My Personal Bus 11

Transportation is one of the unavoidable living costs of modern Singapore. The cost of private transportation takes up an inordinate amount of money and resources.

Why aren't more taking public transport?
So why aren't more of us taking up public transportation instead so that we can achieve financial freedom faster?

A typical Singaporean has a few choices for transport:
1) Public transport: Bus, MRT, LRT, Taxis
2) Private conveyance: Car, commercial vehicles, Motorbike, scooter

One of the great personal finance tragedies of modern Singapore is our love affair for cars! When I started working, I too was ensnared by the idea of the 5Cs being benchmarks for success in Singapore. One of the 5Cs was owning a car. However, in land-scarce Singapore, owing a car generally doesn't make sense if your transport patterns are fairly predictable, i.e. most of us salary workers do the following:

Typical Weekday: Home ==> Office ==> Home

Occasional weeknight:
Home ==> Office ==> in-laws/parents ==> Home
Home ==> Office ==> recreation ==> Home

Weekends:
Home ==> parents/in-laws ==> recreation ==> Home
Home ==> recreation/social activities ==> Home

Cars: need or want?
Individual travel patterns may vary but in general, unless you are in sales or need to service customers directly, most of us do not NEED a car. We WANT it but we do NOT NEED IT. It's great to have the convenience of zipping around without worrying about what bus / train / feeder bus to take or to worry about not being able to catch a taxi during peak hours, BUT there is a catch.

When we own a car, we own all the associated costs of ownership in return for the benefits. By relying more on public transport, we actually outsource our transportation costs and only pay a relatively small share of the infrastructure that is required to run it since taxation funds some of the infrastructure such as the land that the MRT sits on, road infrastructure etc.

When you own a car, you need to pay for its associated costs even when you are not using it. This is over and above the cost of the car and its COE. While your car is parked at your office carpark or at home, you are still paying parking and insurance and road taxes.

When you use your car, you pay for ERP, petrol, maintenance costs etc.

And if one gets into a road accident, you again pay and pay!

So why aren't we taking public transport as well as walking (personal bus 11!) from location A to location B?

Is it because the MRT trains are packed like sardines during peak hours?
Is it because the connectivity of MRT/buses are not seamless?
Is it because the frequency of buses drives one to buying a car?
Is it because your neighbourhood is insufficiently served by bus/MRT/LRT?

It could be one, some, all or none of the above.

Cars are a financial liability
To achieve financial freedom, one needs to realise that for most of us, the car ownership and maintenance costs result in a big liability up front! Imagine what you can do with $50,000 up front instead of plonking it with the dealer while you walk away with the latest Japanese/Korean/European 1.3litre car.

Put $50,000 in a fixed deposit and let it roll for 10 years at a conservative rate of 2% per annum. This will result in future value of $50,000 at 2% per annum compounded annually
= $50,000 x 1.219 (FV of $1 at 2% for 10 yrs)
= $60,950
Return of $10,950 or 21.9% of initial investment of $50,000.

The interest one gets from investing that $50,000 helps to defray our transport costs too. :-)

Many people take up car loans to finance their purchase of cars. So they will end up paying interest for the mobility they have.

You decide if the car is worth it
Don't get me wrong, it's not about whether buying a car is right or wrong. It is about knowing how much you are paying for that car and whether the decision is in line with one's wish for financial freedom. Of course, if one's income is more than sufficient to pay for the car and to provide a decent standard of living and yet achieve one's retirement objectives, by all means.

I am not here to tell you what you should or should not do but rather to share with you that every financial decision you make about your lifestyle affects your goals for financial freedom. Don't complain about your low pay for not being able to be financially free by 45 or 55 or 62. Blame it on your own choices. The choice of buying a car has serious implications for your personal finance and a car is a LIABILITY. It is not an asset unless you can get cash flows out of it e.g. car rental business or commercial goods delivering products/services for business.

Walk more and take public transport
Invest in your two legs - personal bus 11 and supplement it with public transport. You will find that your dollar stretches more and allows you to save more for your retirement.

Be well and prosper!

Financial Planning: Big vs Small Picture

How many of us have been approached by insurance agents, financial planners, personal bankers to do financial planning?

How may of us actually realise that financial planning is basically more of an art than a science?

I will explore what financial planning is to me and why I find that we get the priorities wrong in establishing the details without critically examing the big picture in our lives.

Traditional Financial Planning
Financial planning from what I experienced from the consumer's viewpoint, entails the financial planner helping one to establish our assets, liabilities and cashflows and then projecting it against our needs in the future. The typical financial planner will come armed with his notebook to key in critical details such as age, sex, occupation, income levels, housing type, mortage loan, car loans, investments. Now going through this part of the exercise is useful as it allows one to get a snapshot of our assets/liabilities. In accounting terms, we call this having a balance sheet or a simple statement of net worth where:

Net Worth = Assets - Liabilities

Examples include -

Assets:
Investments - stocks and shares, bonds, unit trusts, fixed deposits, savings accounts etc.
Property - valuation of property (this is contentious as I will explain further)
CPF Balances - ordinary account, medisave account, special accounts

Liabilities:
Short term credit - credit card debt, personal credit line debt etc.
Medium term credit - vehicle/car loans, renovation/bridging loan etc.
Longer term credit - outstanding HDB/private housing loan (property)/commercial building loan, etc.

