Flickr! photo by *Micky.
Dear friends,
Five Cents Ten Cents continues to bring to you the principles of financial freedom in our new website at http://fivecentstencents.com
Five Cents Ten Cents has moved to http://fivecentstencents.com
Please update your bookmarks and new feeds are available at my new website!
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This article above has interesting implications from a financial freedom point of view. As you are on this journey towards financial freedom, do you consider the reason behind why you are driven towards this goal?
All human endeavour that seeks to achieve a certain degree of success requires effort, focus and perseverance. This comes only when you have a strong desire and a clear purpose as to WHY you are pursuing your goal.
Financial freedom for the sake of financial freedom doesn't satisfy. I have alluded to this concept that you are drawn to achieve financial freedom because you want to escape the time-money trade-off or in simple terms the "rat race". The rat race sees us in this value-chain of getting up, going to work and fulfilling our role in the work-earn-spend-work cycle. Never ending when we are in thrall to our housing loans or other consumer debt.
To break free of this rat race is to be able to wake up and decide what you want to do with your time, energy and life without worrying too much about how you can feed yourself and your family. That, to me, is the practical dream that drives me towards financial freedom. It is the ability to make choices ordinarily not available to those who do not chose to aim to break free of the rat race.
Some of you may like to live a life of hedonism and enjoyment within the passive income that exceeds your lifestyle. So be it. Some of you may want rather, to give more of yourself to causes that wouldn't pay well in the real world, for example, volunteer in certain capacities. I realise that with my daughter in my life, I now want to work towards financial freedom because it gives me more time to spend with developing her to the fullest of her potential and to let her grow into the matured, productive and life-changing person that she can be. I also want to be liberated from the rat race to pursue my interests in writing, sharing my own skills and knowledge in areas where I can share and to basically touch lives in ways that I am restricted.
Individuals have told me I can do it WITHIN the rat race by choosing the career that satisfy and to do volunteer work in my spare time. I have tried that out and while I still continue with my career because the earned income helps me accumulate investible savings, I realise the same 24 hours leaves me little time to spend on family and volunteer work while keeping a 9am to 6pm job.
Back to our article above. I do believe that it is more blessed to give than to receive. But you still need to take care of yourself and your loved ones first before giving. I have done my share of volunteer work in teaching children reading skills as well as helping out in a supervised homework group program for 5 years or so. I have helped out in a non-profit professional association as a board member that has benefited my peers in the industry in terms of training and experience sharing. I have done for others and it has made me more fulfilled as a person. Now, I realise my focus is on financial freedom so that I can take better care of my loved ones because the time-money trade-off becomes less a burden on me with ever cent that goes into growing my passive income sources.
Would financial freedom make you happy? Why? You may want to take this long weekend to mull about the reasons behind achieving financial freedom. The deeper this desire comes from within, the more the desire is fueled by something more than self-gratification, the more you realise your actions will be aligned to the financial freedom principles:
In the meantime, rest, recreate and refresh yourself over these three days and remember to take care of your health too!
Be well and prosper.
Five Cents Ten Cents has moved to http://fivecentstencents.com
Please bookmark the new website as this blog will not be updated after 21 March 2008.
Thank you.
Panzer
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One of the pillars of financial freedom is to grow your means. You can do that in many ways. The most obvious way that occurs to you would be to hunker down, work hard and work smart to get ahead in your career or business.
Growing your means, a paradigm shift…
Get that promotion. Gain that increment. Grab that career move that pumps up your income and earnings. That is one way to grow your means.
The other way that is increasingly evident in our globalised economy that is Singapore Inc. is to seek alternate sources of income. Investment income is one such way. In generally, Singapore’s tax laws are laid out such that interest is not taxed. Dividends from stocks and shares for certain exempt sectors are also free from tax. Even for dividends from companies taxed at 18%, you get a tax credit to offset the taxes on your dividends that result in you only paying tax on dividends at your effective personal tax rates.
Internet income is starting to become a reality. I can’t quit my day job but AdSense revenue is paying for my web hosting for this blog. Hence, my blogging efforts are able to generate enough money to make my blog more professional with its own domain name as well as paid web hosting. The new paradigm in our ever changing value-chain is to diversify your income sources. Relying on your job for 100% of your financial security gets riskier with age and with winds of change blowing through the business landscape.
Growing your means, taking action!
My own foray into growing my means has been really using AdSense and blogging to explore how you can make some additional sources of income from non-traditional activities of trading time for money. Don’t get me wrong, AdSense requires still some trade-off but it gives you some flexibility in working on your blogs when you have time and at your own schedule.
Based on what I’ve read, unless the main stream media picks up on my blog and gives me free publicity to a few hundred thousand people, my humble blog would be challenged to generate anything close to even my investment income. I realise I need to either sell my own product or services through my websites where I’ve build up a small audience. That is the way to go. This revamp of Five Cents Ten Cents seeks to make my blog more adaptable to change as the look and feel can move very quickly using Wordpress templates. In addition, I can also add functionality that exceeds what Blogspot can do for me.
To grow our means is to be open to opportunities and to try. Almost one year ago, I started out Five Cents Ten Cents as an experiment. What this experiment has proven is that it can generate real dollars and cents and it has also allowed me to get re-aquainted with Web 2.0 technologies and to marry my skills in writing, personal finance, information technology as well as some dabbling with designs and photography. Increasingly you will note that Five Cents Ten Cents uses photos from my own Flickr! albums that were taken on my trips overseas as well as my activities in toastmastering, kidsREAD and others.
How are you growing your means? What concrete steps, however small, have you taken to grow your means. In our current low returns from fixed deposits and treasury bills, even if you can generate $10 a mth from whatever alternate source, it represents $12,000 that you would have needed to set aside at 1% (Fairprice Plus savings rate) to get the same returns. So don’t underestimate the power of this alternate income source.
Be well and prosper!
As I explore more of the ways to live my life to attain financial freedom, I start to see the convergence between financial freedom and simplicity.
The models and approaches that I explore become simpler as I journey towards financial freedom. It is this very elegance of simplicity that draws me closer and closer to the heart of what it means to work towards financial freedom.
Fundamentally, the concept is straightforward. In order to be financially free, you should build up enough investments that generate passive income that meets your living expenses.
To achieve this level of investments, you generally need to live within your means, save and invest and grow your means.
Your achievement of financial freedom depends on how you manage to work these three areas of your life.
On a superficial level, this just means to spend less than your income. You want to do this so that you can grow your savings that can then be channelled into productive investments to grow your passive income.
On a deeper level, living within your means is strongly correlated with the themes of frugality, simplicity and having an uncluttered life. Many of the problems of financial recklessness and abandon are associated with the mindless pursuit of accumulating material posssessions. Your needs are few but your wants are many. It is the translation of these wants in to ever-increasing perceived “needs” that move us towards the unfulfilling vortex of materialism and the collection of stuff in our lives.
If you look around your room, your home or your workplace, most of the stuff can be done away with. We can do more with less and perhaps even more effectively without the stuff hindering our lives.
The more you focus on reducing materialism to make you happy, you will find that your real needs are few and differentiating between wants and needs becomes easier over time. Savings becomes easier over time as you delay or defer gratification by spending less and investing more from your savings.
Investing requires effort but the approach for a long-term investor does not have to be overly complex. The main principle is to understand what you invest in and invest in what you understand. To have more investment opportunities is to understand more about different asset classes and the risk-reward trade-offs inherent in each type.
