Financial freedom: A Picture Paints a Thousand Words

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.

Live within your means

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.

Save and invest

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.

Grow your means

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.

What does it mean for you

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:

1. Live within your means
2. Save and invest
3. Grow your means

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.

Financial freedom: Revisiting the Lessons Learnt

The more I travel along this journey towards financial freedom, the more the pieces are starting to click together.

What has happened in the last 4 years

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.

Hits and misses with stocks and shares

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.

Developing small sources of alternate income

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.

Understanding simple rules of thumb in finance

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.

Balancing between present wants and future needs

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.

Paying off my housing loan

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.

Understanding the fundamental principle behind financial freedom

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.

Financial Freedom: Thriving in Singapore Inc.

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.

In the land of plenty, more of the plenty goes to the TOP

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 for you and your family to be financially free

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.

Why such selfishness and focus on yourself?

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 soul of singapore is Financial freedom

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.

Why do you want to achieve financial freedom?

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.

Financial Freedom During Inflationary Times

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.

Your purchasing power is shrinking right now

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 system is against you

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.

What can you do to fight the inflationary pressure?

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.

Financial Freedom: Growing your multiple sources of income

Many of us have only employment income

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.

How to go about developing multiple sources of income

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.

Monetising hobbies

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.

Building YOUR second career while you are still on your first

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.

Learn more and take action to build your first multiple source of income

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.

Guest Post by Sgmusicwhiz: His thoughts on financial freedom

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.

=====================================

musicwhiz said...

 

Hi Panzer,

Another good post and it is good to have a constant reminder of our goals. It is good that our goals are aligned on this aspect, except that I do not have any child arriving whereas you do ! Haha.

 

By the way, let me take the opportunity to congratulate you on your soon-to-be-parent status ! It cannot be easy to be faced with the prospect of a radical change in lifestyle but I can see that your goals are firm, so you will be able to achieve financial freedom someday soon.

 

Come to think of it, not many of my friends use this term "financial freedom". Most of them tend to talk about tomorrow, next week or next month and what they plan to do with their time. But none of them really seriously discuss several years down the road and how they would like to expand their wealth. Some talk of migrating, others about having kids while still others wish to enjoy life by spending on depreciating assets.

 

Yet I would implicitly assume that each of these decisions should be supported by adequate financing, otherwise they may (literally) fall flat on their face !

One thing I have noted is that my friends have a lackadaisical attitude towards investing and treat it as a "if it works, good ! If not, then heck it" matter.

 

Yes, some are very thrifty and save a substantial chunk of their income; but the true way to attain financial freedom is more than saving. It's about using money to grow more money and investing is one of the best methods for this. It may sound preachy but I have realized this the hard way after struggling for 7 years to build a decent savings balance.

 

Just by investing for the last 3+ years, I have managed to almost triple my total assets, though my mortgage loan still remains my single largest sole liability. Without investing and saving, I think I would not have managed this; thus I would like to provide a living example of how saving, living within your means and investing can help to grow money more quickly.

 

In a time of falling rates (SIBOR is around 1.44% as I type this), we cannot rely on FD or savings accounts to beat inflation. Thus, I choose to place my money in equities and high-yield instruments to maximise returns. Time will tell if I had made the right decision, but it sure beats being "safe" and leaving my money to rot in a bank account. 
 

To end this long comment, I would like to reiterate that if only more people would be serious about investing and make capital preservation the central tenet in their investing philosophy, then they would discover that they can make money by NOT losing money.

 

Sorry for the long "essay", but hope that I managed to share something useful for you and your readers.

Cheers,

 

Musicwhiz

Financial freedom: what others think and feel

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.

Financial freedom: To decide IF you want to work

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!) :

• Live within your means
• Save and invest
• Grow your nest-egg
• Expand your means

My weekend blogging now has become a pleasure rather than a chore because it brings me closer to my destination. I also enjoy the process of writing, thinking and documenting my thoughts down for the time when my memory starts to fail me.

