Financial freedom: allowing you to spend your money and time on others

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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 is a worth-while pursuit when...

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.

Financial freedom - freedom to do for others as you have done for yourself

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:

• Live within your means
• Save and invest
• Grow your means

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.

Financial freedom: Growing your means by taking ACTION!

Five Cents Ten Cents has moved to http://fivecentstencents.com

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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!

Financial freedom: The elegance of simplicity

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.

Financial freedom in a nutshell

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.

Living within your means

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.

Saving and investing

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.

Growing your means

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.

panzer’s experience

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.

Five Cents Ten Cents is under-going a transformation... Watch for it!

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.

Panzer's Quest for financial freedom

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.

Financial freedom: Investing for the future, focussing on the present

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.

Investing for the future, focussing on the present

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.

Focussing on the present: getting you moving towards financial freedom

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.

Investing in the future is to act in the present

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.

Financial Freedom: Drinking Coffee While the World Goes By

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! :-)

What is your dream that drives you towards financial freedom

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 your goals in the ideal state

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.

Financial Freedom: Plan-Do-Check-Act

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

Establish the objectives and processes necessary to deliver results in accordance with the specifications.

DO

Implement the processes.

CHECK

Monitor and evaluate the processes and results against objectives and Specifications and report the outcome.

ACT

Apply actions to the outcome for necessary improvement. This means reviewing all steps (Plan, Do, Check, Act) and modifying the process to improve it before its next implementation."

How do we apply PDCA to our objective of achieving financial freedom?

1) Plan
You need to have an objective. Be specific and it should be something along the lines of, "I want to have $500,000 investible savings by age 50" for example. You need to develop the way or steps that will help you achieve your objective. These are the processes referred to in the PDCA approach.

2) Do
Action is paramount in any endeavour. But blind action without any pre-conceived notion of where you want to go and what you want to achieve will lead you nowhere. Action to implement the plan in the required steps (plus some variations along the way) take you bit by bit from where you are now, towards where you want to be in terms of achieiving financial freedom.

Let's say your target is to have $500,000 in investible savings by age 50. If you are now 30 years old, you have 20 more years to achieve this. $500k over 20 years = $25,000 a year. How do you save $25,000 a year? By first saving $1,000, $2,000, $5,000 a year etc and leveraging on the power of compound interest to help you. Will it be easy? Of course not! It will be challenging and tough if you do not believe in the principles of living within your means, savings and investing and growing your means. TOTO and 4D may bring you there maybe with a one in a billion chance but growing your investible savings at rates of 4% to 10% is possible but tough. It requires dedication, hard work and perseverance.

3) Check
As each year goes by and the number of candles on your birthday cake grows, how do you check if you are on track towards what you planned? Is your networth growing bigger, smaller or the same? Why is it? Analyse, think and critique yourself. If you have someone who you can trust and who is financially savvy, talk to them, or better still, read my blogs! :-)

Taking time to review how you have fared in your journey towards financial freedom is also important as periodic self-assessments give you some indication if indeed there is progress. More importantly, if you are not on track, you still have time to do something about it.

4) Act
Take corrective action if you are not doing so well according to your targets. Continue to do the same things if they are giving you the returns and growing your networth towards where you want it to be.

In the end, you continue with this cycle and continue to press on in your quest towards financial freedom. While doing so, don't forget to smell the roses and appreciate the small luxuries that life has to offer!

Be well and prosper.

Financial freedom and Parenthood

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.

What is your reason for financial freedom?

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.

Withdraw your Economic Restructuring Shares now!

The Ministry of Finance has announced the final dividends for your Economic Restructuring Shares (ERS) of 10.74%. You may check your holdings and more importantly, withdraw your ERS because the final dividend has been paid out on 1 March 2008 and CPFB will only automatically credit back the monies into your bank account on 7 April 2008:

“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.

Financial Freedom: Exploring and Trying New Frontiers

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.

What does the crowd believe in?
Spending is sexy. Why are banks able to make money from pushing unsecured credit to you? Balance transfers, minimum payments, roll-overs all make it easy for you as the consumer to spend, spend and spend!

Look at the many advertisements in print, in television and on the internet. What do they encourage you to??? S-P-E-N-D...

Stretch your loan to the maximum. Conventional wisdom is for those with HDB concessionary rental rates of 2.6% to spread it out over 30 years. This is because you can "invest" to get a better return than 2.6%. I've discussed this topic whether to pay off your housing loan in an earlier post and it depends on computing your outstanding interest expense vs realised returns from investments at any point in time. Generally, if your interest expenses exceed your interest returns, you should generally try to pare down your debt within your means.

Get a set of wheels at the same time as you get your first job! Driving is cool, taking public transport sucks. I endured the sucky MRT, Bus and taxi services for a decade or more before I decided to buy a car because I was only responsible for transporting myself for the first phase of my life. But now I need to ferry 3 other persons besides myself from point A to point B and a car, while being more expensive than public transport, serves the transportation need better.

Going against the crowd

To go against the crowd is to save every month as far as possible. Delay your wants for today for tomorrow's needs. Saving is the new sexy attitude to have if you want to achieve financial freedom.

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.

Financial Freedom: Reading and understanding more about savings and investments

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.

Reading about savings and investments: Know what you are investing in!

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.

Structured Products:RIsk-return in favour of the banks/issuers

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.

Start reading today

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.