Staying on course in equities

Why invest in stocks and shares (equities)
Investing in stocks and shares (equities) is not without risk. Prices of shares can go up and they can go down. However, one of the historical facts that most investment books will tell you is that over the long term of 20-30 years, investments in shares have generally beaten the rate of inflation.

Inflation eats into the purchasing power of our savings
In Singapore, recent data for August 2007 inflation rate or the Consumer Price Index shows an increase of 2.9%. This is the comparison against the rate of inflation in August 2006. It is not difficult to see from our own experiences of the increase in the prices of drinks in coffeeshops and foodcourts as well as increase in prices of groceries that inflation is happening in the booming Singapore economy.

One of the reasons I became interested in investing in equities was that it provided you with an investment asset that could yield dividends in excess of the bank savings rate of 0.25% or even treasury bills at around 2%+ or fixed deposits. The rate of inflation in Singapore is guaranteed to be higher than the 0.25% savings we are getting from our bank savings, hence, in order for us not to see our purchasing power decline, we have to look for higher yielding investments.

Advantages and benefits of investing in equities
The main advantage of investing in equities is that if the company is profitable and growing in its earnings, the share price will tend to rise to reflect its growth and prospects. In addition, if you invest in sound, well-run companies in businesses that are growing in tandem with the growing economy, such companies tend to reward investors with dividends and the discounted cash flows from its future earnings will be reflected in its share price.

Historically, if you had invested in the S&P500 for the last 20 years and benchmarked it against the rate of inflation, you would have easily beaten the rate of inflation from your investments.

When you invest in a company's shares, you are participating in the profits (and possible losses) of the company. The company works to make money for you day and night since management is there to oversee the operations and companies that pay dividend generate passive income even while you are working on your day-job.

Disadvantages and risks of investing in equities
In reality, share prices can go up and they can go down even if the fundamental business of the company is sound, it is profitable and it is paying dividends. For instance, the recent sub-prime issues arising from the US affected many blue-chip shares in Singapore Exchange even those that did not have much exposure to it as the US New York Stock Exchange and consumer sentiment about the liquidity crunch affected investors short-term expectations of share prices.

The STI dropped to 2900+ levels even when fundamentally the Singapore economy was on track and poised to hit the 4-6% growth estimates by the Government. Therein lies the risk of the stock market. As much as the prices of stocks theoretically are expected to reflect the future earnings of a company, it is also driven by investors sentiment and expectations of the fair value of these companies given all the various factors. Therefore, even if the Singapore economy is on track for a good performance and companies are on track with profit estimates, share prices in the short-term can fluctuate wildly and if you are strapped for cash and need to sell your shares to raise money to pay for your car or house loans, then you would have been hit very hard and made big capital losses on your share investments.

Investing in equities also requires some degree of understanding of the stock market and about stocks and shares and the company's business in general. However, if you are interested to become financially free, to grow your retirement nest and to be responsible for your own financial situation, then it is not a black box you should be afraid of!

I too knew little about the stock market until the Singtel initial public offer turned almost 1 in 3 Singaporeans into share owners. However, it was not until 2003 that I really got involved in managing my own money and actively investing in the stock market.

My track record has been reasonable as I managed to achieve 8-10% compounded annual grow rate in my returns over the last 5 years. It is not the Berkshire Hathaway standard but it beats the rate of inflation hands-down.

If you apply the rule of 72 to 8%, then my investments will double in value in 72/8=9 years' time. :-)

Decide for yourself
Before you decide for yourself whether you have what it takes to invest in the equity market. Do consider the following:

• Your risk tolerance
  
• Your investment horizon (time period)
• Your targetted rate of return
• Your own personality, knowledge and skill

No one can guarantee that you can make money in the stock market. There is a very real risk of losing ALL of your money investing in shares in any stock market, including the Singapore Exchange. You have to decide for yourself if equities are an appropriate asset class for your investment portfolio and then take action to participate in this market.

Remember, doing nothing or investing in fixed deposits and treasury bills alone is also risky. The risk comes in inflation eroding away the value of your savings. Investing in equities comes with a much higher risk that investing in fixed deposits and equities and you must know what you are doing. But there is no perfect investment that yields a high return and virtually no risk.

Whatever you choose, be well and prosper.

Five Cents Ten Cents's 101st Post!

This blog has been in existence for seven months since February 2007 and I've managed to write my 100th post in the previous blog article!

