Category Archives: Save

Articles on saving

Why am I saving money?

This is one of the most important question you need to ask yourself before you start doing anything about your personal finance. Always start with why first whenever you started anything. Why are you learning a new skill? Maybe because you want to embark in a new career. Why are you start running? Maybe because you want to have a better health to accompany your kid during his growing journey.

So, why are you saving money? Because you really do not have much material needs? Because you want to save up for that year end trip? Because you want to buy some asset and redeem back your time freedom from working life? Or maybe you are saving for a house payment after marriage. Whatever it is, without a clear reason behind your action, very soon you will feel that saving money is a sacrifice.

For me, I have passed that phase long ago. I realised I value time freedom so much that I don’t feel sacrifice when I am saving money. In a matter of fact, I actually feel very proud to be able achieve an increasing saving rate although my income remains the same, imagine how fast will my progress will be when my income level rising over the time. My best bet now will be working super hard and super smart to increase my professionalism and my income.

The idea of multiple stream of income has became more and more popular as more and more people value freedom and they realise that they don’t want to work in an unfulfilling job all their life and place the control of their life on the hand of another person. However, what this idea fails to capture is that we should build the multiple stream of income one step at one time. Focus on your regular job, sharpen your professional skill and making sure that you main source of income is stable and strong enough before explore other source of income. It is always your main job that has the most potential to earn you the most money compare to whatever side line you try to pursue during your night time and weekend. No doubt there are people who are able to create large income source using their night time and weekend hours, but they are in the minority. For the most of us, our best bet is still with our day job.

Back to the topic of saving money. Change of mindset is a must. And reading and implementing those saving tips that spread all over internet is not helpful. For example, instead of shopping around for the car that provide the best value for your money, try bus, MRT or bicycle. Instead of comparing between various value phone plan, choose a basic phone and prepaid card. Maybe you would say most of the people are holding a smartphone, what is wrong with that? Why am I asking people go back to ancient time and use those ancient phone with limited function and unpressable button. As I mentioned in my previous post, a $42 monthly commitment required you to invest more than 10K into an investment vehicle that has a return of 5%. With this calculation in mind, I certainly think twice or even thrice before I sign my name on any dotted line.

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Don’t let debt control your life.

I was meeting one of my friend and had a few hours talk that day. One of his idea intrigued me, which is about how took up mortgage and car loan make him a better person, a more responsible person. His argument to me was with more loan/mortgage, he felt he had more responsibility financially. It motivated him to work harder, went out to work more often, earned much more income. As the conversation get longer, I started to feel more and more uneasy with his ideas. Somewhere inside me feel that maybe he got the sequence wrong, it was not those debt/mortgage that made him a better person, he became a better and more successful person before he can afford those loan/mortgage.

It is a popular idea to divide debt into good debt and bad debt nowadays. Good debt by definition is the debt that can earn you money, create more cash flow for you, bad debt is the opposite side of good debt. Accumulate bad debt is easy, just go out there and buy that fancy car or that latest gadget on the shelf on credit when you have no idea how to pay off the other two credit card that you has used up their credit limit. Good debt is a bit tricky, I read a few books on this, and I still confuse. The idea seems to be you borrow money  you don’t have to invest in investment vehicle that nobody can guarantee its return. If return on investment of that vehicle is higher than the interest on the money you borrowed, you are called ‘leverage’ else you are ‘over leverage yourself’.

Right now, I am not ready to take on double risk for my own personal finance planning. Saving accumulation still the number one priority on my list now, professional development for a higher paying job is second on the list. Sometime I get into discussion with friend about whether high saving rate or high income is more important, that discussion always ended both parties agree that both are important. With living cost in Singapore maintain at certain level, you cannot have a high saving rate if your income is too low. In theory, a person with a monthly income of 10K, A and saving rate of 80% is having the same live style as another person with monthly income of 2K, B and no saving. In this case, if B is able to increase his income without increase his expense, his saving rate will be growing without his knowing and not affecting his life style.

Back to the topic of debt, sometime people don’t realise the effect from their purchase. Take smartphone as an example, a decent smart phone can cost up to $1000 now. Assuming a typical consumer change their phone every 2 years, which means he has a monthly instalment of about $42. This instalment is permanent unless his behaviour changes and stop chasing the latest gadget every two years. Now let’s see what did he gave up for that smartphone. In order to produce that same $42 every month with a investment vehicle that return 5% per annual, he need to invest ($42 x 12)/5% which means $10080 invested.

