Personal finance 2 - spending habits

I must admit I am not overly qualified to write this, but I would like to share my own personal experience on spending habits and hope that people will also come to realise the importance of good spending habits.

I grew up during the era where there was a silly trend for youngsters to wear branded clothing. I have to put part of blame on my friend back then as he was really a bad influence. Peer pressure got over me. I remembered bringing my father to pay for my Armani clothes and Trussardi jeans. Back then my father was doing pretty well in his businesses and he bought them for me although with much grumbling. He did not really set a good example to me on proper spending habits as well since he was always changing luxury cars and spent lavishly.

When I started out to work, I still had the tendency to go for branded goods, I told myself that the better quality justifies it and it can last longer (I still think they do even now). Over the years I had purchased branded items for belt, watch, shoes, wallet, sunglasses , bags and pen. I grew my earning power gradually over the years and did not contol my spending.

I used to spend 450$ on a pair of shoes, I own a Cartier pen and Prada sunglasses. I even bought myself a Rolex watch in 2006 as my good friend got one too. My spending did not stopped on material items, I even invested in grooming myself by signing up for facial packages which probably could had cost 2 lots of Keppel Corp shares easily.  Although there were no big regrets in spending to pamper myself with the facial packages. ( now wherever I go , auntie or uncles still call me xiao di due to my youthful looks ), I realised that I was spending my money in a very wasteful manner. Luckily I did not end up with any credit card debts like my other friend, he had asked me to be his guarantor for credit loan but I instinctively said no as he could not control his spending.

Things started to change once I got to know my wife, after observing my wife's spending habit and the way she values her money, I felt terribly guilty. I tell myself that I need to be frugal like her. Myself being a Man yet I spent more than her. My journey to achieving positive finance also allowed me to open up my eyes. The needs and wants are clearly defined now once I have a target to reach. There are more important task like saving money for our future house, baby and retirement. Now is not the time to spend, it is time to save and be frugal so that I can enjoy a better life 10 - 20 years on.

Nowadays, I would rather spend money to buy stocks that will generate income/ capital gains than spend money on material things. I still spend to sayang my wife now and then, but I make sure that it is within my budget.

There is a need to cultivate good spending habits from young, we need to set a good example to our children on the way we spend our money, having financial literacy education is also essential, separate the needs and wants while young and understand and appreciate the need to be frugal.

Controlling your spending habits is part of positive personal finance and also related to the journey to financial freedom.

Tips on how to control spending:
1. Set up a budget for monthly expenses
2. Ask yourself if it is a need or want on every purchase
3. Delay spending and spent more time to consider if one should really buy that big purchase items
4. Learn to say NO to sales people
5. Envy and stop there, learn not be influence by peer pressure
6. Cut down on number of credit cards and minimise credit limit
7. Always remind yourself that you do not want to end up old and poor. So start to spend wisely and save!

Personal finance 1 - Savings

Do you have a rich father? If no, please continue to read this.

Savings for Singaporeans is a must have, it is something we need to have and accumulate, if not, we are probably unable to fulfil the below needs:

Car:
To be able to afford a car, you need to have savings to cater for at least a few months worth of instalment, apart from that, there is a need to cater for maintenance cost, insurance cost and road tax. If you intend to cut down on your monthly loan payments, you need to put it a larger sum of down payment.

House:
To book a new flat at HDB, you need to put in 1K~2K worth of option fee. If you are buying a resale flat, you need to cater for agent's commission of 1% of purchased price, option fee of 5K will be required to exercise the option, lastly, the buyer need to come up with the down payment of 20% for the flat's valuation. Lastly, there is the renovation cost required, which easily comes up to around 30K$, it is not advisable to take a renovation loan due to the high interest rates.

Marriage:
You need money to buy the engagement ring, be it lee hwa or cartier. Price varies from 500$ to 12,000$ based on the carat size and the requirement of your partner. A pair of wedding bands can also cost more than 500$ for a mid tier brand. There is also the photography package that cost around 4K$. We have not even included the honeymoon cost, ang pow money for the in-laws (for guys) and lastly to standby the money to repay the difference for the wedding dinner package should the ang pow money received fall below the average cost for part table.