There is no magic bullet. Investing in the long-term can be boring and tests your patience. But slow and steady in investments you understand yielding adequate returns for your appetitite for risk is the way to go.
Does living a simple life mean living hand-to-mouth and suffering privations without enjoying life. The answer is an absolute “NO”. You can grow your means by gaining that promotion, increment or bonus if you are working at a job. If you are running a business, you can expand your business, build it up more with more sales or billable services generated. Growing your means allows you to have a higher standard of living through your purchasing power whilst still allowing you to live within your expanded means.
My experience has been that my life whilst simple by most standards can be made even simpler by reducing the amount of STUFF I have in my life. I think I can eliminate at least 50% of the stuff I have now in my home without seriously affecting my quality of life. This has allowed me to focus on savings and to channel these into investments for the longer term.
The more I think about financial freedom and work at it, the more I believe that the principles should be kept simple, and to allow our execution to vary according to different stages of our lives whilst keeping the overall goal in sight, i.e. to be financially free by age xx with a investment capital of $xxx,xxx amount.
Be well and prosper.
Dear faithful readers,
It's been a almost a year since I started out of my blog on financial freedom Five Cents Ten Cents and I have learnt so much from writing out my ideas relating to financial freedom!
The journey towards financial freedom is just starting to get interesting as now I have one more mouth to feed. :-)
Besides starting to pick up the ropes on parentcraft, I have also been exploring ways to bring this blog to the next level. I have been brainstorming and coming up with ideas on how I can TRANSFORM Five Cents Ten Cents into something even better!
I will continue with the tradition of sharing with you my insights and experiences about my own journey towards financial freedom while you accompany me through this blog.
In so doing, I hope that you find value through the ideas and thoughts generated about personal finance and YOU TOO can achieve financial freedom LONG BEFORE YOUR STATUTORY RETIREMENT AGE!
Watch this space over this coming weekend.
Be well and prosper.
The picture above shows the token of appreciation given by the Singapore Armed Forces to me last year when I completed my 10 years of reservist duty to the State as a Conscript in the Lion City. It comprises a Hamilton Khaki watch, a collar pin and a medal as a form of recognition of my services to the nation.
The watch's face is broken after being worn for 1+ year while I have consigned the box to the depths of my cupboard to gather dust as a remembrance of something I would rather forget.
My quest for financial freedom
The relentlessness of my pursuit of financial freedom is to some extent driven by my experiences as a conscript in the Lion City. As a able and fit male citizen of Singapore, I went through two and a half years of full-time military service when I was 18 and this was followed up by 10 years of annual in-camp training that ranged from short two day BCTC courses revising basic infantry techniques to 3 week long operational duty at key installations in Singapore.
Whilst I was on reservist, I saw how my responsibilities were taken away from me and given to a lady staff who did not have reservist. That meant my performance for that year was impacted since a key work area was taken out of my hands and given to someone else. Over the internet, I read of anecdotes where Singaporean staff were discriminated by some employers as PRs or foreign talent were preferred for their lack of NS liabilities. There were even reservists who were afraid of changing jobs because they were on remedial training for failing their individual physical proficiency test (IPPT).
Recently, I read of a case where a NSF lost 85% of his sight due to oversight by his superiors and allowing his eye condition to worsen.
The reality is that as an NSmen, you are disadvantaged economically against your competitors in the career arena. Ceteris paribus, an employee who does not have NS liabilities i.e. Permanent Residents or foreigners on employment passes / work permits are more attractive to hire and retain than Singaporean men. That is the BRUTAL TRUTH that is Singapore Inc.
Yes, the gahmen gives you NSmen tax reliefs and top ups. Reliefs and top-ups help little when you don't have a job or when your job is at risk due to your NS liability. Safra clubs does little for you if you cannot afford to pay its subscriptions without a career.
Forget duty, honour and country, and let's talk about growth, GDP and money!
The relentlessness in which this administration pursues economic growth tells us one thing. Making money in Singapore Inc is the reason we exist. I believe in economic growth. What I don't believe in is a system that penalises its own male citizens with conscription which provides inadequate compensation mechanisms for the risks we take. Hence, now that I have served my duty to the country, it's time for my duty to my family to maximise our family's economic growth through making more money.
Volunteerism? Donations?... Been there and done that.
Now it's time for living within my means, saving and investing and growing my means.
Singapore Inc has abolished estate duty, so you can leave it ALL to your family so let's make economic hay while the sun shines.
My pursuit of financial freedom is to truly contribute to the country through taxes and to receive through income streams from career and investments. It is a win-win arrangement that no true economic maximiser will refuse.
After all, "welfare" IS a DIRTY word in Singapore.
Be well and prosper.
I have discussed how the dream or reason that drives you towards financial freedom is important in focussing your hearts, minds and souls towards your financial goals.
You are not a robot following a program mindlessly and executing tasks repetitively. You are a human being filled with emotions, feelings and moods. In order for you to invest for the future, you need to focus on the present, to do the things daily that leads you surely and steadily towards your goals in financial freedom. You need to have a strong sense of purpose behind why you are pursuing the tasks and activities that move you towards financial freedom.
Let's recap what does financial freedom means to you:
To be able to have the targetted investible savings that generates passive income that exceeds our living expenses.
It's that simple. To be financially free you need to live within your means, save and invest and grow your means. This will help you generate sufficient investible savings over time which earns sufficient passive income to cover your living expenses. When you achieve that, you are no longer trapped in the time-money trade-off since you are free to spend your time to do whatever you want as your investible savings works for you to earn that income while you are sipping coffee watching the world go by during weekday mornings. ;-)
Focussing on the present means translating the financial freedom principle of living within your means, saving and investing and growing your means into daily achievable actions. Plans without action gets us nowhere. Action with plans gets us somewhere but not where we want to go.
I like blogging because I have enjoyed writing and public speaking ever since I became a toastmaster. Blogging is also cathartic for me, i.e. it allows me to articulate my thoughts and at times vent off some frustrations in life. It also helps me to clarify my thoughts. I have made blogging my hobby because unlike other hobbies, blogging with AdSense helps me grow my means. I earn literally five cents ten cents everyday that adds up for my daughter's college tuition fund. This is one way where I am growing my means even as am a salaryman.
Living within my means comes from realising that materialism will only satisfy you briefing before the you hanker for the next "thing" to make you feel happy! Thus, a life spent chasing after materialism will never satisfy in my own experience. I realise that as the number of candles on my birthday cake grows, the more I realise happiness comes from the basics of health, happiness and family. Small luxuries now and then make life more enjoyable truly but they are to be sampled sparingly so as to preserve the delicate sweet flavour. Indulging in luxuries all the time spoils out palate and makes for one to live beyond your means.
Saving and investing comes from every small step. Yes, interest rates are pathetically low now. Singapore fixed deposits are yielding close to 1% plus. But that is no excuse to be saving even as inflation wipes out our savings, to mitigate the effects of inflation is just one way to take concrete action not to let our monies wither away at 0.25% in bank savings.
You can achieve financial freedom. It is within our grasp by taking hold of our present and making small changes to our lives to align our mission, vision and values towards those conducive towards financial freedom. I took initial steps years ago and made a conscious decision to pay off my loan aggressively. Now I can concentrate on fatherhood and work-life balance and invest in the bringing up of my daughter as the roof over our heads belongs to us and not the bank! I am working for my daughter and family now and know that every bit of passive income I generate will go into building up financial freedom for my family and myself.
Be well and prosper.