Financial freedom means different things to different people. It is for me, the ability to decide IF you want to work. That, truly is what it is all about.

Be well and prosper.

I want financial freedom because...

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.

Tis the season to be jolly falalala-lalala...Budget day is here

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.

How does the 2008 budget benefit you PERSONALLY?

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.

Panzer's Wrap-Up

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.

Financial Freedom: The Power of the Reason WHY

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:

• Spend more quality time with family
• Build up multiple sources of income during my weekends/evenings
• Maintain a healthy lifestyle
• Seek a balance in work-family-financial freedom activities

Activities promoting financial freedom can be made part of your life
One of the things I realise about achieving financial freedom is that it does not have to be mutually exclusive with other goals. Skills learnt at work helps one too in financial freedom initiatives and spending more time with family generates more ideas about what I can blog about and also gives me the strong motivation to strive for financial freedom.

While I need to spend more for my family due to my daughter's impending birth, I will also cut down on non-essential spending such as gadgets and lifestyle expenses that I can do without as I spend more time at home. :-)

I look forward to the day when I decide to work because I want to and not because of I have to. That would be an interesting day in the chapter of my life. It is dreams like this that propel us for the daily activities needed to get us there.

Be well and prosper.

Financial Freedom: You are Your Greatest Asset!

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.

You are your best asset

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.

How to invest in yourself

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.

Report of the National Longevity Insurance Committe (aka Annuity Scheme) : What it means to you

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.

Financial freedom: Your Protection Against Longevity

You are going to live longer (on average) than your parents because the Straits Times says so. The Department of Statistics says so and so does our beloved gahmen. What do you think? Do you think you can hit 78 for a male or 82.8 for a female?

Coincidentally, the National Longevity Insurance Committee has also submitted its report to the gahmen for the hotly debated annuity scheme now renamed to a more palatable term "Longevity Insurance".

Why are these two articles being mentioned in this post?

Longevity can be a blessing or a curse

The fact that on average, we live longer than our parents has serious implications for us in terms of financial freedom. Looking at the positive aspects, living longer means that you have more time for the compounding effect of interest to allow your investments to grow. The flip side is that uncontrolled debt will bury you before you can clear it before your time on this earth is up.

Living longer can be viewed in a positive light if we are healthy. One of the reasons I promote healthy living as part of financial freedom is that without health, our new found status of being financially free is totally wasted as we enjoy not the fruits of our consistent living within our means, saving and investing as well as being prudent in conducting our financial affairs.

Giving the upward increase of healthcare costs, longevity without adequate health would be both a financial as well as emotional burden.

Assuming that we will reach the targeted age in reasonably good health, what should we consider in our plan for financial freedom if we are going to live longer?

Develop multiples sources of income

I believe even now more than ever that developing multiple sources of income as well as developing skills for a second career become even more critical as our life expectancies increase. This is because when you have multiple streams of income flowing, with adequate time and even if you are in your 40s, living to 78 means you have 38 more years to go. That is a lot of years given that companies can ask us to retire at 62 (now) and 67 in the future. Thus, if our dream is to reach financial freedom by 55, then we need to ensure that our passive income can sustain us for another 23 years i.e. 2 decades for us to enjoy the next 23 years doing all that we wanted to do without having to go to work.

Investing for the future

Our time horizon nowadays has to be far because on average we can expect to live until our 70s-80s. Unless you relish having to flip and serve burgers at 70, you have to give serious thought to growing your money now.

Remember the rule of 72 I talked about? In general, any investment doubles by 72/rate of return. So if you invest in treasury bills at 1.5% now, you treasury bill will double in 72/1.5 = 48 years. But if you invest in 1 lot of SPC now at $6.30 with a final dividend of $0.40 declared, that's a return of 6.3% which using the rule of 72 would double by 72/6.3 =11.4 years.

Imagine, shaving off 36+ years for a difference in return of 4.2%. That is what compound interest does for or against you.