Starting a Family:
Government encourages family planning but the cash perks that there are offering are simply insufficient. The cost for a delivery package for a gynaecologist is around 3K$. There is also cost for repeated gynea visits. Apart from that, major expenses include confinement nanny and tonic food for the wife. We have not included the baby expenses like baby cot, pram etc.,

With enough savings, we can breathe better when it comes to the expenses required, nobody can help us apart from ourselves.

How to save?:
1. Forced savings from young. Pay yourself first. Create a separate bank account, budget a fix amount to be transferred to the account once you receive your pay check. Any other additional income, you can put inside as savings too.
2. Cut down on expenses and instill delayed gratification. Be frugal. Do not be influenced by peer pressure for luxury items and learn to say NO to sale people.
3.Monitor your expenses to up to 3 months to understand your spending habits and make improvement.

After many months, you will see your savings being accumulated. slowly and steadily.

Not losing sight of what is important in the dragon year.

It is another brand new year again! The year of the water dragon is expected to bring lots of volatility and uncertainties in 2012. The stock market has yet to recover to the previous peak in 2010 and we are still unsure when the market will complete the down cycle.
Companies will continue to stay cautious and some will cut cost, people will work harder in these uncertain times to add more value and keep their jobs.

This Chinese new year is special to me, as I am writing this blog on my iPad,I am sitting beside my wife, whom has just given birth to a wonderful baby boy :) Seeing your very own newborn and holding him is indeed a truly incredible feeling. Words could not describe what ran through my mind while I was waiting for my baby to be delivered outside the delivery suite. When I see that my baby boy and wife recovering and doing well now, I already became the happiest man in this dragon year. Although little mini me came out slightly earlier before dragon year, I didn't mind abit, cause he has given me and my wife new meaning in our lifes now.

As we continue to slog , make investments, create multiple incomes, spend time and effort to build our career, it is important not to lose sight of what is most important to us, our family, health and friends.

After becoming a little overweight for the past year, I am planning to get back to fitness soon so that I can catch up with my son when he grows up.

Wishing all a happy dragon year! Huat ah!

Survival in working till 50s and retirement

I see many articles on retirement planning and all, I start to think how can one really plan for retirement in today's volatile business environment.

If you flip today's Straits Times, you can read that Eastman Kodak, has filed for bankruptcy yesterday. This is one of America's most notable companies and has a long history. Years of poor performances has led to them laying off 47,000 employees and closing 13 factories. I remembered making a sales call at them back in 2008 at their Singapore office in lorong chuan. I am not sure if they are still around now, but this is a really a reality check that even if you plan for retirement, things which are beyond your control happens like companies falling into financial difficulties and end up folding.
The fact is that we depend on our day job for income, this is needed for expenses, payments and retirement planning. I am not sure how many Singaporeans can have a 100KSGD passive income per year. But to be pragmatic, we need our day job to keep us going before we retire. And for this, we need to work till we are in our fifties at least (estimated unless you are a super high flier you can retire in your forties).
I had survived 2 retrenchments in the past and had seen many of my colleagues being laid off. It is a part of life in Singapore, we cannot escape this, but we must find a way to deal with it, manage it and survive.
How to survive?
After job hopping in my earlier years, I can realised that working in Multinational companies (MNC) that has consistent profit, good cash flow, low debt and conservative in nature is a good choice. Usually, these companies will survive during downturns and can stay long. Some MNCs has subsidiary companies, when things go wrong, they might still provide you a back-up plan to find a post there. If your company has some key products to sell, there is a chance where if it collapse, there might be some competitors that will be willing to buy over the firm, so if your skills are needed, you will end up with the new company. (but usually with a pay cut). Lastly for worst case scenario, most MNCs offer retrenchment benefits, if you happen to stay long enough, you will get a substantial amount of severance package. My experience with local companies have been brief thus I cannot comment much.
Staying in a job till you are fifties?
I look around my office, I hardly see people in their fifties working, apart from the Directors, VPs and some managers. I started to wonder why, and I can come to a possible conclusion that only people in their fifties can survive in a company if they are in the top 5% of a organisation. Or have many of them already retired?
If I am in my fifties, can I continue to work at my current job? The answer is no. My personal take is that if we want to continue working till we are in our fifties, we need to move up, or we have to move out. The only way is to ensure your career progression is in place.
 