The journey of a thousand miles starts with a single step
Wow, 100 blog posts about personal finance, investing and above all, how we can move step by step towards our own financial freedom on our own terms. :-)

When I first started out this blog, I honestly didn't know if I'd have enough topics to blog about so that the content doesn't become stale. Looking back, I realise that there are some themes that I do revisit from different angles but certain values and beliefs I hold towards money and investing still hold true and it tends to reveal itself through my thoughts about my own personal experiences in learning about what financial freedom is to me.

What does this 100th blog post help me achieve my financial freedom
What this blogging experience and birth of this blog fivecentstencents taught me was to take concrete action in my personal finance decisions. Instead of just thinking about the concept of multiples sources of income, I made use of the opportunities that Google AdSense opened up to try to monetise this blog. So far, it has yielded small returns that pays for my broadband costs. :-) My AdSense income will not replace my day-job but it taught me the importance of having multiples sources of income and also allowed me to exercise my article writing skills. This opens up other possible career opportunities in being a columnist or perhaps even writing my own book eventually!

This blog also allowed me to articulate my thoughts about my own approach to investments and financial awareness about how my day-to-day decisions in life about savings, spending or investing all impact upon my ultimate goal for financial freedom. It has sharpened my focus on why I live the relatively frugal life that I do, so that the savings I get from my paycheck go towards building up portfolio investments in equities, in time deposits, in savings accounts that all ultimately work for me by earning dividends, interest and capital gains.

It also allowed me to come into contact with like-minded individuals like yourself, who are salary men/women who work but want to build up our investments so that we can retire on our own terms and not be reliant on the Central Provident Fund (CPF) system that is being changed virtually every 5 years.

Taking action
One of the most important thing I learnt about investments is the power of compound interest. A simple way to apply it in our day-to-day lives is to learn the rule of 72. What the rule of 72 says is that the number of years it takes for an investment/debt to double is to take 72 and divide it by the interest rate.

So if you invest your money in treasury bills yielding 2% per annum, your investment in treasury bills will double in about 36 years. But if you invest in higher risk equities that potentially yields 10% returns (capital gains + dividends), it takes you about 7.2 years to double your investment. This helps you realise that it is important to consider investments that yield higher than the virtually risk-free returns of treasury bills and time deposits in banks (up to first $20,000).

However, higher returns are usually matched by higher risks and it is by being an educated and sophisticated investor through reading books on investments, learning from others, joining investment forums etc, that we slowly pick up the relevant skills and experiences to help us mitigate the risks. For example, I recently placed a deposit in a New-Zealand dollar foreign currency fixed deposit that yields 8%. I was fortunate that I placed the deposit during a recent correction in the NZD which has since risen due to the US Fed Funds rate being cut from 5.25% to 4.75%, this helped to push up demand for higher yielding currencies like the New Zealand and Australian dollars. Such foreign currency fixed deposits are not without risks and there is a very real risk of capital loss not interest and principal because of currency gains by the Singapore dollar against New Zealand. However, because I took action and placed some of my investible savings into this, I am now able to ride on this wave of both high yields in NZD plus the currency gains (which is mainly due to factors outside my control nor knowledge.)

We cannot 100% time the market, i.e. to buy at the lowest of the low and sell at the highest of the high. However, with experience and a keen interest supported by strong motivation, most of you can learn to better read the signs and key trends of stock markets, currency markets and global economic trends. The reality we have to face is that as globalisation creates greater disparity of wealth and income, those who are equipped to understand the global marketplace have a higher chance of benefitting and getting on the right side of the rich-poor divide.

What concrete steps in investing have you taken?
You don't have to immediately rush in and buy equities to take concrete steps in investing. Spend some time in our excellent public libraries and read "One Up on Wall Street" by Peter Lynch or "A Random Walk Down Wall Street" by Burton G. Malkiel. Read up the Singapore Government Securities website to find out about treasury bills. Visit SGX's website to find out how our equity market works. There are so many things you can do before you get into the market. Read, read and read more to equip yourself to make the right decisions about investments.

Be well and prosper.

Mr. Stingy!

When I was a child, I was a very stingy child. Stingy in that I would generally save my pocket money and drink tap water and usually didn't buy drinks if I was going out around the neighbourhood cycling. Stingy in not buying a lot of snacks and knick-knacks for myself.

How did I get this thriftiness within me? Was it born inside of me or was it something I learnt along the way as I was growing up?

Modelling after my father
Parents exert one of the most powerful influences on their children consciously or unconsciously. In today's era of active parenting, most parents will do a lot for their children, teaching them to survive in our competitive academic environment, fighting to get their children into the best schools, the best enrichment programmes, the best of everything that they can get their hands on.