Living within your means

If you believe the statistics and believe in what the gahmen says, then it only makes sense if you continue to live within your means NOW so that should your job stop before your heart does, then you are able to continue to fund your lifestyle through passive income from your investments or from the CPF plus CPF Life ('annuity') scheme.

Even as this post is written, news about the CPF Life aka ANNUITY scheme is being published on the Straits Times website as well as through Channelnewsasia. I will take a good look at what more schemes the gahmen dreams of making us responsible for funding our own retirement while GIC and Temasek invests our reserves in bailing out US/European banks hit by sub-prime.

Be well and prosper.

Financial freedom : the freedom to choose

 

Financial freedom means many things to many people.

If you were to stop the average working person at the bus interchange, the MRT station or the car park and asked him/her what does financial freedom mean to him/her, you will get many different answers. That is perfectly normal as you and I are unique. There is only one of you and there is only one of me in this world. In our uniqueness, there are similarities. The similarity comes when we are posed this question:

"What would you do if you had a million dollars?"

This question is still as relevant today but perhaps due to inflation we should bump up the amount to 5 million dollars to make it interesting. :-)

What would you do if you had 5 million dollars?

I bet you that many of us would say we would quit our jobs right there and then and do whatever we fancied as making a living trading our 8-10 hours a day for a monthly wage no longer appeals.

In that response, there is a commonality that connects us. Many of us really dislike our jobs or would rather be doing something else.  The world is a practical place, we need to work for a living and quite a number (myself included) work at a decent job at a decent wage but we would rather be doing something else if we won the $8million Hongbao draw that is coming on 28 February 2008.

Some of you would want to go travel the world if you have $5 million in your piggybank. Some of you would photocopy your winning TOTO slip and attach it with your resignation letter to your boss. Some of you may even just disappear to another country overnight. Whatever you choose, the possibilities start to become endless and I believe many are salivating at the prospect.

Now what if I told you that you could get $1 million dollars if you truly focussed on the slow and steady path towards financial freedom by saving and investing, living within your means and developing multiple sources of income?

CHOOSE TO BE FINANCIALLY FREE

I'm sure you would be excited and energised by the prospect. However, there is a catch. You would have to work hard at:

1) Developing multiple sources of income

2) Continue to live within your means and save

3) Invest prudently and wisely

4) Repeat 1 until you reach your target

That is what is happening for myself. I too dream of hitting that magical $1million in my lifetime and to do it using the tried and tested methods of what is shown above. It will take time, effort and a little bit of luck for me to achieve my target and I intend to do so eventually.

This blog is a small step for me in trying to develop multiple sources of income, in time to come, this blog will also serve as the genesis for a book that I would want to write about financial freedom from Panzergrenadier's perspective and to allow me to connect with others who have similar dreams.

As we embark on the Lunar New Year period, it's time for us to choose to dream, choose to take action to start on our journey towards financial freedom and choose to be proactive.

Be well and prosper.

Your first step towards financial freedom: taking action!

You've read a couple of books on financial freedom. You've browsed through some of my blog posts as well as other personal finance and investment blogs such as thefinance.sg or forums such as Sgfunds. You are ready to embark on this journey of financial freedom.  Kudos and bouquets to you! What you now need is to take the first step into ACTION.

The new paradigm of change - Taking action

It is very easy to be a passive passenger on this journey towards financial freedom. To read and just let the ideas slide off our minds like water sliding off a duck's back. Without having anything really stick into our consciousness and translated into ACTION or BEHAVIOUR that moves us towards financial freedom.

I love to read books on personal effectiveness. Some of the books I've read include: "The Seven Habits of Highly Effective People" (Stephen Covey), "Think and Grow Rich" (Napolean Hill), "Mind Mapping" (Tony Buzan). These are all good books but these books DO NOTHING for you if you do not put any of the principles in them. I too used to quick read these books and do nothing until I came across Napolean Hill's "Think and Grow Rich" . Hill urges us not to quick read and put it aside but to continually put into practice the powers of goal setting and power of the subconscious mind to channel our efforts towards what we have a strong desire.