My good friend once remarked that once he had achieved financial freedom, he would want to spend his time drinking a leisurely cup of coffee on weekday mornings and watch the morning crowd pass him by as they go about working for a living.
Such is his dream and to some extent it is mine as well! :-)
I encounter many posts in internet investment and personal finance forums from people who ask for the best investment that yields the highest returns in the shortest possible time. Others ask how they can save and invest without sacrificing their lifestyle that involves shopping, eating at restaurants and supporting a car.
They have a dream to drive a fancy car, to dine in nice restaurants and to be RICH with a capital "R".
Your dream can drive you towards the pinnacle of success or it can drive you crazy with the frustration of impotence in achieving your goals of being RICH.
But just dreaming of being RICH does nothing for us unless it spurs us on to take concrete action. The dream does nothing for us if it is the mere accumulation of material possessions for us to show off that we have MADE IT and are RICH.
My dream is to be financially free. Being financially free doesn't involve wearing bling-bling and brandishing the latest Rolex watch. It is not about the car I drive or the home I stay in. It is about escaping from the time-money trade-off. It is about being able to spend quality time with my daughter when I choose to. It is about being in control of HOW I can maximise the life in my years.
Your dreams are actually your goals in an idealised state. Every endeavour begins in the mind. It comes from the conscious and the sub-conscious mind. In order for you to achieve your dreams, you have to sacrifice and make changes for you to hit the ideal state. Along the way, we either lower our dreams or uplift our lives to meet the lofty targets that we set for ourselves.
My dream is simple but yet challenging. It is to escape the time-money trap that engulfs all of us who work for a living. The escape route is laid out in front of me through my goals set in being financially free. I know how much investible savings I need to be able to sustain my current standard of living. I know what it takes to get there. And I know it takes me time, effort and perseverance to reach my dream.
I will get there because I am focussed, determined and patient. I will get there because that is what I dream about. I will get there because I am willing to do what it takes to live within my means, save and invest and to grow my means to get there.
You can do so too, if you truly believe in your dream.
Be well and prosper.
In order for you to achieve financial freedom, you have to have a system in place to guide your decisions to live within your means, to save and invest and to grow your means. One way to develop a framework to apply the principles of living within your means, saving and investing and growing your means is the PLAN-DO-CHECK-ACT approach.
PDCA Approach (Deming Cycle in Quality Movement)
The Plan-do-check-act or PDCA approach is described by Wikipedia as, "... an iterative four-step problem-solving process typically used in quality control. "
It covers the following areas:
"PLAN
Having a baby in Singapore can be a costly affair as the plethora of baby essentials and accessories available for the baby are unlimited and your budget will be limited when you become a father or a mother to your first-born child!
Parenthood and financial freedom
Many Singaporeans are delaying marriage and parenthood due to a variety of factors. Some of these include establishing our careers, others include saving money for the wedding, home and other family expenses. Many of us wait to be more financially stable before we take the plunge and plan for the first child. Singapore Inc. is a very competitive place and as parents we want to give the BEST for our children to grow up and have fulfilled and successful lives.
I also took the similar route in that I got married after working for about 7 years and our child only came some years after that. One of the reasons for starting a family is that my financial situation has improved over the years. I have worked more than a decade plus without owning a car and used the savings generated from living a relatively simple lifestyle into paying off my loan for my home. Thus, it is with the stability of having no debt for the house that perhaps subconsciously facilitated the conception of my daughter, Baby A!
The more steps I take towards financial freedom, the more it opens up possibilities for me in life as I am less stressed over my job even as I have another mouth to feed. With my liabilities managed through living within my means, saving and investing and trying to grow my means, I am better able to focus on bringing up Baby A and to be a supportive husband for my wife who has endured much to bring our daughter into this world.
Time for work, time for family
We come back to the work-earn-spend-work cycle where it is a trade-off between time and money. We trade time (and our talents and skills!) for money and use the money during whatever leisure time we have. I realise that each of us needs to find that balance. I am starting to find that little bit of equilibrium because of the choices I made when I was much younger.
The simple living, low expenses and not keeping up with the Lims, Alis and Muthus allowed me to concentrate on building up my reserves to fund the most important asset that one needs, my home. When you are closer to financial freedom with the building up of your net worth, there is something you can leave to your child as she steps forth into this new world. Each day that you apply the principles of financial freedom, i.e. to live within your means, to save and invest and to grow your means is another day that brings you closer to breaking free of the work-earn-spend-work cycle that can be such a significant force that chains you to the value-chain of Singapore Inc. When you are less dependent on that cycle, the more you can spend more time with what is important to you in life.
What is important now to me is my baby and my family. The steps towards financial freedom are steps towards giving me more TIME to spend with them.
Be well and prosper.
If you have been following my blog, you would have read about how "what drives you" in your endeavour towards financial freedom is important in whether you will take concrete steps towards achieving financial freedom.
My daughter was born a few days ago and she would like to share a message with all of you.
She is my reason for financial freedom. ;-)
What is your motivation behind achieving financial freedom?
Why do you want it so much?
What will you do to MAKE IT HAPPEN?
Be well and prosper.
“5. Singaporeans who have previously received their GST Credits or encashed part of their ERS through their bank accounts will receive their ERS payments automatically through the same bank accounts by 7 April 2008″
The other reason to take out your money earlier is that your ERS balances EARN NO INTEREST while the CPFB “prepares” it for crediting on 7 April 2008.
So what are you waiting for? Go get back your ERS monies NOW.
One of the key challenges of becoming financially free is to push beyond the confines of our existing boundaries. To be financially free is to adopt a mind-set that is somewhat different from the crowd. I remember some of the lessons shared by authors of "The Millionnaire Next Door" where they interviewed many millionnaires, i.e. those who had amassed $1million or more in assets other than their residential homes.
It was found that the majority of these were self-made millionnaires who owned their own businesses and were the typical frugal and thrifty hardworking folks who has some common characteristics.
One of the major characteristic (besides them being millionnaires!) was that most of them believed in saving and investing.
Paying down your loan or minimising debt. You need debt to finance our homes as you need a roof over your head. However, be aware of how fast the interest on this debt generates even more interest because of the power of compounding. I know of people who still owe the bank or HDB money even when they have retired from their jobs but they own cars. It is not unusual that even in 25-30 years if we do not make a conscious effort, we still end up being in debt because of the choices we make.
The attitudes and conventional wisdom presents itself as the boundary we have to break free of in order to get ourselves in the position to aspire towards financial freedom. If we continue to be trapped in the work-earn-spend-no savings-cycle then we doom ourselves to a lifetime of slavery to our jobs, our bosses and our financially captive lives.
Breaking free requires new mindsets.
Breaking free requires being an independent thinker.
Breaking free requires STRONG DESIRE.
Be well and prosper.
Have you ever bought a bottle of wine from the supermarket, wine shop or duty-free at Changi Airport?
Do you read the labels on the wine to understand what have you bought?
For many years, I didn't really read the labels because I didn't understand what they described until I attended a couple of wine appreciation courses where the speaker shared with us how to read the labels. For example, the label above reads "Cabernet Sauvignon" which is a widely recognised and grown red wine grape variety. Wine labels go by grape variety or region or name of the winery and different types of wine have different types of labelling conventions based on country, custom and marketing.
This post is not about wine appreciation! It is about knowing what you are buying or investing. Many of us will rely on the recommendations of the sales lady at the Duty Free Shop in the airport or just pick the one that suits our budget and either red, white or rose wine based on the shape and look of the bottle. Few of us would actually take the time to learn more about it.