When I was growing up, my parents were slightly more hands-off as there were three of us siblings as I was the youngest of the lot. Hence, so long as I kept up my grades and was doing okay in school, they didn't hassle me much and allowed me time to play and be a child. ;-)

However, one thing that did rub off was my father's thriftiness. My father is in some respects the quintessential asian father. Generally, he didn't talk much and performed the role of the disciplinarian in the house as we were afraid to make our father angry but we were not so worried about our mother. However, he was pretty thrifty in not spending a lot of money on clothes and cars and stuff.

Banana Split vs. Single Scoop
I remember once my parents took the whole family to an ice-cream place, where my dad said we could order anything. So my sister and brother ordered big sundaes and banana-splits while I just ordered a scoop of raspberry ripple ice cream. When I saw my siblings having such big ice creams, sibling rivalry took over and I threw a tantrum! My father was a bit miffed and scolded me for throwing the tantrum. I was upset because I knew my father is a thrifty person so in my 7 year old brain then, I thought it would be good if I ordered the most modest ice cream on the menu, and didn't appreciate the fact that he was prepared to treat the whole family that day. However, my experience modelling after my father taught me to take the thrifty choice because it appeared to be the one that he would take.

It is your destiny
This approach to life has stuck with me even as I prepare to embark into the next phase of life, to start my own family. :-) I am still generally thrifty and don't have to think too much. Most decisions are made in terms of cost-effectiveness but I have tempered my stinginess with making choices based on value rather than the cheapest you can get.

I still hardly buy clothes for myself except for the occasional visit to Robinsons for the annual great Singapore Sale and before the Lunar New Year. My most expensive watch that I bought for myself cost all of $109 for a good quality Seiko and generally, my current wallet has been with me for the past 3-4 years. :-)

Some of you might think I live a pathetic life being so stingy with myself but I choose to see it as life choice. To me, it doesn't matter if my watch is a Philip Patek, Tag-Hauer or Casio. So long as it tells time and fits the dressing style, I will wear it. My current watch is a Hamiliton Khaki that was given to me by Mindef for completion of my 10 years reservist. It looks decent and is a small refund of my tax dollars so I am not complaining. :-)

We are moist robots
I read about this term, "moist robots" in Scott Adams (cartoonist of Dilbert) blog and agree that to a certain extent, we have been programmed to behave in certain ways unconsciously because of our parents. For me, my father's imprint has been strong even though he didn't formally lecture me about saving money and being thrifty. I could observe his behaviour as I grew up and picked up on some of those habits as I matured into an adult.

What type of programming have you received in your life? Consider the people who impacted you when you were growing up. Does you behaviour now reflect their conscious or subconscious influence on the way you approach money and finances?

Enjoy your weekend and as always, be well and prosper!

Investing in your own financial education

I am currently reading the book, "A Random Walk Down Wall Street" by Burton G. Malkiel and I must say his writing style is relatively easy to follow and very folksy! I've just started on his book and will post a book review when I have completed it.

Investing in your financial education by reading
The reason why I am introducing this book is to emphasise the importance of reading and getting ourselves equipped with the experiences of people who have been there and done that. In order to better prepare ourselves for our investing present and future, we must learn the mistakes of the past vicariously through the recorded experiences of smart players who have survived the investment boom and bust cycles.

Visit a library now and start reading about investments
When I visit investment forums, there are many people who ask "noob" or newbie questions about investments. That is to be expected as there is a sucker born every minute! I was one of those suckers once too and had my share of losing money. However, if you are serious about developing a realistic roadmap towards financial freedom, you must invest in educating yourself in investments. While the best things in life tend to cost a lot, knowledge can be gained if one is willing to invest time and effort in it. Our tax dollars pay to run the public libraries located conveniently across Singapore and really there is no excuse not to make a trip down during evenings or even weekends to avail ourselves to the wealth of knowledge that resides in the libraries.

The book I am reading comes from the Central Lending Library located along Bras Basah road. You can find this and similar books scattered all over the business or investment sections of the public libraries. Simply wander around the business section, hop on to the online catalogue and search for books on investment or ask the nearest librarian staff for help, they will direct you to where true riches first exist...In your mind as ideas and thoughts supported by a strong desire to grow your financial literacy and education.

Some of the books that you can consider reading include, "The Richest Man in Babylon", "Think and Grow Rich" and "One Up on Wall Street". All of these and more are available in our public libraries.