Since then, I have gradually tried to put into use bits and pieces of personal effectiveness literature into my life. For instance, I use mind-maps to occasionally flush out the ideas and thoughts onto paper so that I can generate even more ideas and thoughts. Some of the new developments such as the launch of Singapore Fixed Deposits blog was due to a few mind mapping sessions on the theme "Financial Freedom". I also believe in affirmations and have some personal life goals set up in my net worth Excel worksheet in my office laptop to constantly focus my mind on what I am working so hard for.

How to take action towards financial freedom

There is no trick. The road towards financial freedom really consists of:

1. Living within your means
2. Saving and investing
3. Grow and protect your investment capital
4. Go back to step 1.

The hard part is to TAKE ACTION and OPERATIONALISE steps 1 to 3 and to avoid losing what you have saved in step 2. Now that the "secret" to financial freedom is known to you, what you need to do is to prioritise what is it that you are not doing so well and CHANGE it. For instance, if you are living on credit and relying on a TOTO windfall to give you financial freedom, then it is going to be very challenging for you to achieve your target of financial freedom. You need to consider how you can bring your expenses to within your income levels so that you start saving. Or you may have to develop multiples sources of income to be more than your expenditure. Either way, you have to TAKE ACTION and change behaviour that DOES NOT help you towards financial freedom.

Increase your means, grow your returns, protect your capital

If you are already living within your means, but you find that you cannot get better returns than fixed deposits and treasury bills. This means you may have to look at other types of investment which come with their associated risks and rewards. You have to decide if the risk-reward trade off is WORTH IT and TAKE ACTION accordingly.

If you are already investing and getting decent returns over and above risk-free treasury bills but find that the recent market downturn can potentially affect your investment portfolio. You have to consider ways to diversify your risk or consider proper cash management to make sure you can ride out the current storms and risks of US recession impacting major equity and potentially property markets.

Even if you decide that doing nothing, i.e. not buying/selling but just holding on to whatever investments you have now is the way, you can still take ACTION by reading more about other investment asset classes beyond what you are familiar with to give yourself more knowledge for trying out other types of investment.

In short, there is always some POSITIVE ACTION we can take towards financial freedom. We are in control of what ACTIONS we want to take.

One of the actions that I take towards financial freedom is the writing of this and other blogs. It helps me articulate my ideas and thoughts about financial freedom and at the same time helps in a small way towards developing an alternate source of income. I realise that the read-think-write process and feedback loop helps keep my mind on ways to help me move towards my goal of financial freedom.

What action have you taken recently? :-)

Be well and prosper.

Zhng your way to financial freedom!

Many of you who have Starhub cable vision would have watched this programme on MTV called "Pimp my Ride". In the programme, the host Xzibit visits participants who write in to ask for MTV to pimp or in local Singapore parlance ("zhng" - fix/modify) their cars to their liking. You must be thinking what does "Pimp My Ride" have to do with our journey towards financial freedom?

pimp your ride towards Financial freedom

Singaporeans are also car fanatics and the concept of pimping or zhnging their cars with the latest accessories and gadgets just shy of LTA requirements does ring a bell with some of us. Have you ever thought of how in your quest for financial freedom, do you ever zhng your ride with the latest gadgets and accessories to make your ride towards financial freedom filled with more excitement, fun and entertainment?

Panzer's going show you some of the accessories he uses to jazz up his journey towards financial freedom.

1) microsoft Excel worksheet

This is arguably one of my most powerful zhng's that I add to my home as well as office computer. My one worksheet tracks my personal net worth (assets less liabilities), tracks my profit/loss from investments in stocks and shares, allows me to compute the rate of return for my investments by asset type (e.g. cash, equities) etc. It also lets me see my investment returns for the last 4 years plus allows some simple cash forecasting for how much cash I would need for the next month.