Of course I am not suggesting that you are not allowed to buy a phone unless you have $10080 accumulated in your investment. You are free to spend your money anyway you want since you have put in the hard work to earn that money. I just hope that before you make decision that will affect your monthly cash flow, you are fully aware what are you buying into and you are perfectly comfortable with that.

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What does retirement means to me

I am born in year 1981, age 33 this year. There is a term used to describe people born in my birth year, Generation Y. For me I believe it is just a convenient way to categorise people when organising a marketing/sales promotion event. People in every generation is still mainly influence by the macro economic situation they are in  during their living, for people live in wartime, survival is the mostly talk topic, how to create food and fulfil our needs with minimum resource was not deem as cheap skate but a virtue.

People who grow and live in time when there is no war but stable economic year by year have much different mindset. Working for decades to enjoys life for a few years or months is the norm in that generation, people mostly stay in one company for decades, collect their pension after decades and start enjoying life.

We who are living in unstable(some call it dynamic) economic environment has a much different inspiration. Many of us won’t be staying in one company for decades, maybe not even years. We are in the greatest time but also in the worst time in the history. Every few years come a financial crisis, every financial crisis bring about lay-offs, retrenchment and at the same time bring about some great investing opportunity. Our society has divided between those has and those has-not. It is not longer young people that remain working and old people who are retired. We see more and more young people(some early 30s) retire in their own term and we see more and more elderly are forced to work beyond traditional retirement age,  maybe even till their death.

In order to survive and prosper in today society, we need to figure out how does the money system works. Saving without investment obviously does not solve our retirement puzzles these days. With the inflation remains high and strong, our saving can easily be eaten up with our knowing . There are a few traditional ways in investment, namely stock market, real estate and business(I meant run your own business here). In order to survive and retire in our generation, it has became mandatory for us to invest our money wisely. Stock market has become the favourite of the investor(in loose term) due to its lower barrier of entry compare to real estate and business. However it does not means it is easy to master the art and science of invest in stock market.

In most simple term, buying a stock is buying a piece of a company. You casting a vote of confidence into the company of your choice, betting that it will earn a profit and share with you that pool of money it earned from its operation. If you are determined enough, consistently putting money into stock market and buy some large corporation stock for long term can bring you great return. After certain number of years, the return/dividends from your stock holding will exceed your annual expense. By this time, we enter the door of financial freedom, we take back our time, we can decide what we want to do with our day. I believe everyone will be a even more efficient and effective worker if it is their choice to spend their time in office rather in the park.

Having the choice to do the things that you find it meaningful is the most important benefit I like to have in my retirement period.

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Living like a student?

Most of us had student life, it was the best part of our part. That was the time when we were young and energetic, full of ideas and with all kind of possibilities. That was also the time we have no income, depend on our parent for daily needs, watch out for our spending and plan months ahead just to get a concern ticket or a trip to the town.

Seriously, I like those years. I like those years where we were less financially educated but we are causing less damage to our financial self. I like those years where resources were so scarce for us (parent weren’t rich), but we used our creative mind and hard work to earn our reward. We were fearless, we were hardworking and we were ambitious. We worked our tail off for something out of interest or passion, not money, we don’t spend money on unfulfilling stuff because we were busy working and chasing our dream.

Fast forward 10 years, everything changed. Most of us had been through the ultimate test of life called career. Career is a abstract word, an idea this society want to push into our head. And most of the time, how successful you are in your chosen career is measure by how much money you make in this particular career. At this point of life, you have the most earning power of your life, you felt compelled to reward yourself after all the job well done, you stopped watching every little spending in your life because it just doesn’t worth your time. You have money but you don’t have (enough)time for the things you like to do, the people you like to spending time with and read the book you have been wanting to read.

Sometime I wonder is this the life I want for the rest of my life? Working hard to earn the dollars and spend them all in the next moment, then repeat this cycle. Or should I work hard to earn the dollars and ask them to work even harder to produce more of themselves to serve me?

Either path is a choice, it is a choice we all have to make and we all had made in our daily life. Every time you make a decision, you are making that choice, no good or bad, it is just a choice. As I always said, there is no problem, only project, there is no failure, only feedback.

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6 financial habits you should have to retire early

1. Value your money

Every single dollar represents the hard work, time and energy you put in your work and every single one of them has the potential to grow. If you want to retire early, value your money when you are making purchase decision. You have exchange your time for your money, and since your time is finite on this world, wouldn’t it make sense to make good use of them?