Financial freedom is a long journey, equip yourself with the ideas of the best brains in the business by spending a couple of hours a week reading. On the train/bus, in the loo, on a lazy weekend morning or just before bed. This small investment in your own personal development will reap rich rewards as you grow in your financial quotient!

Be well and prosper.

Adding Cents by AdSense

If you haven't noticed, my blog Five Cents Ten Cents is embedded with AdSense advertisements. How AdSense works is that interested readers who find their way to my blog about personal finance and financial freedom would be presented with advertisements related to personal finance and financial freedom. There will be a certain percentage of visitors who may be interested and would click on those advertisements if it catches their eye.

My first foray into developing multiple streams of income
AdSense is my first tiny foray into developing a multiple stream of income and so far, it has paid me my first USD 100+ after about three months of blogging in Five Cents Ten Cents as well as my other blogs kidsREAD and Speaking Life. This means two things. Firstly, I need to keep my day job as AdSense will not pay my bills. :-) Secondly, it means that there is real money to be made in the virtual economy peddling thoughts and ideas presented in a coherent and easy-to-understand manner. :-)

How much is USD 100 every 3 months?
To put into perspective how this USD 100+ helps, it is instructive to compute how much investment capital I'll need to generate an income of USD 100 or SGD 150 every 3 months or so. Assuming a risk-free return of 2% from treasury bills or time deposits, in order to get USD 400 every 2 months, or USD 600 over a year (assuming the AdSense revenue is reasonably consistent and I blog at the rate of 2-3 articles a week), I would need SGD 30,000 in investment capital to get this passive income.

Imagine that! I would need to save, earn and invest SGD 30,000 at a return of 2% in order to get cashflows of S$50 a month or so! My investible savings that are not parked in time deposits or treasury bills are typically invested in stocks and shares listed on the SGX. While some of these shares have a higher dividend yield than 2%, I have to accept the risk of capital loss/gain as well as spend some time monitoring the stock market.

My own experience with AdSense
The beauty of AdSense is that the risk is relatively low in this venture. My investment is in the man-hours that I need to think and write about a personal finance topic that is relevant to you my reader. I did not incur much start-up costs as Blogger is a free service and my only real out of pocket costs are my broadband connection which I also use for personal entertainment.

In addition, while sometimes I feel that I have run out of ideas for this blog, life throws up many interesting scenarios and ideas through actual developments in my own investments, the market as well as questions posed by readers and forum sites that i visit. The time taken to blog also decreases over time as I become more accustomed to summarising my thoughts in a form that most readers are (hopefully!) able to follow.

My own experience with AdSense
In our journey towards financial freedom, seriously consider how you can build up multiple sources of income to help cut down the amount of time you need to work, save and invest to hit your target for your own level of financial freedom. It can be fun as it allows you to monetise a hobby, skill or talent that you already possess but never gave it an attempt to exploit it to earn real dollars and to add cents to growing your financial freedom fund!

Be well and prosper!

Letting go is hard to do...

Winning and losing are part of the investment game
The recent market correction in August 2007 has hit my portfolio in terms of paper losses. I did not sell at the lowest of the lows when the STI tanked significantly. However, the STI has not recovered fully from that hit and I decided now that the STI was regaining strength, to sell into strength and get out of some of my underperforming stocks.

One of the fundamental principles of investing is putting in money that you can afford to lose. This principle is there for a reason. Firstly, if you are willing to take loss and exit out of under-performing shares, you can redeploy your capital to other investments. Secondly, you are also able to hold if the market turns drastically against you like it did in August. I count my blessings that I managed to hold on beyond August as when the STI was at its lowest point in the correction, that was the worst time to sell. If I had done that, my paper losses would have been in the 5 digit figure!

However, by now, I am fortunate enough to sell off underperforming shares which I bought at somewhat toppish levels. This allowed me to mitigate the impact of the losses. I still had realised losses to the tune of low 4 digits but it was still a painful lesson to learn from Mr. Market.

Why not hold forever?
This is a tempting strategy for those who have holding power. The reason I decided to pare down my portfolio by letting go of the underperformers was to unlock my investment capital to be re-deployed in safer instruments as at one stage my portfolio was almost 85% in equities and 15% in time deposits, savings and treasury bills. This was a highly overweight in equities and I felt that given the recent and likely continued volatility, a more comfortable exposure to the equity (shares) should be closer to 70%.

