend to one or another at different points of our lives and our upbringing, our own individual personalities and philosophies towards life gear us one way or another.

How you want to live is really a choice, but no matter what choice you make, happiness does not have to be dependent on you reaching your financial freedom. Life is a journey to be savoured for the sweet and the bitter, the highs and the lows, the exciting to the boring. Each day's experience is unique in itself and each day is a blessing to be alive.

Choose how you want to live and choose well.

Above all, be well and prosper no matter how you choose.

Mind map your way to financial freedom!

Why is it important to get your mind organised for financial freedom?
Mind mapping is a good way to do brain storming, to put down your thoughts (on any subject) on paper and to improve the clarity of your thinking. I have used and continue to use mind maps to help me plan my life and to articulate my thoughts in a visual form that helps keep my objectives clear in my little grey cells. [By the way the mind map above is something I referenced from the internet and not my own creation.]

It is critical in your efforts to achieve financial freedom to first clarify your goals and objectives. Your mind is a state of flux as we go through life. You pick up all types of ideas and information and your brain tries to sort out all these in some meaningful form before it becomes overwhelmed and then begins to process such information poorly. If you have established clear goals for financial freedom, then it helps if you can map out in your mind clearly the possibilities that will help you reach that goal. A mind map can help you clarify what you need to learn and apply in order to achieve the ultimate goal of financial freedom, where passive income from dividends, interest or yields from your investments cover your living expenses.

Break down financial freedom into digestible chunks
To demonstrate how it works, let me mind-map the essential ideas that I continue to espouse in this blog fivecentstencents.

A picture paints a thousand words and having a mind map quickly allows you to put ideas down and allow you to organise them in a way that is meaningful to you. To structure it into cause-effect or using a input-process-output model. To break down core ideas in the main branches to sub-branches and to generate details to help you execute or flesh out the key ideas into workable bites.

My mind map above was done in 5 minutes using Freemind. Check it out as it is released as a freeware.

A mind map is just one way I find useful in my quest to continuously clarify my thinking about financial freedom. Many roads lead to financial freedom and it is up to us to explore which road will bring us there whether to be a quick and fast path or a slower but more relaxed path.

You may have other ways to record down your thoughts and ideas on ways to improve your own thinking about financial freedom. Do share them here as we learn and grow together!

Be well and prosper!

Think and Grow Rich(er)

Your brain is the biggest aid to your journey in financial freedom
The biggest tool we have in our journey towards financial freedom is our BRAIN!

"Think and Grow Rich" by Napolean Hill is one of the books that have influenced my approach and thoughts about financial freedom. It is an oldie but a goodie... Napolean Hill does not give you a step by step A to Z tactical plan to reach financial freedom. What his book did for me was to impress upon me of the importance of managing our mindset and our thoughts because our thoughts define who and what we are.

All of us are born with a brain. Our brains and the thoughts that go through our mind determine our actions in life. It is in the mind that the seeds of any idea leading to behaviour and action.

In order for you to stay the course towards financial freedom, you have to consider the commitment to fill your mind with thoughts that help you achieve it. How do we do that? How do we program our mind to be oriented towards thoughts that centre around savings, investments and living a simple life to be less focussed on the materialism and consumerism that threatens to derail our efforts in moving our networth upwards instead of being stagnant?

Master your mind, master your financial destiny
Our senses pick up external stimuli that affects our thoughts and subsequently behaviour. While we cannot control everything that we see, hear or feel, we can influence it by making a conscious effort to absorb material that is conducive in developing a mindset towards financial freedom.

Visit the public libraries, surf the internet for personal finance and investment. Watch CBNC Asia, Channelnewsasia's Money Mind etc. Listen to audio tapes about personal finance. Talk to people who are interested in financial topics but who are not interested in making a commission off you. Visiting and reading my blog helps because you know that I am like you. Interested in saving and investing prudently and living a simple enough life that meets most of my needs, some of my wants and allowing me to still live a life that is reasonably fulfilling. Learn to enjoy a life that is not dependent on achieving material things as the only measure of success.

There is nothing wrong in setting targets for personal networth and a timeline to achieve it. This helps us focus and gives us something to shoot for. But don't beat yourself up and be deflated if you miss some of your intermediate targets because life is a journey to be enjoyed as well as not a series of targets to be achieved.

Your thoughts that go into and circulate around in your consciousness and sub-consciousness affect your mindset towards financial freedom. Before any human endeavour takes effect, your mind will process a thought that will lead you to do it. Sometimes our brains work so fast that you think you just react but your brain's neurons fire faster than you can blink. Hence, train your mind to react quickly and correctly to financial decisions in your life and it will take you to a higher level.