My worksheet also graphs my allocation of net worth between cash/cash equivalents, equities, insurance policies, CPF etc. In order for you to work towards your target of financial freedom, you have to know where you are now.

2) Calculator

I have a 14 digit calculator that I use partly for work but also for quick calculations of returns for investments etc. A calculator is useful for you to do quick and dirty caculations on the fly as you analyse risk vs returns and also do simple additions, subtractions etc. If you are deskbound, calc is also available.

3) Notebook

Instead of using a spreadsheet, you can also carry around a small notebook (paper based not the laptop computer) to write down your expenses or costs if you are starting out on determining how much you spend a month. A note book also allows you to jot down useful stuff like where you can find the best value-for-money bargains for stuff you buy regularly so that you make your dollar stretch. Financial freedom is about living within your means so a dollar saved is a dollar earned. On top of that, you can use your notebook to write down ideas that come to you for financial freedom e.g. ideas for multiple sources of income, ideas for how to save money or invest your money etc.

4) Books on personal finance, investments

Even though I have managed most of my own money for the last 4 years, I still borrow books from the public libraries on personal finance, investments and markets. I read and read and read because I enjoy reading. But even when I may not enjoy the specific topics, I still read to beef up my knowledge to know what I don't know about personal finance, investments and financial freedom. Learning never stops and having books around helps you focus your mind on topics that will help you towards financial freedom.

Reward yourself with Tokens now and then

The journey towards financial freedom is long and challenging. There are no two ways about it. We are talking about taking 10 to 20 years of consistent habits that contribute to us living within our means, saving to invest and investing for returns that bring us closer to our targetted investment capital that yields sufficient passive income for day-to-day living expenses.

As we move forward on our journey, I occasionally reward myself with the percentage of the returns I make. This allows me to plough back 80-90% of my investment returns back but gives me the small luxury of buying myself a nice meal, or a small gadget or a new laptop bag ON OCCASION (not everytime!) when there are some capital gains or dividends. This is a small form of tangible reward to myself and keeps me motivated to continue to invest for more returns so that even a small percentage of that would buy me a fun token to keep from feeling too deprived along this journey.

So do consider zhnging your ride towards financial freedom and be well and prosper.

Financial freedom should be fun!

In our quest for financial freedom, do we feel even more stressed to work on our jobs or businesses, save and invest and seek new ways to save money or to generate multiples sources of income?

Stop, pause, wait!

You may find the road towards financial freedom filled with challenges and obstacles, but it doesn't mean you cannot have fun and enjoy the journey!

Here is some of PanzerGrenadier's 3 ways to make financial freedom fun for you so that you will find it sustainable to commit to the various ways to grow your net worth to a sum where the passive income from it more than covers your living expenses.

1) Treat it as a game!

When you play video games or sports, don't you tally up the scores to see who is winning or losing? It is the same thing for financial freedom! When you set goals and targets, each month or year where you see your net worth growing and the gap between your targetted investible savings amount and your current amount narrowing, it gives you a certain feeling of satisfaction that you are moving ever closer to your goal!

Seeing it as a game also allows us to inject more humour and fun into it rather than seeing it as deadly serious. Some readers may disagree with me on this approach but I found that life is too short to be all serious all the time. Yes, we need to be serious about setting goals and targets and about taking the disciplined approach to do the necessary things such as spending within our means and saving as well as building up our investments prudently. But no-one said it has to be done WITHOUT humour, a sense of fun that it really is a game that we play to allow ourselves the option to retire earlier than the statutory retirement age set by the powers-that-are.

2) Learning and earning

As I learn about investments and ways to make my investible savings grow, I also embark on hobbies that generate some additional source of income. For me, AdSense has allowed me to explore my interest in writing and articulating my thoughts into something that has a tangible economic value as it helps to bring in some small kopi-money even as it is both fun and rewarding in many senses of the word. In addition, my public speaking endeavours are aimed at gearing me up with skills that help me in my current career but also prepare me for a second career when the time comes.