In addition, some of the counters that I bought looked to be real laggards and the dividend yields were quite low for the risk of further capital loss, hence I decided to prune this and now my porfolio is back on track in the green.

What did I learn from this experience?
Cutting losses is always painful because it means acknowledging that one did not buy at a sustainable price. The greed of wanting to recoup the losses by holding and hoping for the market to rally again is also strong and to overcome it I had to eat humble pie and recognise that those were mistakes. :) However, the positive thing about the experience was that I did use proceeds from my sales of those underperforming shares to buy shares that were undervalued during the correction. Hence, I got into a few blue chips that have helped lift my portfolio back to where it should be, showing modest growth that is on track to yield me a return of at least 2 x the highest prevailing fixed deposit returns.

Going forward
On hindsight, the buying and holding of quality bluechips for the long-term is still the best approach I should be taking. However, the trick is to go in at the price which gives you a higher chance of capital appreciation as compared to chasing a share at its day-highs.

I also need to guard against the gambling mentality which manifests itself strongly during periods of extreme volatility in the equity markets since that is the time where the large price movements intra-day make for good trading opportunities.

I hope that the August 2007 correction did not impact you too much and wish all of you to be healthy, well and to prosper!

Opening up our minds to the possibilities of financial freedom

In my journey towards financial freedom, I realise that my reality is starting to be stretched day by day, little by little as I focus my mind on the possibilities of achieving financial freedom.

At the beginning of this journey towards financial freedom
Before I embarked on this journey during the last 5 years or so, I was a typical salary worker. Just work hard, save money and hope for the best. As I started to open my ears and eyes to the changing world around me, it dawned that this tried and tested formula gives one a stable life but very little chance of becoming financially free. [Financial freedom for me is where I achieve portfolio and passive income exceeding my living expenses.]

To be financially free, I realise that working hard, saving money and living a simple life are still valid steps in climbing the ladder to financial freedom. But you have to save and make smart investments in order to move closer to financial freedom. You must be open to the world of possibilities in achieving financial freedom.

How to tap on this potential world of possibilities?
Have you ever wondered why people like Warren Buffet become as rich as they have? How about Roger Federer or Bill Gates? These people are born with certain innate talents which they have worked hard and honed to a degree that is unmatched by their peers. Warren Buffet is the undisputed king of investing. Roger Federer is the reigning number one ranked mens' tennis player and has just won the US Open tennis tournament. Bill Gates built Microsoft into the technology juggernaut that sees its software in virtually every computer on this planet.

Each of you (and I) are born differently and we have different talents and different skills. But one of the most powerful forces that we can tap on is our innate curiosity about things. That is quite universal in most of us when we were children and it gets suppressed as we grow older and learn to adapt to the "need-to-know" approach to understanding the world around us.

This is what I found about the journey to financial freedom. We must re-ignite this innate curiosity in us and channel it to find out more about different ways to grow our passive income, become more receptive to investment opportunities and learn to develop that financial quotient or financial literacy that we see us navigate safely through the pitfalls of investing while moving us ever closer to our goal of financial freedom.

Get interested and curious today!
I learnt to be interested in stocks and shares after getting burnt by unit trusts that consistently under-performed their benchmarks and yet I had to pay their management fees for mediocre performance. That was the last straw for me and ignited my interest in getting my hands dirty by learning to buy, hold and sell shares in SGX. I was fortunate in that the timing of my entry was during the SARS period around 2003 where the SGX had corrected significantly and it was a good buying opportunity for blue-chip quality shares. On hindsight, if I had put almost all of my investible savings (and more!) into any of the bank shares or other quality blue-chips, I would most likely have doubled if not tripled my money in 5 years!

That is one of the lessons I learnt in investing, you cannot 100% time the market because no-one, not Alan Greenspan, Ben Bernanke not Peter Lynch can predict the market all the time. But these talented individuals are able to see key market trends and developments which help them understand the underlying forces behind financial markets. We can also learn from these luminaries and get interested in what moves the financial markets and the real economy as that impacts on our decisions affecting our career choices, our savings and investment decisions.

My own thinking about financial freedom is that it is achievable in my lifetime way before age 55. I am now rather overweight in equities on SGX mainly because the August correction presented some buying opportunities in blue-chips. In addition, the returns on fixed deposits and treasury bills are still relatively abysmal compared to potential gains in equities. Of course, equities carry with them the risk of complete capital loss of investment amounts and require one to have some knowledge about how they work and the factors that cause their price to go up or down. Investing in equities also requires some understanding of the sentiments and emotions of the market players as the August correction showed that sentiment can overpower economic fundamentals.