So if we work the right company, excel in our job, show value, move up the ladder, work till we have save or invest a sufficient amount, probably we can retire?

My top ways to 10 to survive a job till you are in your fifties and plan for retirement:
1. Join the right company
2. Excel in your role
3. Show value in your job
4. Move up the ladder
5. Be in top 5% in the organisation
6. Ensure company has retrenchment or retirement benefits
7. Save and invest to beat inflation and plan for retirement
8. Eliminate debts
9. Have passive income
10. Buy toto and win ( I mean work for Singapore Pools, they will never go bust )

Singaporean in debt

The current starting median pay for polytechnic graduates is 2000$.
The starting median salary for University graduates is about 2700$.
The average median salary per month for Singaporeans in 2011 is 2710$.

I really wonder how can Singaporeans stay out of debt if they continue to spend.

Take some example, a Singaporean couple fall in love and decided to settle down. Man is in his thirties and woman in his twenties. Combined income of about 8K$

Guy buys proposal ring - $7000. (Larry's brand as girlfriend likes it)
Couple bought a pair of engagement rings - $6000 (Cartier- due to peer pressure)
Expenses for wedding photo package - $6000
Wedding dinner expenses came to -$7000 (for in-laws "ping jin")
Honeymoon to Korea - $3000
They decided to apply for a DBSS after countless tries with HDB's BTO without sucess - $350,000 ( took up a hdb loan and wiped out their cpf and savings)

Couple spent 20K on  minor renovation and furnitures.

Man decides to upgrade his car as he could not resist the latest continental car design - $100,000 (car loan)
( this is getting very familiar for people in their 20s, once they get extra earning power, their cars will get extra power too eventually)

Man likes to collect watches, saw the latest rolex and could not resist. Has no cash but buys it with a interest free 24 months instalment since it is so cheap per month - $12,000.

Man tells himself, if he loses his job, he is finished. Stuck in a rat race and saves on food, entertainment and  transport cost. ( will not drive his continental car to areas with ERPs and takes MRT there).
Wife is in the finance industry, with many banks doing cost cutting, she is very concerned now as she realises she has nothing much to do during office hours.

Above is a real life story.

The only way the couple could afford all that if they belong to the high earners group or if they have financial assistance from their parents or if they are born rich. Unfortunately, they are not.

We have not even talked about Singaporeans with lower earnings.
Most Singaporeans will be in debt if;

1) Earn less than what you spent
2) they have no savings
3) they lose their jobs
4) they stay in a company for too long without promotions and their company provides them pathetic bonuses
6) they spent on liabilities
7) they do not practise delay gratification
8) if you marry somebody that likes Cartier or Larry's
9) if you are a not a minister
10) they do not invest

Tips on how to safeguard $$ for drivers

I am sad to say I might had contributed to the cash reserves at ministry of transport this month,it was a moment of complacency that might led to me being potentially a few hundred dollars poorer. While I am waiting for the red letter.

I would like to share below tips with fellow drivers ;

Driving on highways: In any event should you decide to speed, apart from checking road ahead and rear window, check the road across with traffic on opposite direction, traffic police are checking speed limits from the other side of the road.

Bus lane : avoid this lane during peak hours. Highly trained photographers are located at the road side.

Overhead bridge : slow down whenever you see one. Highly trained photographers are located on top, but sometimes you will only see the camera stand but no camera man.

Fines: you can always try your luck to appeal for fines under hdb, if it Is from URA, please proceed to axs or Sam machines.

Drive safe!

Interesting Post on long term investing

I was in this FSM forum thread where somebody posted his views on long term investing. Here he challenged on the logic of long term investing and compounding of stock/Unit trusts.
I think it is pretty interesting and I am trying to find out more from him. I am not in support of his views nor am I against it. I am keeping an open mind but thought I share with all as I understand many bloggers here practice long term investing.

Below some of the comments made:

"Little by little you would also come to realized that long term investment is just that. Very very long term. In essence, the market move up and down all the time. You will come to a conclusion that all the theories including how in the long run, the market will always move up is nothing but hype. As long is you 'invest and forget' and hope to make money, you will always lose money.