The same tends to apply to our investments. We tend to listen to the financial advisor or salesmen and women who have a vested interest to push the investment product or service to you for a commission.
Picking wine is one thing. Picking investments is another in that your investments typically involve large sums of your hard earned money which can grow or shrink depending whether you understand what you have bought. The risk of us NOT TAKING THE TIME TO READ AND UNDERSTAND what we invest is to take up more risks than necessary to earn the potential returns.
Banks know that the average investor does not like to read. In the US, it is estimated that almost 1 in 2 adults never read a book afer they leave high school. I am not sure of the Singapore statistics but I dare say many adults don't read fiction and non-fiction after the graduate. In this age of internet content, television programmes, movies, shopping, reading a good book at home doesn't rank too high on many people's list of leisure activities.
If you don't read books generally and plough through details, chances are you won't read the thick prospectus that banks and financial institutions are required by law to issue for investment products. Hence, banks and financial institutions go around splashing catchy advertisements on their "capital-guaranteed" structured deposits products only to have all the fine-print (at font 10 or less) saying the "capital guarantee" also comes with a catch, i.e. under certain conditions, say sub-prime or in the case of China Aviation Oil price collapse, the "guarantee" is not longer guaranteed.
Unfortunately, many unsuspecting investors didn't read the fine print and their returns were far from what was suggested by the banks or financial institutions issuing the product.
I am not saying that structured deposits and products are all bad and all lose money. However, if you read the fine print and ask those who understand financial derivatives, many of these structured products are structured to weigh the risk-return trade-off IN FAVOUR of the issuing bank or financial institution. In simple terms, YOU TAKE MUCH MORE OF THE RISK, THE BANK / FINANCIAL INSTITUTION TAKES MORE OF THE RETURNS. How the bank is able to do that is that they essentially make bets using a small portion of your monies invested with them for those few years on movements in currencies, share prices, interest rates and the remainder they put in relatively low risk assets. If the bets work out, the banks WIN BIG and give you a small portions of the gains as higher returns. In event that the bets turn out wrong, the bank can still give you back the "capital guaranteed" (less certain fees/charges) as the bulk of the investments were in relatively low risk assets.
There is no substitute for reading and understanding about investments. In this age of Google, internet and public libraries, the knowledge is out there. If you are someone who absolutely abhors reading but still wants to come out a winner in the journey of financial freedom, you need to then network with people. Ask questions, and find out more about the savings and investments where you intend to put your money.
Remember, in the land of the blind, the one-eyed man is king.
Be well and prosper.
The more I write about financial freedom, the more I believe that the framework behind it is simple in theory but difficult in practice.
It is encompassed in the diagram above and has been mentioned many times in Five Cents Ten Cents.
The challenge facing many of us in terms of achieving financial freedom is in trying to work on all these three areas in our lives successfully. It is tough to tackle each of them but to be able to juggle all of them and to have successes in all requires patience, hardwork and a little bit of luck.
If you earn $1,000 a month, try to live within this amount. If you earn $3,000 a month, try to live within this amount. If you earn $5,000 a month, try to live within this amount. If you earn $100,000 a month (why would a Minister need to read my blog?!), try to live within this amount.
As a general rule, the more you earn, the more you should be able to save assuming your lifestyle habits do not change drastically. But the reality can be different as we suffer from lifestyle inflation where our expenditures quickly increase in the same if not higher proportion that our salary or business income increases.
Living within your means requires you to make conscious choice of NOT increasing your lifestyle expenditures drastically when your income increases. This is difficult for most people as many earn to spend and are trapped in this work-earn-spend-work-earn-spend cycle unconsciously.
In a period of low interest rates for fixed deposits and treasury bills, it is indeed hard to find risk-free or virtually risk-free investments that give you high returns. Nowadays 1% to 1.5% is the name of the game until MM Lee's "golden age" promise is fulfilled.
The save and invest part of financial freedom requires you to both live within your means to generate the investible savings. To some that is the easy part. The hard part is the investing. Too many of us have experienced realised losses in stocks and shares and other riskier assets. Investing successfully is HARD. Bad investment decisions can set you back YEARS in achieving financial freedom. But it can be done if you invest in learning as much about investments as you would into your favourite hobby.
Study hard. Get a good qualification and earn more money. That is still true to some extent in paper conscious Singapore. However, growing your means also requires you to develop your own inate talents, skills and abilities to the apex of your development potential. Learn more about your career prospects, the industry you are in. If you are in business, the external environment, the Michael Porter SWOT (strength, weakness, opportunity and threat) analysis to see how your business can survive and thrive given the operating parameters in front of you.
For those who are in employment, globalisation brings with it risks and rewards. Lifelong employment is gone. Look for lifelong employability or better yet, multiple streams of income.
Like an organisational excellence journey towards Singapore Quality Class or Award, we need to benchmark ourselves to the best standards for achieving our dreams of financial freedom. This benchmarking and more importantly, continuous learning needs to see us growing in all three areas:
There is no shortcut. There is no magic bullet. There is no quick-fix.
We need to continue to live, breathe and dream financial freedom through the framework given.
It is continuous. It is a journey. It is within your realm of possibility.
Be well and prosper.
The more I travel along this journey towards financial freedom, the more the pieces are starting to click together.
My Excel worksheet skills are improving bit by bit as I use colour, conditional formatting, formulas and functions to jazz it up with both functionality and form to suit my approach towards tracking my networth and recording what are my investment returns (or losses!) for the last few years.
The journey is not always smooth. Some of my equity investments were more punts than long-term investments based on fundamentals and I had to take in some realised losses to trim my portfolio back to a more comfortable 28% cash and cash equivalents and 72% in equities as well as to remove under-performing shares bought at over-valued prices vis-a-vis the market and their fundamentals.
On the positive side, my forays into developing multiple sources of income is bearing modest fruit as AdSense helps defray the costs of broadband access. A bit of luck could be attributed to my foreign currency fixed deposit that yields a very high return relative to Singapore fixed deposit rates as I went in at a good exchange rate rather fortuitiously.
I also learnt more about the Rule of 72 which is a quick rule-of-thumb to determine how long your investment (or debt) doubles at a given interest rate. If you could get a return of 10% per annum compounded, it would take you approximately 7.2 years (72 divided by 10) to double your investment. If you could get a return of 2% per annum, it would take you closer to 36 years (72 divided by 2) to double your money. An 8% difference translates into 28 plus years to double your money.
I also realise the importance of balancing my present wants against future needs and to live a little today and not be an absolute Scrooge when it comes to living within my means.
As I continue towards this journey towards financial freedom, it is with excitement and anticipation because my modest achievements have helped me gain a small degree of confidence about my ability to survive and thrive in Singapore Inc.
This is one of the most satisfying intermediate milestones in my journey towards financial freedom. I am thankful for my parents for their help in an interest-free loan which I have paid off in full. I don't claim to have been able to do it so quickly without their help. Their support advanced my plan to clear my loan by 2-3 years even though I have repaid them.
There is no quick fix to achieve financial freedom. It is to live within your means. To save and invest prudently. To grow your means and ultimately to reach a stage where your passive income from your investment assets more than covers your living expenses. That is where you have "made it".
As with any endeavour worth pursuing, the reason why I have been able to achieve some of my intermediate milestones is focus. My home mortgage was cleared well before my retirement age because I was very clear that it was a high priority. Besides paying the daily living expenses, I channelled my savings, year-end bonuses and any form of windfall gains towards making periodic capital repayments. The cumulative effect of this was that with each capital repayment, the outstanding principle became lesser and lesser and the resultant interest expense also became lesser and lesser. Compound interest did the rest.