The more you learn, the more you earn!
The saying, "The more you learn, the more you earn" rings true even right now! While it was used to refer to our academic qualifications to allow us to get a good job, it also applies for you when you want to achieve financial freedom because you need to learn more about the various asset classes e.g. stocks and shares, fixed income (bonds/treasury bills), time deposits, property, and even derivatives (if you are sophisticated enough to manage the risks) and how you can build your portfolio of assets that generates that income streams that will provide you with sufficient passive income to be financially free.

So remember to hit the library, internet and talk to people about investments, because the more you learn, the more you earn!

Be well and prosper.

Wait! Don't throw away that mutilated Singapore dollar note or coin!

We earn it, we spend it and we save it.

Money, money and more money makes the world go round. But does your world collapse if your physical currency notes and coins are mutilated by accident?

Worry not because unknown to many people, your mutilated notes or coins can have some value IF the following guidelines are followed as issued by the Monetary Authority of Singapore.

So if you have any mutilated notes, remember, the important thing is whether the serial numbers can be seen. If you are fortunate, you may get half, if not full value in return!

Be well and prosper.

Refund for Mutilated Notes & Coins

(source: http://http://www.mas.gov.sg/currency/currency_info/Refund_for_Mutilated_Notes_Coins.html)

Mutilated notes and coins command no value. The award of value for any mutilated note and coin is an act of grace under the Currency Act. Mutilated notes and coins may be exchanged at any branch of the commercial banks in Singapore.

The banks are empowered to assess and give value to the mutilated notes and coins in accordance with the Board's guidelines.

The guidelines on assessment and award of mutilated notes are as follows :
(For Portrait Series)

1. There are 2 sets of 9 serial number. Eg. OAA123456. Every number or letter is counted as one for the Portrait series. There must be at least 5 full numbers/letters before each set of serial number is considered as half value. Eg. OAA12 is half value. OAA I is no value.
2. No value for intentionally scratched Kinegram.
3. No value for wilful removal of Kinegram.
4. No value for wilful disfigurement of the Portrait.
5. No value for specimen notes (the serial numbers of specimen notes are printed in red)

(For Orchid, Bird and Ship Series Notes)
Generally, if the notes have not been illegally tampered with, they are given full value if both sets of serial numbers are intact and half value if only one set of serial numbers is intact. The serial number is considered to be intact if at least four out of the seven digits appear in full. The prefix is to be treated as one digit.

The assessment for dirty and damaged coins shall be :

1. No value for cut, chipped or holed coins.
2. No value for warped or dented coins.
3. No value for defaced or split coins.

Am I keeping up with the Lims, Muthus and Rudis?

Singapore society is furiously fast-paced and frentic. The three Ks of kiasu (scared to lose), kiasi (scared to die) and kia cheng hu (scared of authority) keep us on our toes all the time in all aspects of our lives, including our quest for financial freedom.

Comparing ourselves to others
Comparing ourselves to our peers, our colleagues and our neighbours is something inescapable to existing in Singapore. Our very DNA is infused with this never ending quest to go one-up against one another. There are advantages of being so driven by comparisons against benchmarks. It makes us leaner, sharper and hungrier so that we will seek to find ways to improve, to excel and to be better in everyway almost everyday. However, the disadvantages of such benchmarking and unnecessary comparison at times is stress, too much pressure, a less than gracious attitude towards our neighbour, colleagues and relations and sometimes downright envy and jealousy.

Financial freedom - choose your benchmarks wisely!
In my quest for financial freedom, I do on occasion also give myself undue pressure in getting better returns on my investible savings, "timing" my share purchases to buy at a reasonably low price relative to valuations and to sell at a reasonably high price to maxmise capital gains or minimise capital losses if I no longer wish to hold that company's shares.

I do benchmark myself to my peers, my friends who are around my age and informally check out if my net worth matches or exceeds theirs. Comparing as a means of doing a reality check of whether we are on track towards our goal of financial freedom is useful. We need to know if relative to most people, we are okay, lagging behind or exceeding. However, to use such benchmarks to make ourselves feel good or bad may be counter-productive as each of us has to take a very personal and individualised path towards our financial freedom.

Even the very definition of what financial freedom means to each of us can be different!