Then after you come back to square one, you change strategy. Maybe dividend play is better. You started to invest in companies the gave dividend and lo and behold, you make some money when the market start to run up. Within a year or two, market turn down and your share is worth much less than your initial investment plus all the dividend that you have collected. So what now?

Through these experiences, I can only suggest this. Market psychology, money management and emotional control are the lessons you may want to learn more about. Without taking profit or cut loss, your portfolio will yo-yo like the market"

Food for thought?

Ways to Reduce Income Tax

Below is an article from Business Times recently on how to cut down your income tax posted by KPMG, think this is pretty useful:

It's not too late to reduce your taxes
Here're some tips on how to do that, and an outline of tax advantages of planning and reviewing your financial situation as 2011 draws to a close
ECONOMIC uncertainty and market turmoil may be making a lot of people nervous, but there's one thing that's still within our control: income taxes.
Don't take an approach to your taxes akin to a rudderless ship sailing uncontrollably into troubled waters. As 2011 draws to a close, consider the following tax tips that are still available to you by Dec 31, 2011 to reduce your tax bill for the Year of Assessment 2012, which covers income earned in 2011.
These tax tips are general in nature. You should review your own situation with a qualified tax adviser to see if it applies to you.
Claim applicable reliefs
Some types of tax relief are automatically granted and will appear in your tax return. Examples include earned income relief, NSman relief, topping up of your Central Provident Fund (CPF) account and contributions made to the Supplementary Retirement Scheme (SRS). You need not put in a claim for these when you file your tax return.
However, there are other tax reliefs which the Inland Revenue Authority of Singapore (IRAS) will grant only if claimed for each year. You should consider if you qualify and make a claim if you do. For instance, if you are a Singapore resident these would include spouse relief, child relief, parent relief and foreign maid levy relief for working women.
Both male and female taxpayers can claim for spouse relief if they are married, and if their wife or husband does not have annual income exceeding $4,000 in a year.
In addition, if you undertook educational courses, you can also claim a tax relief for fees incurred of up to $5,500 per year. Other reliefs to claim include the CPF top-up, CPF contributions for the self-employed, and contributions to the SRS.
Consider participating in the SRS if you have not done so. SRS is a voluntary retirement savings scheme and all you need to do is open an account with any one of the three SRS operators (DBS, OCBC and UOB) and make a contribution by Dec 31, 2011.
A cash contribution to your SRS account can help you enjoy a tax relief for the year in which you or your employer makes. However, take note that this is currently capped at $12,750 for Singaporeans and permanent residents, and $29,750 for foreigners.
Donation to approved charities
You can also claim tax deduction for cash donations made to an approved Institution of Public Character (IPC) or a Qualifying Grant-making Philanthropic Organisation. Besides cash, donations to IPCs can be in the form of Singapore-listed shares, unit trusts that are ready to trade in Singapore, as well as land and buildings.
The tax deduction for the Year of Assessment 2012 will be equal to 2.5 times the amount of donations made by Dec 31, 2011. If the tax deduction for the donation is more than the donor's income for the year, the donor is allowed to carry forward the un-utilised deductions for a maximum of five years.
From Jan 1, 2011, all IPCs are required to use the e-Submission of Donation to transmit tax-deductible donation information to IRAS. Individual donors therefore no longer need to claim for a tax deduction when they file their income tax returns as it will be granted automatically.
Donors are required to provide their Tax Reference Numbers (NRIC No/FIN) to IPCs for their transmission of this information to the tax authority. The IRAS no longer accepts claims for this tax deduction based on donation receipts.
Rental income from property
Owners of rental property should note that while the rental income is taxable, rental expenses to offset the rental income can be claimed.
There are different types of allowable deductible rental expenses. Some common examples include mortgage interest on the loan borrowed to purchase the property. Others include property tax, maintenance fees paid to the Management Corporation, fire insurance and general repairs or maintenance such as painting and pest control services.
For your first property you are renting out for the first time, certain expenses incurred to secure the first tenant are not allowable. Examples include any commission paid to the property agent as well as advertising and legal costs. Expenses incurred for securing subsequent tenants are deductible.
For any subsequent properties that you rent out, your property agent's commission, advertising and legal expenses are deductible against the rental income from these properties. This is even if incurred for securing the first tenant of the subsequent property. The cost incurred to renew a lease or secure the subsequent tenant is also deductible.
If you own several rental properties, rental losses from one property can be used to offset the income from another property.
Where the final amount from all the rental properties is a loss, you cannot offset the loss against income from other sources. You may, however transfer the loss to your spouse if he or she has positive rental income to absorb the loss.
Not Ordinarily Resident Scheme
If you are a non-resident of Singapore for three consecutive years before the year you become a Singapore resident, you can apply for the Not Ordinarily Resident (NOR) status for a five-year period commencing with the first year of residency.
What an NOR status means is that if you spend at least 90 days outside Singapore for business and your employment income is at least $160,000, you can apply for the concession of time-apportionment of employment income.
This means that you would not be taxed on the portion of employment income corresponding to the number of business days spent outside Singapore, subject to a minimum floor tax rate of 10 per cent. This tax rate is therefore the minimum you should expect.
If you qualify as an NOR taxpayer and meet this criteria, you should review your travel schedule to determine if you can apply for this time-apportionment concession.
Tax deduction for angel investors
You may also wish to consider the Angel Investors Tax Deduction Scheme, introduced in 2010, if applicable. This incentive applies to approved angel investors committing at least $100,000 in qualifying investment to a qualifying start-up in a given year.
The scheme was introduced to encourage eligible individuals to invest in start-up companies by providing them a tax relief for their efforts at providing management expertise, building business networks and so on. Investments have to be made during the period from March 1, 2010 to March 31, 2015 (both dates inclusive).
Approved investors can enjoy a tax deduction at the end of a two-year holding period equal to 50 per cent of their investment. The tax deduction will be subject to a cap of $500,000 of investments in each Year of Assessment.
To become an approved investor, you have to apply to Spring Singapore, which can also provide interested investors with more details about the scheme and its qualifying conditions.
Effective at tax planning requires that you stay abreast of any changes to the tax laws and regulations which may affect you. Alternatively, speak to a tax adviser to determine whether there are any changes or tax deductions besides those discussed which you can capitalise upon.