My blogging efforts also exposes me to a slew of new technologies relating to Web 2.0 that I would not have experimented with if I had just chosen a more traditional hobby such as vegetating in front of the television or xbox (or is it xbox 360 now!?) ;-)

3) Laugh at yourself once in a while

If I counted the number of mistakes or wrong paths I had taken in my journey towards financial freedom, I would run out of fingers and toes to count them. No-one is perfect and has fore-knowledge of what is to come. My adventures in this journey towards financial freedom has its ups and downs. I realise that you have to sometimes just laugh at yourself when your portfolio goes underwater due to sub-prime or risk of US recession and count your lucky stars that you have some of your investible savings in defensive assets such as bank deposits, treasury bills and fixed deposits. At the end of the day, all these efforts towards financial freedom mean whether we can retire earlier or later but not life and death. So I try not to frame things in terms of life and death unless they truly are e.g. driving safely IS a life and death issue.

I do hope that you will also consider the fun part of achieving financial freedom, as it gives you more options in life to explore it in its wonder, splendour and candour.

Be well and prosper!

"Take time to smell the roses, my son..."

Our journey towards financial freedom brings us to many different places. The places are not necessarily physical or geographical; rather - they are places within our minds as we broaden our experiences in the many paths and roads that bring us ever closer to what financial freedom means to us.

The voice that tells me...

As I work and make progress towards my goals in financial freedom, I become increasingly aware of the distant voice inside my head that tells me to slow down and smell the roses. No, I am not schrizophrenic nor pyschotic, I do not literally hear voices but I am increasingly guided by this sense that I should explore a little bit more about what this world has to offer to my family and myself and not to just to focus on saving and investing just to grow my investible savings to that established target.

Targets and goals are critical in any endeavour worth pursuing  and you will find that I am very feverent in my goals of achieving financial freedom. I aim to achieve this target long before the statutory retirement age or 62 or even 67 depending on when the government changes the minimum withdrawal age for the Central Provident Fund (CPF).

... To take it easy

There is tremendous flexibility in how we can achieve our targets in this journey. I used to belong to the school of thought where I relentlessly pursued many means to reduce my personal expenditure and maximise my investment returns. The years of 2003 to 2007 were years of reasonable returns beating fixed deposits and CPF special account interest rates even though I was not (and am still not!) an expert in investments and personal finance. I have tried with varying degrees of successes investing in fixed deposits, treasury bills, stocks and shares (equities) and unit trusts (mutual funds).

My personal status has changed  from student ==> employed single ==> employed married (no children) ==> employed married (with 1 child on the way). In each of these episodes of my life, I have tried different ways of growing my net worth bit by bit, little by little.

What has changed since I have learnt from each episode until today is that MANY PATHS LEAD TO FINANCIAL FREEDOM. And one of the paths that has opened up for me is to take time out to smell the roses.

Smelling the roses

What this means to me is that I need to sometimes allow myself to enjoy a bit of my net worth WITHIN MY MEANS and while still keeping my goals of financial freedom FIRMLY IN MIND even as I sample the sweet nectar that life offers for those who are able to delay instant gratification for a deeper sense of appreciation and enjoyment of life.

Ideally, if our investible savings yields some returns, you can decide if you want to channel these returns back into investments or perhaps partake in a percentage of it for personal consumption of the little luxuries in life.

My own experience of buying my Suzuki SX4 Sedan to provide a more convenient form of transport for my family and myself comes at a price. The capital cost of my car does delay my goals of financial freedom by about $55k  (and more if you compute future value of investing this amount for next 20-30 years!!!). My living expenses will go up because of petrol, maintenance, road tax, insurance, ERP, parking and a whole host of myriad costs that maintaining a car involves.