I had a clear time frame in mind and tracked my net-worth position from a consistent net liability all the way to the net asset position that I was in over those years I was repaying my loan. I did not own a car for more than a decade into working life and I continued to keep my living expenses low relative to my income level.
All this while I kept the concept of financial freedom in my mind. I filled my conscious with books on personal finance, on being frugal and sometimes bordering on stingy! ;-) I also focussed especially in the last year or so on health and to keep myself fit and healthy to enjoy a better quality of life and to keep medical costs low by seeing the doctor less.
Financial freedom is within my grasp. I am fairly confident that I can reach it with the support of my spouse, family and close friends who share my philosophy towards life. My time horizon is realistic. It is not a overnight journey. It is a journey measured by years. Measured by the growing up of my daughter (coming soon!). Measured by a corresponding improvement in the quality of life as financial burdens become less heavy over time.
I truly wish you can also join me in this journey, to find your own pathway towards your goal in financial freedom.
Be well and prosper.
It's budget time in Singapore as the Finance Minister has announced that Singapore has achieved a budget surplus of $6.4 billion in FY 2007/2008 resulting in the Government being able to give back some of the monies back to the rakyat (people) in the forms of various top ups and growth dividends.
The one thing I cannot wrap my head around is why in a country where we can invest billions in Shin Corp, Merrill Lynch, Citigroup and UBS, public assistance was only grudgingly increased from $290 to $330 (13.8%) while ministerial salaries went up 21% and mind you, it is 21% of 2-3 MILLION DOLLARS.
I can only draw one conclusion in my simple mind, that is, MAKE HAY WHILE THE SUN SHINES.
Singapore Inc is a place to HUAT HUAT and HUAT. We are the epitome of social darwinism with those who are on the growing side of the income divide doing better while those on the losing side of the income divide suffer the full impact of the 6.6% inflation cushioned by the Governments "generous" handouts of GST rebates, growth dividends and top-ups.
Forget charity. Forget sharing the pie. Forget lending a helping hand.
Our country's values are greed, avarice and materialism. Money (and connections) talks. Everything else comes secondary. In a place where welfare is a "dirty" word, the only welfare I see is to take care of my own personal welfare.
In this quest to be on the winning side of the growing gini coefficient, I have decided to really focus and channel my energies into my own family and to achieve financial freedom LONG BEFORE THE STATUTORY RETIREMENT AGE.
CPF Life should be irrelevant to me as I intend to have passive income exceedingly my lifestyle needs before the mandatory retirement age.
For too long I have also led to believe in a kinder, gentler Singapore. A Singapore where the national pledge means something. The reality I see with my very own eyes told me a different face of Singapura.
2.5 years of full-time National Service in a combat unit gone. 10 years of annual uninterrupted reservist cycle of 7 high-key in-camp training (ICT)and operational duties defending the country and 3 low key ICT spent crawling through mud and drains in an assault course. For what? To grow the GDP so that our leaders can enrich themselves whilst letting Singapore sink in the population increase that sees us to hit 6.5 million eventually from countries such as China, India, South-east Asia?
Even MM Lee Kuan Yew himself admitted that many PRC take Singapore PR status as a stepping stone towards emigration to the US, Australia and other more developed countries.
The message has never been starker now. In the land of plenty, equality takes back stage because we are a winner takes all society. The rich WILL get richer and the poor can go eat unbranded bread and unbranded rice as PM Lee admonished us that "Bread is bread and rice is rice". That's "rich" coming from someone earning $3 million a year.
I want to achieve financial freedom because I see this country as what it truly is. A place to make money and a place to gear up your children to take on a brave new globalised world where making money through value-creation in the new economy is the order of the day. Forget nationalism, patriotism and all the other idealogical 'isms out there.
The State expects you to take care of yourself. So you should listen to the State and take care of yourself but getting yourself out of your housing debt. Get out of your car loans asap and especially your unsecured credit.
Improve your means, live within in and save and invest. Grow your investible assets to the point that the passive income generated from your investible assets is more than enough for you to live on. When you reach that stage, you are financially free. You can do anything you want then because this country will WORSHIP you for your contributions to GDP through GST, ERP and other fees and charges.
There is no capital gains tax and since the abolishment of estate duty, you cannot take all your wealth with you but you can give it ALL tax-free to your next generation.
Isn't Singapore a great nation for financial freedom?
Be well and prosper.
Singapore's inflation hits 25-year high of 6.6%
The headlines from Channelnewsasia says it all. Our inflation rate has hit a high of 6.6%!
The combined effect of the 2% hike in GST, global commodities price increases as well as increase in annual value in properties and oil makes the inflation rate much higher than any decent risk-free returns you can obtain from safe investments.
Some people advocate more spending given this low interest rate regime coupled with inflation destroying any interest gains you get from the miserable fixed deposits or treasury bills yielding 1.35% to 1.5%. Those who believe in a live for now approach to life feel that what's the point of saving what you are getting a negative return of 5.1% (assuming 6.6% inflation and 1.5% return on fixed deposits). So might as well spend.
I choose to see it the other way. Because your purchasing power is now squeezed by inflation, you have to be more concerned about how to stretch that dollar you earn.
Living a frugal but full life by choosing to buy housebrands; consuming my rolled oats every morning from Mondays-Fridays; not spending much of clothes, shoes and other accessories continue to be my lifestyle. The sad fact of life in Singapore is that inflation hits the poor harder as income statistics have shown that the higher income earners are getting higher wage increases compared to the poor.
The Government has contributed to part of the problem as the 2% GST hike was imposed as a matter of fiscal policy. Even though GST rebates and some of the growth dividends and tax rebates will return some monies back to taxpayers, the taxpayer loses out. He loses out because he gets hit with the inflationary pressures all the way from the time prices increase but will only receive the rebates LATER, after his monies was taken away from him UP FRONT. If you understand the time-value of money, then you will know that money now is worth more later due to interest. Thus, the Government imposed the 2% GST hike that affects us up front but we get the rebates much later, losing out through the time value of money.
Under this unrelenting pressures of inflation, in a time when ministerial salaries are increasing at a higher rate than public assistance, the brutal truth of living in Singapore Inc is that you need to look out for yourself and your family.
Singapore Inc in its glory is ALL ECONOMY and NO SOUL. GDP growth at all costs is the name of the game when you see through the policies being promulgated at all levels. In the end, only your own financial freedom matters because it is the way that allows you to decide how to live your life without worrying about inflation and cost of living.
To be above the inflationary pressures is to move yourself from a wage earner in the rat race to a capital owner with income producing assets. Attaining financial freedom puts you beyond the worries of a 6.6% inflation because you investments are already putting you on a virtuous cycle of passive income growing your investible savings upwards.
Live within your means.
Save and invest.
Investment prudently.
Grow your means.
Be well and prosper.
I read Robert G Allen's book "Multiple Streams of Income" where he talks about how you can go about building financial security by diversifying the sources of your income. Most of us only have one main source of income and it usually is our employment. Others may invest their savings into investments such as stocks and shares, fixed deposits and treasury bills.
More savvy investors may venture into property for rental, into commodities and other types of asset classes.
The quick-win in going about developing your multiple sources of income is to start with what you know, i.e. to live within your means so as to generate investible savings that you can put in a fixed deposit, treasury bill or even a cash fund. While these truly bring your passive income, the current low interest rates of 1% to below 1.5% means that you have to build up a large pool of capital in order for 1% to mean anything significant to you.