Most of us tend to have a net deficit position, i.e. our Net worth is negative because our outstaning housing and other loans is more than our investments and savings. Hence, we need to work for a living for the cash flows that funds the liabilities plus our living expenses.

Now the second part that the financial planner goes through is fraught with subjectivity, estimation and guesswork. Here is where he/she asks you for when do you want to retire, do you want to provide for college tuition, how many children do you want to have etc.

Financial Planning is an Art not a Science
One of the issues I have with this part is that the future is uncertain! Whatever, we plan now is just based on what we think and there are many assumptions made. For instance, when we want to retire is both a function of our choice plus whether we have earned, saved and invested and obtained sufficient targetted returns to do so. In today's globalised ever-changing world. I am of the view that these plans are mere stabs in the dark for most of us. The number of imponderables that may hit us are limitless yet we are supposed to be able to make financial decisions based on assumptions we ourselves may not believe in to provide the information that the financial planner is able to recommend products/investments that will help us achieve our objectives.

There are some areas where the financial planner can help clarify. For example, if you have no medical insurance in terms of a shield-type of plan and your employer does not provide health coverage for in-patient (i.e. hospital care) then buying a shield plan is a no-brainer. But advising on putting money aside for college education, upgrading of house etc, are just assumptions. These change all the time and that once every other year financial planner with the tool to tell you this product or that product is good smacks of lack of real understanding of one's situation. I believe each of us who are willing and able to spend some time learning about personal finance can and should do it.

How much are you willing to live on?
The key idea is how much are you willing to live on? This one single question will determine how much you are willing to save. Ideally, establish the lowest minimum you are willing to spend on living costs and the remainder goes to savings and investments. It can be potentially that simple. Of course, this is a deliberate over-simplification as one needs to consider insurance needs etc But the key idea is that our standard of living really drives our savings level. We can try for the best paying job and career but really no level is sufficient. No one can ever say, I have earned enough as human wants (and that includes our salary!) is limitless but our needs can be moderated.

Needs vs. Wants
Is a car a need or want?
Is having 1,2,3 children a need or a want?
Is staying in 3 room, 4 room, 5 room, exec flat, condominium, in districts 9, 10, 11 etc a need or a want?
Is buyng that Louis Vutton bag a need or a want?
Is buying that newer model of handphone/MP3 player/gadget a need or a want?

We have choices. No-one forces us to make the choices we do (except for conscription and taxes). :-)

7 Step Primer for Reviewing Your Financial Plans
So where do we go from here? My simple no-frills self-financial planning process:

1. Establish Net Worth ==> Where are you now?
2. Reduce liabilities (highest interest rates to lowest) ==> Compounded interest kills you
3. Spend within your means ==> Thrift = financial freedom
4. Save, save and save ==> Grow your nest-egg
5. Read, discuss and learn about personal investments ==> Be educated!
6. Invest, invest and invest ==> Take steps to grow your net worth
7. Go back to step 1 ==> It is an interative process that you own... There are no shortcuts.

I have found that this works for me though I have also gone through financial planning sessions with various big insurance companies with those software tools and fancy reports and pie-charts. So far, my best financial decisions have been step 2 and step 5.

May you grow and prosper!

P.S. I am not running down financial planners and their tools, they do serve a need in the community but I am providing an alternative view to individuals who want to see things from a different perspective. Caveat emptor, let the buyer beware!

Bring Your Own Portable Hydration Unit (Water Bottle)

Saving money is sometimes about pinching pennies, other times it is pinching pounds! :-)

One of the great money saving techniques which has a strong health benefit is to bring your own (BYO) water!

All of us have to drink water. H2O gives us life and 2/3s of our bodies are actually made up of water. Did you ever stop and count how many soft-drinks or coffee/tea that one consumes that makes up our fluid consumption? If we drink say, 8 glasses a day and drink 1-2 glasses of water, another 1-2 softdrinks and the remainder through milo/coffee/tea etc. How much would that cost is a typical work-day (assuming you have to pay for it yourself?)

2 glasses of water : $ negligible
2 cans of soft-drink: $1.20 per can = $2.40
4 cups of coffee/tea: $0.90 per cup = $3.60
Total daily expenses on fluids = $6.00
x 20 days a week = $120 a month
x 12 months in a year = $1,440.

Wow... That means we could potentially be spending about more than a thousand dollars a year on soft-drinks! The good news is that there is an alternative we can turn to, good old PUB water direct from the tap or from water coolers. Generally, water is "free" to the consumer if you get it from public water coolers or if your organisation provides water coolers for one to fill up one's bottle.

Invest in a good Lexan/Rubbermaid/SIG type of water bottle to the size of your preference and you are good to go in your quest to save money!

Hydrating yourself throughout the day makes you feel less hungry and you tend to eat less. Drinking water also helps moistern the throat and for those who need to speak a lot at work, this will help your voice last longer. Also, drinking water helps the circulatory and lymphatic systems and waste products in our body makes. The amount of money we save from buying softdrinks and coffee/tea would also offset our investment in the water bottle! It's a win-win-win strategy :-)

Of course, that does not mean we have to swear off softdrinks and hot beverages outside. Simply carry a water bottle around and reap the benefits of spending less money on purchasing them. When I was in New York, I realise most New York office workers actually walked around with their Evian/Dasani water bottles and it was part of their culture.

So let's bring out our water bottles and say "cheers" to the money-saving benefit of bringing your own water bottle.