The car to me is a different path I have chosen to take in my journey towards financial freedom. It is time to smell the roses as I have worked for 13 years without owning a car. It is time to allow myself a little luxury in life in transportation as I can afford it and it makes sense (maybe not cents! :-) ) for my upcoming family addition!

 

What is the rose in your life?

What is the path that you may want to take in your journey towards financial freedom. Remember, you are in control of this journey you take. You decide if you wish to take a straight line from here to your targeted goal of $xxx,xxx amount to be financially free or to take a longer path.

It is about balancing today's needs and wants with tomorrow's needs and wants. There is no prescribed text book answer. You decide on the outcome, retire at 55, 62, 67 or 83. It is all up to you.

Have a great Lunar New Year with family and friends and as always, be well and prosper.

Happy Lunar New Year for 2008: Year of the Rat

Wishing one and all a Happy NewYear of the Rat!

A Singaporean Dream of the 5Cs

Remember the time in the 90s when people were obsessed with the 5Cs? The 5Cs represent an era when people who survived through the recession in the mid 80s thought that Singapore was going through another "Golden Age". A "Golden Age" where economic growth proceeded at break-neck speeds creating wealth and making the Singapore pledge come true..."so as to achieve happiness, prosperity and progress for the nation"? Of course, it helped that prosperity came to you and hence the 5Cs were the be-all and the end-all of the so-called Singaporean dream.

The 5Cs: A Recap
The 5Cs refer to cash, credit card, condominium, car and country club membership. They were a catchy way to describe the attributes of success in modern, materialistic and mercenary motherland of Singapura. Cash does not need much explanation, any capitalistic economy worth its salt uses money as the measure of economic prosperity and personal success (whether this is right or wrong is an issue to be addressed in another blog).

Credit cards are a proxy to measure your income level. Previously, you had to have an annual income of at least S$24,000 a year to qualify for one. Nowadays, the limit is closer to $30,000 annual income. Hence, if you qualified for a credit card, it meant that you were a somebody in Singapore Inc.

Condominiums (or private residential property) was another measure of how well you did. With virtually 85 to 90% of the population living in HDB apartments (first-time or resale), if you were the 10-15% who lived in private housing, you were considered to be somewhat above the hoi-polloi of the masses who live in HDB estates.

Country club memberships capped off one's ostentatious display of wealth as the entrance fees for some more exclusive clubs ran into 6 digits. This allowed you to swing titanium space-age golf clubs at a dimpled ball across manicured greens and ponds. The epitome of having "made it".


The 5Cs: A Reality Check
Ever since the Asian Crisis in 1997-1998 as well as the dot.com bubble burst in 2000s, globalisation rears its ugly head against Singapore Inc as we are not spared the excesses of world global financial markets. Some MNCs downsized, some SMEs died and others were born. Jobs were lost, re-created and Singapore Inc re-organised itself under the watch-ful eyes of the powers-that-be to emerge into today's new "Golden Age" (Hey.. haven't we heard this before?).

During the 80s, I was also caught up in the 5Cs and did hanker after them as well. I followed the instructions of my parents to study hard, get a degree, find a comfortable job and slowly achieve the Singapore Dream. However, having gone through the Asian Crisis and Dot.com bust, I step into 2008 with more cyncism and realism. The first thing I realised was that jobs were not safe. The era of life-long employment is gone. Life-long income (a.k.a. annuity) is now the new thing. Oh, but sorry, you have to find the funding for the annuity yourself out of your CPF or own monies! Don't look to gahmen to fund your retirement.

New realities in Singapore Inc
The new sense of reality of how Singapore Inc has changed in a globalised world sunk in when I started to see how our living spaces started to shrink due to the deliberate open immigration policies to grow the working population as well as "instant" citizens being implemented. The powers-that-are is of the view that our indigenous population is insufficient to support economic growth. Thus, absolute numbers of economically active workers from the regions of our north, south, east and west and imported to help grow our GDP. This growth in absolute numbers means that competition for jobs is increasingly tough at all levels. While foreign immigration brings in much needed helpers in the domestic worker sector (maids), construction and increasingly service sectors, it has also made IT, financial services and even many white collar jobs subject to strong competitive pressures, making it tougher for you to compete economically.