In order for you to seriously start developing multiple sources of income, you must break free from the mindset that you job is a given. Today's age of globalisation means that our jobs and our organisations are subject to the ruthlessness of market competition and consumer trends that can result in our organisations not being in existence in 10 years' time.
Stay in your job whilst it provides you with a steady paycheck. But whilst you are gainfully employed and using your monthly savings to build up your investment assets, consider too how you can make use of your skills, talents and abilities outside of your working hours.
I have taken up AdSense as it helps me monetise my hobby of writing blogs and publishing them on the web. The root of my ability to write and to use internet technologies started not recently with my blog in early 2007 but rather back as early as 1996 when Cyberway Internet (now Starhub) was in existence and I signed up for my first dial-up at 33.6kps internet access package. Now I am on Starhub Maxonline at a blazing speed of above 4Mbps!
It was because I had embarked into the new world of the World-Wide-Web as well as did my very first homepage then that I became familiar with web publishing. I took a break and came back in force in 2007 using some of the very fundamental skills of using Lviewpro (graphics editing software) plus the templates provided by blogger to publish my content online.
With the Googalisation of the internet, AdSense has helped me pay for my broadband bills although it is still a long way before it can allow me to not work for a living.
Most of you wouldn't mind working until you reach the statutory retirement age of 62. However, you may not be given that choice because organisations can outsource, downsize, be sold off in mergers and acquisitions or you could find your skillsets redundant in today's world.
What can you do about it?
This is where building your second career while you are at your first will help give you more options should your first career ever plateau or worst, be consumed by the forces of globalisation.
I have been building up my possible second career by joining toastmasters. Besides wanted to improve my networking and public speaking skills, I saw toastmasters as a way to build up realy knowledge and expertise in becoming an independent trainer or consultant. This is because I have additional specialist domain skillsets beyond public speaking. While I can teach or share my experiences as a public speaker and impart public communication skills for a second career, I can also be a trainer based on my experience in my chosen profession. Such second careers have a longer lifespan and work in favour for those who are experienced (or older in age!) because the conventional wisdom is that gurus or trainers tend to be old. So this form of a second career is relatively more age-resistant as compared to other careers.
If you are serious about building up multiple sources of income, I urge you to read Robert G Allen's book. You can find it in public libraries and use it to expand your mindset towards another way to help you achieve financial freedom.
Be well and prosper.
As part of making my blog more interactive and to invite views from other bloggers passionate about financial freedom, I have asked musicwhiz, an online blogger who follows my blog (as I do his), to do a guest post by featuring his comments into a post in today's entry.
He shares my passion in financial freedom and is also striving like many of you to reach your dream of achieving financial freedom way before the statutory retirement age.
Here are his insightful comments!
Enjoy.
Be well and prosper.
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If you have been reading my blog for some time, you will realise that the reasons surrounding why I am so focussed on financial freedom come from a few incidents in my life. These incidents helped me reach an epiphany when it dawned upon me that my financial security under the old paradigm of work-earn-spend-work cycle was an illusion. Hence, financial freedom really is within my hands to control by managing how I spend or save each dollar I earn.
If you are reading my blog for the very first time, welcome, and let me share with you what others think about financial freedom. I follow this blog by Danny Choo, a well-known Otaku and web services developer who happens to go around in Star Wars Storm Trooper armour throughout the streets of Tokyo. He studied in UK and majored in Japanese hence decided to work and live in Japan. He also shares about his thoughts about life and why he drives himself so hard to make money running his own business in Web Development.
I find that he is being quite honest when he says that MONEY brings financial freedom for him to pursue the kind of life he wants in terms of work, play and family. His hard work and perseverance resulted in him owning a three-storey house in Tokyo. Material accomplishments aside, he pursues a life filled with meeting many interesting people in the Japanese online web services eco-system and he is living the life that he wants to live.
Do give his post a read if you are a bit tired of Panzer's rattling on and on and on and on about financial freedom as Danny writes with a sense of humour as well if you understand his Otaku jokes weaved into the tapestry of his posts.
Be well and prosper.
If work is your hobby, you never have to work a single day in your life!
I had a conversation with a relative of mine who has his own business and enjoys doing it. He is debt free and enjoys a comfortable life. For him, financial freedom is not so critical because he likes what he does and enjoys interacting with his customers. To him, work something that provides well for him and his family and he will continue as long as he can.
I too would like to be in an organisation where my skills are valued, my work is value-creating and where the remuneration package is fair. But it is a challenge to find a job that is able to satisfy on so many aspects of Maslow's hierarchy of needs. For the record, my job isn't that bad and the remuneration is decent for the regular hours I work. I don't need to travel for overseas assignments. I do count my blessings for this current job.
Perspective on work-life changes with parenthood
I realise that as I embark on a new phase of life to that of being a father, my perspective of work-life balance changes. Being a parent means you have dependents to support. Being a parent means you come 2nd to your child and spouse. Being a parent means you no longer can be selfish and think only of yourself because you child relies on you for her every need.
Being a parent means you have to be there physically and emotionally for your child and yet deliver on your job through whatever means available, phone, remote VPN back to office mail servers and the like. As the responsibilities of being a parent dawn upon me, I start to go to work with a renewed vigour, to be early for work as I also need to go home on time to prepare for my daughter's impending arrival and to support my spouse who will be doing most of the actual work in bringing my daughter to this world.
But as I continue with my job as the means to build up my financial freedom, I begin to explore even more ways that I can be financially free but continuing with the fundamentals (which some may have heard ad-nausem!) :
I want financial freedom because on some days, I really really HATE my job.
How many of you have the sinking, creeping feeling when you go to bed on Sunday night, knowing that on Monday morning, you have to face difficult bosses, challenging customers and combative co-workers? There were some years in my career when I felt like I was back in the military, having to book in by 2359 hrs on Sunday evening, ready for Monday, the start of another week being in thrall to the Singapore Armed Forces as a conscript in the Lion City.
Your job doesn't need you but you need your job
The reality that afflicts us is that WE are dispensable in our jobs. The job doesn't need us but we need the job because we are not yet financially free. We need the income to support our living expenses and for us to save and grow our investible nest egg to the targetted size where the passive income generated from it exceeds your living expenses.
So how can you overcome your sucky job and reframe it into terms that will re-energise and re-engage you to be more involved?
See your job as a stepping stone to financial freedom
While your job may not satisfy your aspirations now, the income derived from it helps you move one step closer to your ideal state of financial freedom IF YOU LIVE WITHIN YOUR MEANS. If you continue to be profligate in spending, then no job and no amount of income will be able to satisfy your insatiable WANTS.
Even if you hate certain aspects of your job, there is bound to be some aspect that you do enjoy. Focus on that to sustain you and not let the unpleasant aspects derail your objective, i.e. to achieve financial freedom. Your job is meant to provide you with income commensurate with your qualifications, skills and abilities and the job scope. It is not meant to make you happy in life. To make yourself happy, you either change the world to suit you (if you can) or you change yourself to suit the world.
I see the accumulation of a nest-egg that grows and grows in exchange for accepting that sucky job for a limited time frame as a trade-off. While truly toxic jobs can rob you of your joy and health in life, most unpleasant careers only make your life "sian" without giving you high-blood pressure.
To be fair, I don't hate my job all the time and for all aspects. But there are some aspects which deal with combative colleagues that really make my blood boil. I've learnt to try to live and let live and not let such colleagues give me an aneurysm. I'd rather take one day at at time and manage it because I know, at the end of each month, I am another step closer to financial freedom.