10 years on....

I realised time has passed 10.5 years since I had started out working. After receiving my long service award at a local polytechnic for 4.5 years and serving (wasting) 2.5 years of my time in national service mainly in light duties and excuse of heavy load, I went through the path of job hopping and finally settling down at a company where I am at still today after more than 6 years.
I envision my career where I would be working in a big office in CDB area, with a personal room and a sea view. 10 years on, I am sitting in a small cubicle with my female boss sitting in front of me at some ulu industrial area. It has not been that bad I thought, I went through the early phase of job hopping, trying to find my career path, but while doing so, I had the privilege to travel around the globe and expose myself to different company cultures. During my 20s, I had seen 2 company restructurings, but always being the eager and hungry salesperson, I always managed to find my ways out and still continue to earn a decent living.
What had I learnt for the past 10 years and what had I accomplished? I learn that everything has a price, if you want to earn more, you need to spend more effort. Finding good bosses is also very important, if you have rapport with them, works comes easier. Also, I realised that it is always important to continue to upgrade oneself. I decided to take up a external part time degree course as I felt inadequate when all my colleagues are armed with NTU honours degrees and MBAs. I managed to achieve a first class honours in my part time degree, but when I presented it to my boss, she told me the company does not adjust salary based on that.
Patience, I learn that being patient is a art and need to cultivate that in career or own life.
During the past year, I finally realised what I love and enjoy doing ; investments and about personal finance. Having been made fun by friends by giving me a "guru" nickname, as I have repeatedly encourage them to invest for the long term and plan ahead. You will be surprise that so many people are disinterested in personal finance and continue to spend spend spend. Among all my friends, I am probably the only one that is making plans on retirement and making passive income.
Talking about achievements, I have not made that million dollar yet in my bank account, but one of the big achievement is staying on at this company and being able to be recognised as one of the better employees.
Yesterday, I was presented with a promotion :)
Aside to work life, I achieve a million dollar wife, not cause she will make a million dollar for me, but for saving me million dollar, I am just blessed and lucky to find a good wife and will be staring a family soon. I will treasure them and they will be my number one priority.