See softdrinks on supermarket shelves, avoid because of health and cost issues. Your eye catches the nice display of diamonds in the shop front, appreciate but file it away as being not practical and requiring you to work another 1-2 months to pay for it. Receive that glossy brochure from your credit card company to spend on Christmas goodies, throw it away after a 5 second glance.

Small decisions taken each day with the mindset to save, invest and grow your net worth will eventually bring you to the level where your passive income exceeds your living expenses. Then you will be able to get out of the time-money trap and use all the time you are given to enjoy your passive income to the fullest.

Be well, think well and prosper.

I hate my job but I love my salary! :-)

Love-hate relationship with your job
How many of you have a love-hate relationship with your job?

Those of you who have worked for x number of years know that so long as you are an employee, you are subject to some extent to the whims, fancies and idiosyncracies of your bosses, supervisors and colleagues.

Few of you can claim to have the perfect job where job satisfaction, remuneration and bosses/colleagues are all good. More often than not, we will have some parts of our jobs that we hate, other parts that we love and if your remuneration is fair, you appreciate what your salary does for you.

So it is the same for me! I have a love-hate relationship with my job as well. I hate some of the aspects of the job in terms of the actual work, I like some of the other aspects but ultimately I am reasonably happy with the remuneration although nobody will refuse more money. :-)

Jobs=Money=Savings=Investment=Financial Freedom
So what does having a love-hate relationship with your job got to do with financial freedom. Love it or hate it, your job brings with it income and money that are building blocks towards you achieving financial freedom. Before we reach the critical mass of investible savings of say $250,000 to $100,000 depending on your lifestyle needs, we need to trade time for money and work to earn this savings.

It takes time and financial discipline in saving and investing it to grow at a faster pace than inflation. And it takes patience and dedication to grow that investment to a sizeable amount where the passive income from dividends, interest, capital gains, yields is significant enough to pay for your living expenses.

For me, my job is a means to an end. I enjoy some aspects of my job, I dislike other aspects of it. But overall, it provides me with the steady income to continue to provide for myself and my family and allows me to grow my family's networth bit by bit to our target.

Your job is part of your pathway towards financial freedom
Your job helps you achieve financial freedom through the cash flows it generates. You determine how these cash flows help to build up your net worth or is used to acquire useless trinkets and stuff that after 1-2 years you will throw away.

You work 8-10 hours for that paycheck.
You put up with bosses and co-workers idiosyncracies and moods.
You endure stress, tiredness and irritation.
At the end of each day, another dollar(s) earned.

How you spend your dollar defines how far you go towards financial freedom.

You have the POWER. Use it responsibly.

Be well and prosper.

Scared to lose 怕输

KIASU: 怕输 : pa(4) shu(1): Scared to Lose

Kiasu in the hokkien dialect means literally to be afraid to lose out. It is one of the fundamental human fears and has been linked as part of the ugly Singaporean myth. The reality is that all human beings regardless of your nationality are afraid to lose something that is precious and valuable to them.

Most people do not like to lose part of what they have or what they are and it is perfectly normal. The problem with achieving financial freedom is that the fear of losing hampens us from reviewing risk-return trade-off in any measure of objectivity.

Why is being excessively scared (fear) to lose a bad thing?
Fear is a human emotion that has its uses. It triggers the flight or fight response when we encounter stressful situations. During prehistoric times, when our neanderthal or homo sapien ancestors walked the earth along with all sorts of wild creatures, fear was what kept us from being eaten up by predators or hunted down by other tribes.

Fast forward to 2007, fear can be good for protecting our hard-earned money from being risked on high-risk low-return investments. My experiences in this continuing journey towards financial freedom is that knowing our own fears and overcoming them using logic, experience and a dose of decisiveness supported by an understanding of human psychology in markets help us achieve returns that can potentially match if not beat the rate of inflation (4-5%!).

However, fear works against us because when we are scared, we are afraid to try out different investment approaches, we become closed to new possibilities in investment and we become lazy to learn about the risk and reward trade-off between different asset classes and stick to tried and tested investment products such as fixed deposits that are safe but guarantee us loss of purchasing power of our money due to recent record inflation rates of 4 to 5%.

Feeling the fear and doing it anyway
I was also afraid of participating in the stock market during my first few years of starting work. I heard about stories of people making and losing fortunes in the stock market. It appeared to be a legal casino where people betted on prices of shares of companies going up or down on any given day. Like many of you, I also wanted to protect my hard-earned savings in order to grow it. Thus, at that time, my investment was mainly in fixed deposits and unit trusts.