Run your own race towards financial freedom
When I was serving my national service in the Singapore Armed Forces as a reservist, I remember the tip shared by the mature Physical Training Instructor (PTIs) who were in their 40s. They exhorted us to try out best at completing the 2.4km run within our required timings to pass the Individual Physical Proficiency Test (IPPT) but at the same time, warned us to listen to our bodies and run our own race. It is no point pacing ourselves against the best runner in the battalion only to (literally!) drop dead mid-way through the race.

Pacing runners who can pass will give us a gauge if it is likely whether we can run within the required timing to pass the 2.4km running test. But it is important to realise that all of us are different physically and mentally and what is achievable for one may not be achievable for another.

In your own quest towards financial freedom, by all means set your specific targets. For example, if you want to pay off your housing loan before age 55. By all means set that as a target. If you are more aggressive and want to pay off your housing loan by age 40, by all means do so. You set your own goals bearing in mind what financial freedom means to you.

For me, it is to be financially free (where passive income > living expenses) way before 55 so that even before I hit that age, I will already be able to retire if I so choose even without considering a need to touch CPF monies for my retirement.

Think of your own goal, write it down, visualise it and make it your own. Review it periodically taking into consideration your circumstances but pursue it with passion and dedication. Remember to set your own finishing point and run your own race. Check out your contemporaries now and then but don't over-compare for everyone is different in income levels, lifestyle spending levels as well as the capacity for savings and investment.

Above all, enjoy the process of achieving financial freedom because you want to be well and to prosper!

How many meals can you eat in one day?

Why do you want to be rich, financially free and to earn lots and lots of money?

Why do you want to rich?

Why do you want to be financially free?

Why do you want to have lots and lots of money?

Some of you want to be rich because you don't want to be poor. Some of you want to be financially free so that you don't have to work under your horrible boss. Some of you want to have lots and lots of money so that you can buy whatever you want, eat whatever you want without worrying about how much the bill would cost!

There are no right or wrong answers in your motivations for wanting to achieve financial freedom. All of us have to decide for ourselves what drives us in our quest to be financially free where our passive income exceeds our living expenses.

No matter how much money you have, you can only eat three meals a day
In my quest for financial freedom, I realise a large part of it is to live a simple lifestyle. Some detractors may think that financial freedom by living within your means, saving and investing and leading a simple life defeats the purpose of living. Why scrimp and save for tomorrow is another day and we know not if we will live or die?

Some prefer a high earning and high spending lifestyle, where you drive the latest Subaru WRX or Lexus LS400, or perhaps a nice condominium in the city or that fashionable labels that adorn your body. That is life to some, that is living to others.

I'd like to look at it from a slightly different perspective. No matter if you eat at kopitiam, Swensons or Lei Gardens, you can only eat three meals (or in some cases, five small meals a day!). How many of us can eat and eat and eat and not suffer the consequences of gluttony and overeating? There is a limit to how much food we can ingest to live an how much food we can savour to enjoy.

Difference between appetite and hunger
I read that one of the reasons why we overeat is due to us not being able to distinguish between hunger and appetite. Hunger or that familiar growling of your stomach as your gastric juices are activated is your body's way of telling you, "feed me!" Now, in addition to the body telling you, our brain also chips in to say "feed me!" but for different reasons. The brain is susceptible to other messages that goes beyond satisfying our physical hunger. Our brain at times makes us eat beyond our hunger because it is satisfying other needs such as for the pleasurable activity of eating tasty food and even emotional needs. Some of us use food to remind ourselves of the pleasurable or comfortable experiences they associate with their childhoods or with positive life experiences.

Our lifestyle is a reflection of this ongoing struggle between satisfying our appetite and our hunger. Taking our three meals a day. You can eat very simple and nutritional meal that does not cost a lot to survive. You can also eat very exotic meals that costs a lot to survive. The choice is yours to make. No matter which choice you decide, you will realise that the law of diminishing marginal utility takes effect and after that x bowl of scallops or sharksfin soup, your body will tell you "enough"!

Eat to live or live to eat
Life is about possibilities and choices. We choose the lifestyle we want to live. We choose the food we want to eat. We choose how much we want to spend on consumption.

Financial freedom is about choices and choosing. It is a type of multiple choice question exam. you decide which choices you want to tick.

Be well and prosper.

Ignorance is not always bliss

I prowl online forums related to money and finance and encounter time and time again how the typical consumer gets himself into situations where he does not understand and becomes exploited by the financial institution.

There is no free lunch
One encounter was this parent who applied for a "free cheque book" from one of our local banks. He thought that this was a normal chequing account but it was actually one of those personal credit lines where a "free" cheque book was provided. He wrote out a cheque without making payment from his bank account savings into this personal credit line account and when the cheque was cleared, he was hit with an interest charge of $5.