What do I see in the next 10 years when I am 45? Career wise, I will continue to climb the ladder, work on my investments, make plans for retirement and enjoy the process of seeing my handsome baby son growing up with my wife :)

Thoughts about retrenchment

Yesterday I paid a visit to my customer who works for a large MNC. My customer is a man in his forties and one of the nicest customers I know. Meeting was a casual one where we talked about work, but slowly, we chatted on topic of company restructuring and retrenchment. His company had went through a big restructuring couple of years back and had laid off several of his colleagues, now there are only 2 person working in his department. Several of his ex-colleagues had found jobs, some now works in IRs and some in other industries..The impression where he gave was that he too, was also waiting to be retrenched as he mentioned on the limited sales coming into his company and the difficulty in getting new orders.
It became pretty obvious he is sitting and waiting for the severance package, it is just a matter of time. Thoughts went through my mind on how long can he survive with his retrenchment package, if he is the sole bread winner and what can he do after that. Does he has any other income? Back-up plan? He is in a situation where he cannot control the fate of his company sales.
I thought to myself, the reality of retrenchment is becoming a common reality in today's society. It is something that will happen due to companies changing of strategy and cost cutting measures. But retrenchment to some, is a big bonus. If a person has worked in a firm for 20 years, the total golden or silver handshake will be very large.
To anticipate such situation and plan for such scenario;What can we do to make most of it or what should we do as a back up plan? For me, I will try to make myself as valuable to the company as possible, creating revenue for them to justify my presence and be the best of the best. I will plan to stay as long as possible when I reach a point when I will gladly volunteer for the severance package. At the same time, I will still continue to look for job opportunities where they pay me well. Lastly, I will make plans to grow my passive income to the point they will pay for my monthly general expenses..
What would you do ?

My challenge of spending less.

It has only been 3 days of 2012 and I am already starting to feel the challenge of spending less.
Things always comes unexpectedly and this really implied the need to have emergencies savings and cash..

On brand new first day of 2012, my mother-in-law paid a visit to my home, my little pet terrier, always being a terrier herself, took the liberty to launch a lower leg assault on her leg, my wife while trying to protect her, got herself bitten instead. There goes my 64$SGD to our neighbourhood clinic.
On the second day of 2012, I realised there was a leakage within the walls, while I am waiting for the contractor to access the damage, I foresee more expenditure needed. Although I do not own this house, being the main breadwinner in this household, I am expected to foot the repair cost. Fortunately, my brother in law is the contractor, so I am expected to foot the bare minimal cost.

Moral of the story, keep your dog leashed always even at home, know more renovation contacts and always have spare cash.

I will still continue to practise the way of frugal for 2012.

Want to be Rich?

Spent some time reading a book "Why we want you to be rich" by Donald J. Trump and Robert T. Kiyosaki. The main message of the book is to help middle class americans out of poverty by investing in buisinesses and real estate.

Below are some the points which I find very motivating and important:

• Everyone has money problems, if you want to make yourself rich, solve problems. Idenifying a problem creates the opportunity for creating a solution
• If you are in business, you need to learn how to sell
• In a world of less and less job, it would be foolish to count on job security
• A man's reach should exceed his grasp, if your reality begins with your dreams, your dreams will become a reality
• Write your own script. Then produce it yourself and find yourself living the way you want to. Thats freedom, that's power and that's winning
• If you cannot control your mind, you cannot control your life. Today whenever I meet someone who is unhappy, unhealthy and unwealthy, I know it is simply because he or she has lost control of his or her mind, the greatest tool given by God.
• Teaching is one of the best ways to learn
• Loving what you do, Having patience and acting in the face of fear
• Invest in financial education
• Rich people use more leverage than poor people. If you want to be rich, you need leverage.
• The more financially educated we are, the more control we have.
• One way to maintain control is to always keep the big picture in mind.
• A true investor buys to own the investment and pass it on for generations
• Excellence can become a habit
• Study accounting and business law
• Raise the bar on yourself. Never settle for doing enough.
• If you are going to invest in a business, real estate or stock, it is important to be able to read numbers. They are an important part of financial literacy.
• Love is the key to a life of health, wealth and happiness
• Mr Buffet looks for in a business is a well managed business that will grow valuable over time. He often refers to business value compounding, in other words accelerating in value.