Think about your own situation. You want financial freedom because ___________.
You are in the driving seat. The road may be bumpy but you can navigate through the roadblocks and obstacles toward your destination of financial freedom.
Be well and prosper.
Finance Minister has announced the slew of "goodies" that the Government will be giving to citizens back much of the taxes it has taken for us for FY 2007. Instead of the deficit of $0.7 billion, the excellent economic growth coupled with the Singapore property boom resulted in a SGD 6.4 billion surplus. The Government definitely "huat" for 2007. So why quibble about SGD 2-3 million for each minister? The dream team managed to conjure up SGD 6.4 billion surplus.
Of course, in good times, the Government should spend on its citizens. Some netizens commented that GIC and Temasek can pour easily SGD 10 billion into US and European financial institutions hit by sub-prime but only gives its own citizens a miserly SGD 1.8 in sharing of the surplus.
The discussion below is not meant to be comprehensive but to give you a "feel" of how the budget impacts you.
1) Growth dividends
All citizens aged 21 and above who have signed up for the GST credits will automatically receive this. It ranges from $100 for higher income earners and higher property type owners to maximum of $600. NSmen, ex-NSmen and NSFs get $100 more but I don't think many qualify to get $600+$100=$700 because you would have to have a home with annual value < $5,000, annual assessable income of <$24,000 and be aged 60 and older. So perhaps ex-NS regulars who have retired?
2) Medisave top-ups
Mainly for those aged 51 and older. Sorry, if you're younger you're on your own.
3) LIFE Bonus
Again, this applies more to those aged 46 and above.
4) Tax Reliefs for CPF Top-ups and Tax Rebate of 20% (subject to cap of $2,000)
The tax reliefs for top-ups are nice but the tax rebate of 20% means you final tax payable is reduced by the lower of 20% of $2,000. This is quite a big saving for those who pay income tax. The difference between a tax relief and a tax rebate is that tax reliefs reduce your chargeable income i.e. income subject to tax BUT tax rebates are a direct discount off your tax bill.
5) Tertiary Education
More bursaries if you qualify under the lower income categories. But if you don't qualify it doesn't affect you so much.
6) Post-Secondary Education Accounts (PSEAs)
$150 to $600 per child that varies with age (older 13 to 20 get double that of 7 to 12) and those who stay in homes with annual value >11,000 get less.
7) Estate Duty Abolished
This means that if you have investible savings that exceed the previous cap of $600,000, you no longer need to consider parking your funds in a residential dwelling (whether owner-occupied or not) as previously you would get hit with 5% estate duty for value of movable property in excess of $600,000. The cap for residential dwellings is $9 million. So do continue to live within your means, save and invest because you can bequeath ALL of it to your children WITHOUT estate duty. Unfortunately, this benefits the rich more than the rest but hey, Singapore is a CAPITALISTIC society and it is every man, woman and child for himself or herself.
Considering the huge surpluses chalked up by the Government from the resurgent property market as well as GST increase coupled with economic growth, the Government has to give something back to the people to assuage their anger, dissatisfaction and dismay at how inflation has reared its ugly head on our fair shores with price increases for virtually EVERY household expenditure. You name it, its price has gone up.
Even my neighbourhood economical rice stall has raised its price from $2.50 to $2.70 (8% increase). Of course, the Minister for Finance will quote you statistics to tell you that on average, real wages have gone up but *ahem* guess WHOSE wage has gone up much more than inflation. As Michael Jackson sang in the song, "Man in the Mirror", he goes, "Take a look at yourself and make a change....ange...ange....ow...."
Oh, side note. The addtional top-up for NSmen of $100 is pathetic. It is quite a big insult because what the Government is saying is that for the 2.5 years (now 2 years) of full-time National Slavery coupled with 10 years of annual In-Camp Training is only worth a miserly $100 extra. I think I have bought more than $100 worth of army related gear from beach road during my 2.5 years + 10 years of reservist. But hey, why complain when the Government is giving SO MUCH back to citizens after taxing us left, right up and down with income, property, goods and services, ERP and other fees and charges levied at us?
Enjoy your Growth Dividends and Majullah Singapura.
The reason WHY is one of the most powerful forces that can push you to achieve your goals in life. Much of the personal effectiveness and self-development literature I read typically exhort you to be clear about your goals and objectives AND to also be very sure WHY you are doing something because all worthwhile endeavours require time, effort and energy and we sometimes get bogged down by difficulties, obstacles and challenges that get in the way of us achieving our financial objectives.
The driving force behind financial freedom
My own personal reasons for wanting to achieve financial freedom get clearer to me each day as I slog as a digit in the organisation. Nasty, vindictive bosses. Unreasonable requests and rude treatment by the higher-ups. Asked to do stuff with low value-add and not recognisable by the big bosses. Being treated as a inferior by arrogant mini-bosses. To be fair, not everyday is a torture but there are occasional times when I am made to feel small and useless. This is a terrible feeling. Some of you may think, grow up Panzer, that's working life. What do you expect?
Exactly! I have grown up and recognised that so long as I am an employee, I have limited control over my own financial security if I am reliant on my job for life. That is why I am so so hungry to develop multiple sources of income, and why I have sacrificed much of present consumption in the past to be debt-free before I hit the age of 40.
While I still have a fair distance to go before I can achieve financial freedom, I realise that because the reason for me achieving it is getting stronger, I am striving even harder than before to do the things necessary to put me well in the path towards financial freedom.
The key focus for my life now besides my career is to:
Valentine's Day is just around the corner and PanzerGrenadier would like to wish all my readers a Happy Valentine's Day filled with joy, peace and love for significant other, family and friends.
In line with the Valentine's Day theme, today's topic is about that someone you see every morning when you wake up in the morning and before you go to sleep. No, I am not talking about your spouse or girlfriend/boyfriend or pet dog... I am talking about the man or woman in the mirror you see in the morning when you brush your teeth or before you sleep at night.
Yes... I am talking about YOU.
In our journey towards financial freedom, we talk about living within your means, saving and investing and growing your net worth day by day, month by month, year by year.
Who is going to achieve it? It is yourself. You are the one who will make your vision of financial freedom come true. You are the one who will reap the benefits of being financially free and you are the one who sacrifices present wants for future needs.
It is about you!
So what about you?
Valentine's Day is associated with love and sometimes we love money, our spouse, our pets more than we love ourselves. But we must be careful not to neglect ourselves because it is within us that lies the power to do the things necessary for us to achieve our goal of financial freedom.
Build up your ability to increase your means
Formal and informal education that is relevant to your career or your business is important because you are the money-spinner, the rain-maker and the provider. If you do not provide the means, how will you then achieve financial freedom. Safe-guarding your means i.e. through required insurance for medical and other needs should be considered. Developing alternate or multiple sources of income is another way to increase your means. Investments in dividend or interest yielding assets such as stocks and shares, treasury bills and fixed deposits or even rental income from investment property are ways to increase your means.
Get used to living within your means
The key to living within our means is to differentiate between needs and wants. Our wants are unlimited but our needs can be moderated with discipline, focus and willpower. If you start living within your means now, you will find it much easier to adapt whatever your income level.
Save and invest prudently
You need to continually have cash flows from your career or business to generate positive cash flows to save and invest. You are your own gold mine. The gold ore that is mined for your gold (i.e income) is limited by the number of years of your working career or business. Careers nowadays tend to have a finite lifespan and hence we need to protect our gold mine i.e. our health as well as our jobs if this gold mine is to continue to yield bountiful returns for us to build up our private gold stockpile for our retirement!