The fixed deposits were okay because they were very safe and I deposited during a time when interest rates was 3-4%. However, as time went by, interest rates went south and then the Asian Crisis also hit. I saw my Singapore and Asian Unit Trust melt in front of my eyes. After all was said and done, I exited by unit trusts in 2002 with losses of up to 40% of my unit trust portfolio.

I had encountered my worst fears, i.e. losing money from unit trusts and it opened my eyes to the main weakness of such instruments, the fund managers earn their management fees whether or not they hit their benchmarks. That made me disillusioned with this type of investment and started me thinking about managing my own money by buying stocks and shares in the SGX and exploring other investment instruments like treasury bills.

Overcoming fear in the market place
The lesson I learnt (and am continuing to learn) in the stock market is that it is a market where buyers and sellers interact and is a confluence of fears of people at a particular point in time. Because people are involved, the movement of the market is as rational as the next human being, i.e. it can be high irrational.

That beingthe case, we then need to be as rational as we can be in approaching our investments because if not we tend to be derailed by our own fears and greed. Here are some ways I overcome my fear:

1) Get knowledgeable about investments
There is no excuse not to know more about investments. With the internet and public libraries, you can get information about stocks and shares, property, commodities, treasury bills etc all at the touch of the mouse and keyboard or a short trip to the library. Get yourself a free education in investments. Read all the investment books you can get your hands on!

2) Have an investment plan and objectives
Most people say I want to make money from investing my money. Be specific, set clear goals, e.g. I want to have total net worth of $500,000 by age 50. Or I want to have $1,000,000 investible savings by age 60.

3) Work out strategy to achieve your investment objective
Having a target to shoot for will help you focus your efforts and energy but you also need a strategy how you will execute your plan. For example, my strategy is to ride on the stock market while Singapore's economic fundamentals are strong to grow my investible capital with a view of switching to property in year 2010 where I think there may be a correction. This approach is fluid and is not cast in stone as I have to make allowances for changes in family circumstances as well as market developments.

While doing so, I will also maintain a reasonable allocation of 20-30% cash and cash equivalents (treasury bills/fixed deposits) vs 70-80% in equities. This allocation can change if for example the equities market turns bearish.

4) Execute strategy and keep eyes and ears open to market developments
Having your objective and strategy allows you to be less swayed by fear in the market. While no-one can consistently time the market 100% of the time, if you have a strategy, at least you will be less panicky and reactive and make your investment decisions in a thought-out methodical approach. I know I cannot fully time the market hence I invest in many blue-chip sound businesses and monopolies and have 20-30% cash/cash equivalents to buffer myself. Being 100% in one or another is too extreme and does not fit into my investment strategy.

Fear is a two-sided knife - it can cut both ways
Fear can be used good if you use it to your advantage. I fear financial insecurity and hence work at disciplining my spending and lifestyle habits. I fear the effects of inflation on my networth and purchasing power and hence invest in portfolio of assets to try to beat 4-5% return. I also fear losing my hard earned savings and hence do not put ALL my investible savings in ONE asset class.

What is your own fear doing to or for you?

Take control now.

Be well and prosper!

10 ways to moderate the rising tide of cost of living

Rising tide in the cost of living
Singapore is facing one of the highest rates of increase in the Consumer Price Index (CPI) in decades. The BRUTAL TRUTH that is facing all of us living in Singapore is that your money is losing value even as you save and put it inside bank savings accounts that are yielding 0.25% against the backdrop of 4-5% inflation.

We can sit around and engage in moaning and groaning about WHY, WHY and WHY is the cost of living going up while wages may or may not have gone up but it is more productive to engage in brain storming ideas that we can make our dollar stretch in today's high cost pressures.

10 ways to moderate the rising tide of the cost of living

1) Save and Invest
Some people believe that you should in fact borrow money when the cost of living is going up because saving results in the value of your money declining even as it sits in the bank. This works if you can profitably invest the money you borrow. If you are unable to get consistently low risk returns that overcomes the rate of your borrowings, this may put you at greater financial risk.

Save and invest, continue to do so because when you save more, you will tend to spend less given a certain level of income.

2) Cut down travelling expenses
For those who take public transport, consider walking instead of taking that feeder bus if it is only 1-2 bus stops. Take less taxis or perhaps take a train to somewhere near your destination then take a taxi for the final stage. For those driving, pump the cheaper 92 or 95 octane petrol because most vehicles are able to accept lower octane petrol.