So has this stopped us from achieving the 5Cs? No it hasn't but it has made me rethink about the 5Cs. A home is a home so the choice of abode is really one's choice based on your income level and affordability. Credit cards should be seen as a way to make payment and I have stopped applying for new cards as they have lost their lustre. Country clubs are really only if you have too much money as many alumni based or Safra type ($40 a year) of clubs provide value-for-money at relatively affordable monthly subscriptions. A car was something I aspired to but it took me my daughter's impending appearance soon that prompted me to get one for the family after working for 13 years and surviving reasonably well in Singapore without a car.


Where does that leave us?
In our journey towards financial freedom, the 5Cs used to be a common benchmark for many to aspire to. Whether this is an appropriate benchmark for you or if you should focus on other aspects is largely a personal choice. My own sense of the 5Cs is that you have to balance your income and affordability against what you want to get. A car brings with it great convenience but is generally more expensive than public transport. Until public transport starts getting better (say in another 4 to 12 years' time and assuming our population doesn't hit 6 million souls), many will still trade money for convenience and comfort of our family.

You determine the benchmark and dreams you have for yourself.
You determine what success is to you in Singapore.
You hold the power to decide for yourself how you want to go about on your journey towards financial freedom.

Be well and prosper.

Surviving Low Domestic Interbank Rates in Singapore

Time deposit rates have moved downwards along with Domestic Interbank rates
Interest rates for savings and fixed deposits (time deposits) have reduced sharply since Oct 2007 as can be seen in the Monetary Authority of Singapore data on domestic interbank rates since Jan 2007 to Jan 2008.

It has moved downwards from the dizzying heights of 3% sometime in Feb 2007 and creeped steadily downwards towards the present 1.50% plus. If you noticed, interest rates for many banks and financial institutions fixed deposits have also moved in tandem. This is because the bank borrows from you (the depositor) and lends to other banks at the rates. If they can lend at 1.5%, then to make any meaningful margin, their cost of borrowing has to be lower than 1.5%, which explains why time deposit rates have moved downwards as well.

What can you do about it?
There is actually very little you can do about it. Unless you have millions to deposit where the bank may give you preferential rates above what they offer to the typical retail investor, the average investor will only be a price taker, i.e. you can only get the rates that are now close or lower than 1.5% or so for bank time or fixed deposits.

However, fret not, as interest rates do move up as well as down so low interest rates will not be permanent. But how long the interest rates will stay this way is any one's guess. Previously, treasury bills were a way to counteract the low interest rates given by banks for their fixed deposits. However, recent treasury bills auctions for 3 month tbills have yielded 1.49% or so. Thus, most of us retail investors do not have many viable options.

Some "savvy" investors pooh-pooh or look down on us who put some of our monies in such low yielding instruments, proclaiming proudly that inflation (projected at5%) eats up such low interest returns. They are right. However, unless they can find equivalent low risk assets which your diversified portfolio should have in some proportion, it is still a more prudent strategy to have a certain portion of your investible savings in very safe (though low yielding) instruments such as fixed deposits or even treasury bills.

Investing for the long term and building your firm foundations for financial freedom starts with always having some safe instruments to give you confidence to take a more calculated risk with your other investible savings. Never put all your eggs in one basket may mean not being able to become financially free at age 35 or 40 but you have more likelihood of being able to retire before the statutory CPF withdrawal age if you can avoid losing all or most of your investible savings. A recent article by one financial advisor who lost $380,000 over the CLOB debacle shows us the folly of trying to get rich fast by taking inordinate amount of risks and with borrowing to invest.

Slow and steady wins the race and may you, your family and loved ones be well and prosper during this Lunar New Year and for 2008!