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.