3) Eat more vegetables
Reducing the amount of animal protein (and fat) in your diet and substituting it with tofu, beans etc as well as more vegetables is healthier and helps you save money at the same time. I consume rolled-oats from Mondays-Fridays for breakfast and it saves me a huge bundle plus helps to maintain my weight while providing for good dietary fibre for my system.

4) Drink more water less colas and soft drinks
The cheapest and healthiest beverage you can drink is water! We can still enjoy the occasional soft drink now and then but we should avoid drinking soft-drinks on a daily basis. I carry around a 500ml bottle of boiled water from home and drink it when I am out of the office. I still drink my daily cup of coffee but also consume the 3-in-1 packs on alternate days along with the $0.70 or $0.90 kopi-C.

5) Exercise to destress and relax
Ever since I completed my reservist and no longer have to jog because my Individual Physical Proficiency Test (IPPT) requirement has lapsed, I continue to jog to destress and help me manage my weight and keep myself healthy. When you are healthy, you incur less medical costs and see the doctor less.

6) Sleep early
Sleeping early is under-rated in Singapore because we have the internet, cable television and movies along with various options to entertain ourselves. Giving ourselves sufficient rest and on occasion, more rest by sleeping early saves on electricity and allows us to feel refreshed and energised after a hard day at work.

7) Borrow Books, Audio-Visual materials from the Library
Our public libraries are well equipped in terms of books as well as facilities for a relaxing evening. If you are looking for a place to sit down and read some free magazines, newspapers and books, you can make use of the various public libraries for education, entertainment and relaxation all at once! The best thing is that it's mostly FREE except for premium services such as borrowing of DVDs from library at Esplanade.

8) Sleep without the air-conditioning
December is the month when the weather turns cooler and you'd be surprised that you can sleep on nights that are cool. Just use the fan as opposed to switching on your air-conditioning for 8 hours in the night and you can still get a good night's sleep with the fan that is more energy efficient.

9) Shop during sales
The Great Singapore Sales (GSS) does offer good bargains for working clothes and accessories that one buys. I usually shop for my clothes during the GSS. As a guy, I tend to shop less for clothes and spend my money on gadgets more. My new rule of thumb now is to use up gadgets until they physically fall apart on me before I buy a new one.

10) Visit public parks
If you have visited the various public parks and park connectors in Singapore, you will realise that the Government has spent a lot of money beautifying our surroundings. Make use of these facilities with your families for exercise and recreation as they are also free but provide great value in terms of the playground equipment and the soothing sites that nature (assisted by man) can offer!

There are many other ways to moderate the rising tide of costs of living. Do make use of them and be well and prosper.

Who do you live for vs what do you live for

In our quest for financial freedom, some of you work hard at your jobs and careers while some of you work smart at your businesses and investments. Your hard/smart work allows you to contribute productively to the whole value-chain of human endeavour and at the same time provides you with the money to spend on your lifestyle wants and needs.

Have you ever paused to think if you are living for someone or something?

What vs Who do you live for?
Your motivations drive you both consciously and subconsciously. Your choice of food and drink, your choice of spending or saving, your choice of investing or gambling hinges on your motivations. "What Drives You" by Mercedes Benz is a pertinent question that we need to ask ourselves.

When I first started working, what drove me was to catch up economically and to gain experience after losing 2.5 years of my productive life to the Singapore Armed Forces as a conscript. Hence, I basically worked hard and took little leave and didn't buy myself many luxuries except for mobile phone, pda, personal computer and internet access as well as the occasional vacation. I was saving up to have money to buy a home and to settle down.

When I reached 30, I was settling down, getting married and adapting to married life. This involved a lot of financial responsibility as the housing loan was indeed daunting at the beginning of one's status as a home owner and married person. At the same time, I started to see first hand how fragile corporate job security was! People in their mid to late 30s were getting counselled out even when the company was making profits. It developed in me a deep fear of financial insecurity and has been a key source of what drives me... TO BE FINANCIALLY FREE and not be at the mercy of any employer for my life!

I used to live for financial security
I still see financial freedom as the key goal of my efforts to learn, absorb and apply the principles of living within your means, investing prudently and deferring (as much as practicable) today's wants for tomorrow's needs. However, it doesn't drive me because my main motivator is not SOMETHING, instead, it is SOMEONE.

My daughter will be born in a couple of months time and I realise all my efforts in working hard and working smart is to achieve financial freedom so that I can be a good father to my daughter and a good husband to my wife. Of course, it doesn't sound so noble because when you invest in your family, the dividends reaped are happiness and family harmony. When there is family happiness and harmony, then I have less problems to deal with and can enjoy the journey of life more instead of worrying about them. :-)

What is the purpose of working so hard if you are just going to spend it all on yourself? Overtime, I realised no matter what luxuries I bought myself, I would get bored with them because of the law of diminishing marginal utility. My favourite analogy is how many bowls of sharksfin or abalone can you consume before it becomes meaningless?