Spend on what matters to us
What you spend on is a personal choice that reflects your approach and attitude to life. I realise that as my daughter will be born soon, she is going to represent the future of Panzer. My spouse and I have someone who can continue to build upon the foundations we have laid for financial freedom for our family. Spending on ourselves is still important because while my daughter is our dependent, we need to maintain our ability to generate cash flows for the future. Thus, an occasional luxury to pamper ourselves and keep us motivated for the continued journey towards financial freedom is important. But important too is the ability for us to provide for our own retirements that we can later choose to retire earlier and to spend more time with our daughter.
As Valentine's Day approaches, fret not no matter what your relationship status as personal fulfilment in life cannot be contingent purely on your marital or relationship status. It is more important for you to invest in yourself as you are your greatest asset in your journey towards financial freedom.
Be well and prosper.
The National Longevity Insurance Committee (NLIC) comprising esteemed individuals in Singapore have released their report on the Lifelong Income scheme (previously known by the unpalatable "Annuity scheme" that was so famously launched by PM Lee Hsien Loong during the National Day Rally in 2007 to public consternation and concern.
The scheme in its present form was so poorly conceived that Minister for Manpower Ng Eng Hen had to throw it back to the drawing board to a committee led by Prof. Lim Pin to take into consideration public feedback. I wonder what MOM or PMO's office were doing prior to the public consultation. Perhaps "public" refers to organisations affiliated with a political party that runs Singapore Inc? But I digress... Let's examine the issue on hand, i.e. how the new Lifelong Income (LI) scheme affects us.
Dissecting the LI Scheme Conclusion by Conclusion, Recommendation by Recommendation
The NLIC's full report can be found in the Ministry of Manpower website. News reports in Channelnewsasia, Straits Times also feature write-ups on the recommendations (read: commandments) for you the CPF member. Panzer now attempts to translate the report into human-readable format and to raise a few questions for you to think about in planning your own financial freedom.
Key Conclusion #1: [Paraphrased by Panzer] You will live longer
Panzer's take on Key Conclusion #1
What the NLIC is saying is, "You WILL (on average!) live longer, I told you so! Gahmen told you so, Deloitte Trowbridge tells you so!" Of course the caveat is that it is on average and even the Department of Statistics is very careful to say for those born in 2006, the projected life expectancy is 78 for males and 82.8 for females. That is for those born in 2006. That does not mean you who were born in the 50s, 60s, 70s, 80s or 90s can tahan so long. This is mainly to address those of us who were incredulous when told more than half of us will live beyond 85.
You can't do much about this except to keep healthy so that the quality of life is there when you reach your ripe old projected age.
Key Conclusion #2: More than half of you can fund your own long life
Panzer's take on Key Conclusion #2
60% of active CPF members (as opposed to inactive members who went to heaven) are expected to have half of full minimum sum of $67,000. Based on current assumptions of interest rates at 4% for SMRA account is enough to last you $600 for lifetime if LI starts at 80. What NLIC is saying is that, don't worry, if you have at least 50% of minimum sum of $134,000, CPF can earmark $16,080 for Refundable Premium at age 55 from your CPF Retirement Account and use it to invest for you to support your income from aged 80 onwards. Indirectly saying, I told you oredi, minimum sum is GOOD FOR YOU!
Key Recommendation #1: CPF system not working so well if you live long, so we come up with this LI Scheme
Panzer's take on Key Recommendation #1
The CPF system as it is doesn't work very well because we have to come up with a new scheme using YOUR money to fund it. Of course, the current CPF system also uses YOUR money (and your employers' contributions with a teeny-weeny top-up by Gahmen before elections) to fund your income until 85. Gahmen wants citizens to be self-sufficient and not have a "crutch" mentality so save for your own retirement! Of course, Ministers with their pensions are exempted from such principles.
Key Recommendation #2: Seamless integrate - Don't worry about choosing insurers, no need to crack your brains
Panzer's take on Key Recommendation #2
No need to worry, we choose insurer for you. Do what we say and you'll be fine appears to be the key message here.
Key Recommendation #3: Told you already, we chose CPF for you lah!
Panzer's take on Key Recommendation #3
Pretty self-explanatory.
Key Recommendation #4: You want choices, okay lah, we give you choices on refunding of premium, varying age of payouts and other flavours
Panzer's take on Key Recommendation #4
Different strokes for different folks is the message here. The NLIC committee has done what the Gahmen didn't do in the first place. Consult people and ask what type of choices they would like with THEIR MONEY. I don't know about the Ministers but most of the time people actually APPRECIATE having a say IN THEIR MONIES.
Key Recommendation #5: Give people choice to opt-in, especially those who are unable to pay private annuity schemes
Panzer's take on Key Recommendation #5
Similar to recommendation 4 in that people should be given an option to opt-in.
Panzer's overall comments
The annuity scheme in its re-packaged Lifelong Income scheme basically addresses many of the concerns people had which was about being forced into a compulsory non-refundable annuity scheme. While many accept the concept that we are responsible for our own retirement, many refuse to be forced to buy a product they may not need or want and to have no option for the remaining lump-sum premium paid to be bequeathed to our next-of-kin in the event of earlier transition to the next world.
Choice of LI Payout Age
However, certain concerns are still not fully addressed. For one, the LI scheme requires you at age 55 to make a bet on how long you can live. I.e. To determine the payout age of LI. You can opt for payouts to start from 65 up to 90 at 5 year increments. Default is 80 years.
The way the NLIC has structured the scheme is that earlier payouts in fact yield more income because a larger amount of your minimum sum is earmarked for the Refundable Premium. I.e. the future value (FV) of a larger lump sum payment now will yield more money than a small lump sum payment assuming same interest rates due to compound interest working on a bigger lump sum. Sounds confusing? Maybe I will put in some math later to explain this. Intuitively, this doesn't seem to make sense because typically if you defer your CPF withdrawal age, you should be receiving more money but later. This feature may actually result in more people opting for RP65 since you get more for a longer period of time! The catch is that you lose the interest on the RP earmarked from your minimum sum. If you had opted for RP80, you get a lower payout than RP65 but you forgo interest at 4% on $50,920 (i.e. 76% of half Minimum Sum of $67,000) for your lifetime.
No Refunds
Also, you are expected to make a decision on whether to opt for a higher payout if you forgo the refund of your Refundable Premium. If you think you will have a long and healthy life, you may want to bet that you can outwit and outlast the RP and opt for no refunds but to have a higher payout. This appeals to those who want to make their RP stretch.
At the end of the day, the LI scheme is useful for those who are not rich enough to buy their own private annuity plans and would have a long life. The economies of scale by the CPF make it possible for them to offer this scheme on a relatively more cost-effective manner and CPF is not profit-driven (at least on paper) and should look out for CPF members' interest.
However, the payouts and premiums are dependent on many assumptions, one which is that the CPF continues to pay 4% of Special/Medisave/Retirement Accounts (SMRA) and the additional 1% of first $60,000 of the SMRA. This really depends on the performance of the 10YSGS whose 2007 performance of 2.9% may be unable to support the reality to be faced in the future.
My suggestion is for you to consider keeping yourself healthy and think carefully about the implications of your choice when you hit 55. Also, the scheme will kick off in 2013 and include all who are aged 55 and below. Those who are aged 55 and above with at least $40,000 in their Minimum Sum would also be included.
Be well and prosper.