I replied to this forummer and the first question I asked was, "Do you know that this product that comes with a cheque book is a personal credit line and NOT an normal chequing account?" It appears that he was totally unaware of what he had signed up for!

[If you are savvy operator, the trick with using such free chequebooks is tight management of cashflow. I.e. always pay your personal credit line amount first before issuing the cheque. This way, you really get a free cheque book but it only lasts for the first year because the bank will typically auto-charge your personal credit line account with the annual fees after the first year! So be alert to that!]

Whose fault is it anyway?
Is it the bank's fault for not educating their consumers about the nature of the product? Is it the consumer's fault for not asking the right questions and finding out about what the free cheque book was about? Is it the regulator's fault for not providing minimum disclosure rules to safeguard clueless consumers about such products?

In short, who can we blame?

The reality is that we should blame ourselves. Just as we would not operate a motor vehicle without a proper licence and would have to put on our seatbelts before we start the vehicle, we need to learn to drive carefully and safely in order to navigate successfully through the pitfalls and pain waiting for us by the financial institutions eager to squeeze every ounce of profit if we are not fully aware of what products are suitable for us depending on our needs.

We need to equip ourselves with financial literacy, to know what questions to ask before we take on a new financial product or service. What are the risks? Will I lose my shirt, pants and underwear by investing my money in this product. Would you as the financial advisor buy this product you are pushing to me?

In Singapore, people tend to be non-confrontational and we want to be pleasant and affable to everyone. However, in our quest for financial freedom, we must fight for our financial rights and demand to have access to the critical information required for us before we sign on the dotted line for that "free" cheque book, investment product or bank account. Read up on the fees and charges that the banks are required to disclose on their websites. Read up about the general and specific information about a product or service. When in doubt, delay your decision as the product/service will still be there if it is bonafide and good. In short, arm yourself with the seeds of financial literacy that will grow every day as your brain gets used to asking those questions BEFORE and not AFTER you sign on the dotted line.

Pay for your own lunches
Above all, adopt a healthy dose of scepticism for the next new-fangled free product or service because in this modern world that we live in, there really IS NO FREE LUNCH.

Be well and prosper.

Financial Literacy for Kids!

Some of you may know that I taught in the National Library Board's kidsREAD programme that was conducted by the Chinese Development Assistance Council (CDAC) Jurong Student Services Centre in Jurong West. I taught children from low income families aged from six to eight years in reading and literacy skills and to develop in them a life-long love for reading of English books.

Our children are not grounded in financial literacy
My own journey in discovering the path towards financial freedom has led me to one startling discovery! Our children are not grounded in financial literacy!

It is indeed a scary fact that our mainstream education system does not cater to sufficiently develop in our young the capacity for financial literacy. Even as I studied and developed within Singapore's mainstream education system from primary all the way to the University, I never did encounter any lesson that taught me financial literacy. Yes, I studied all the math I needed up to "A" level mathematics "C" as well as did modules in Statistics in the University but no where did I learn about financial literacy except from the school of hard knocks.

I realised through writing this blog "Fivecentstencents" that I am able to express certain ideas about personal finance in a relatively easy-to-follow fashion and would like to develop this skill further by starting another blog called "KidsRich"! Don't worry, this new blog is not about selling "koyok" or "snake-oil" about making children millionnaires by the age of eighteen! It is more about exploring different ways we can teach our children financial literacy in simple exercises and articles that touch on the why, what, who, when and hows of allowing our children to become more financially literate in this globalised world where one needs to not only be equipped with the 3Rs of Reading, wRiting, aRithmetic but also to be grounded in sound financial skills to be able to know the difference between an asset and a liability and to inculcate in the young the spirit of saving.

The power of compound interest
The power of compound interest is possibly one of the most powerful forces in the financial universe. By leveraging on a sound understanding of compound interest, we can give our children a legacy of financial skills and competencies that will allow them to make their own informed financial decisions when they come to the age of majority and when they ultimately have to take responsibility for their financial decisions both good and bad and have the wisdom to discern between what saving, spending and living within their means affects their lives.

Start them young towards financial freedom
Those of you who are parents or uncles and aunts or who come into contact with children. Consider how you are imparting them the skills of financial literacy even as you develop your own financial quotient and understand more about your choices in savings, spending and investing.

We all need to start somewhere, why not start them young on the path towards financial freedom?

Be well and prosper.