I realise happiness derived from using the benefits of financial freedom, i.e. release from pressures of debt, being able to work without worrying about your job and worrying about appeasing your bosses (especially unreasonable ones) is what is meaningful. My time on this earth is limited, so while I am still productive, I want to use my money to touch the lives of my wife and that of my daughter when she is born, so that my time on this earth was well spent and not merely engaged in hedonistic self-gratification in material consumption.

Who do you live for?
As we continue on our journey on this earth and on our journey towards financial freedom. Ask yourself this question, "What Drives You?"

Why do you do the things that help you build up a strong net worth, what makes it so satisfying and is the thing you get up in the morning for?

You decide.

There is no point being so driven in our quest for financial freedom if what drives us turns out to be another THING.

I've decided that what drives me is SOMEONE.

Who is that someone to you? :-)

Be well and prosper!

Year-end bonuses are here!

What are you going to do with your year-end bonus?
November and December are the months when the school holidays start, people clear their annual leave and dream about what they are going to do with their bonuses.

Different organisations pay different amounts for the year-end bonuses. Tight-fisted employers may pay nothing. Generous employers may pay the 13th month (i.e. 1 month) plus something extra. Other employers may benchmark year-end bonuses to performance and pay handsomely to their rainmakers or those who make a lot of money for the organisations or exceeded their key performance indicators. No matter the quantum of the year-end bonus, if you are fortunate enough to receive this windfall, you have to decide what to do with it?

Spend or save?
The key issue facing all of those who are receiving some form of year-end bonus is... SPEND or SAVE? How much to spend/save and how not to feel guilty about our decisions. If you have been following my blog, you will realise that it is not about what decision you make, but it is about how that decision brings you closer or further away from your financial goals.

If your goal is to live life to the fullest and have $0 to your name when you die, then you will probably consider spending ALL of your bonus because that is how you want to live your life.

If you goal is to retire BEFORE the CPF withdrawal age of 62 or 67 or whatever the gahmen decides after the next general elections, then you have to set aside SOME or even ALL of your year-end bonus towards savings, paying off debt or investment.

There is no magic formula on how much you should save or spend. It is entirely up to you to determine from 0% to 100% in either direction.

Panzergrenadier's year-end bonus decision for 2007
Ordinarily, my own rule of thumb is to spend 10%-20% of windfalls and save the remainder for investment. This year, I have decided to tweak my rule in the opposite direction because my own life circumstances will be changing. A new addition to the family will be coming early next year and I need to plan for my revised transportation needs and wants. I have been using the public transport system since the day I started work until now. However, given that I want to transport my family in better comfort next year, I have earmarked a lot of my year-end bonus towards financing a vehicle.

Some of you who have read my posts about not driving would be horrified! What heresy! Wasting your retirement fund on a car! Horror or horrors! :-)

Whilst I would have loved to continue to retire earlier based on my current rate of savings, I realise that I would probably need to shift my plans to retire earlier than 67 but later than what I wanted to. This is because I have decided that I WANT to drive to give my family a better way to get from point A to point B. No excuses. It is a WANT and I am not ashamed to say so.

Life is about balancing between the wants of today with the needs of tomorrow. I have decided that I have used the public transport system long enough and should live life a little better by paying (through my nose! haha) for a car and subjecting myself to the joys or ERP, COE, road tax, insurance, parking etc. So, for once in my life, Panzergrenadier is choosing to give himself a bit of luxury in transportation.

The rest of my frugal lifestyle remains. I still own only 3 pairs of watches of which 1 is sponsored by Mindef being the token of appreciation for my 10 years of reservist service while 1 was a gift for my birthday. The other watch that I bought costs all of $35. I hardly buy new clothes except during Chinese New Year and the Great Singapore Sale. I am happy to consume vegetarian food for lunch that costs only $3.00 and I go jogging in my Mindef sponsored New Balance running shoes for recreation and to destress while keeping fit.


What will your year-end bonus be doing for you?
There is no right or wrong answer. You alone determine how your year-end bonus is to be used. Making capital repayment of your outstanding mortgage loan. Going for a trip to Japan for a holiday. Buying the latest iTouch from Apple. Having your home renovated to look like the latest IKEA catalogue.

Your bonus.
Your rules.
You decide.

Be well and prosper.