(Facts: 1 dollar a day invested into an investment vehicle with 10% return will give you 1 million dollars in 56 years).

 

2. Control

Take control on every cents that flow in and out from you. Do some extra steps every time you are making a purchase.

i. Compare price between sellers offering the good you are looking for.

ii. Ask for discount.

iii. Check your receipt, make sure it is correct.

iv. Balance your income and expense, know where did your money go to every month.

v. Evaluate your expense at the end of the month and look for improvement can be made to your expense.

 

3. Save

Obviously, if you don’t have any saving, you can’t retire in any modern society since it takes certain amount of money nowadays to get the goods and services needed to live our life. So, are you at least trying very hard to save 10% of your pay check if you are on low income and 30-50% of your income if you are on higher income? Cut down the number of credit card you are holding helps in this aspect, just keep one credit card with you and cut the rest. There is some statistic shows that this action alone can helps to cut your spending down up to 30% in the next 12 months.

 

4. Invest

With the inflation at the rate it is at now, it make sense for us to invest our money in investment vehicle that produces the money needed during our retirement period. Index fund, stock, property, insurance policy are just tip of the iceberg in them market of financial product. As always, we should be familiar ourselves with the product we are going to invest our money with before making any move.

With internet, there are abundant of information available free online for us to do our research. Interaction with other people with the same mindset or made the investment before us helps us understand more about what are the return and risk involved in the investment vehicle we interested. Bottom line, do your home work before throwing in your money.

 

5. Earn

The most valuable thing we can invest in is ourselves. Points mentioned above are important when manage out personal finance but all those come from one starting point, you. Increase you earning power is much more important and definitely helps in speed up your early retirement. As mentioned here, how fast can you retire depends on how many percents of your income can you save each money. And I believed you will agree with me that it is easier to save 80% of 10K than 80% of 3K.

So, explore ways to build more income streams, strengthen your professional ability and earn more from your daily job are definitely ways to consider here.

 

6. Protection

In our journey to earn our capital to fund our retirement, we need to get ourselves covered against various risks that are outside our control. Illness, accident and hospitalization are few major risks we need to take into consideration. Take some time to read about which policy should you take up to transfer those risk to insurance without burning your pocket every year, over the years.

Be careful with every policy your adviser recommended to you, take the time to research the policy and make sure it fit your needs.

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Filed under Insurance, Save, Spend

What is mortgage teaching us?

Mortgage is one of the loan that having the longest loan tenure, lowest interest rate and most neglected commitment. I guess it is partly because it can be extend to 30 years or even 35 years and its monthly payment is so low. There are even countless advice teaching us how to choose a suitable loan package, how many percent of our salary should we direct to mortgage payment and how much we can afford.

For the past one year, I have been looking around for a place for my parent who are now staying in Malaysia. This was not in my retirement plan before because investment income is more important to me. To me, having investment income actually more stable than buying a house now. For example, if you are paying RM 989.74 a month for your RM 200,000 mortgage for 30 years, you are paying in total RM356,307.44. The interest of the mortgage alone has cost you RM 156,307.44 over 30 years( see image below, calculation from http://www.calculator.net/).

mortgage cost

At the other hand, RM 240,000 invested in an investment vehicle with 5% will give us RM 12,000 yearly and cover that mortgage for years to come. Currently, my savings is still quite low after paid off my student loan. I am still in the stage of saving money to accumulate at least certain amount of capital before I can try my hand on investment. There are many resources on the web now that provide basic knowledge on investment, teaching us what is stock, option,mutual fund, index fund, etc…  I am planning to spend some time on learning all these basic before I start putting in my own money into any market.

Renting or buying is always a debate topic when we are talking about housing. One simple rule of thumb when you are deciding whether to rent or buy a place is the property price. It is wise to rent when the property price is high and it is wiser to buy a house when the property price is low. How to decide whether is the current property price high or low? It depend on you, if you think you can afford the house, it is low, else it is high. It might sounds like a irresponsible advice here but it is also true because everyone situation is different. Only you yourself can decide whether you can afford a house, keep in mind that buying a house involves cost during the transaction and also renovation cost before you are even in the house.

Renting a house will not give you all this cost and you are free from all the hassle that come from owning a house. Another benefit come with renting house is you can choose your neighbor. If your neighbor happen to be some crazy people that like to making noise during the night, you can easily move to another place when your rental agreement expired.

 

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Filed under Debt, Passive Income, Save

How to spend your money

Every now and then I heard words from people like “what is the point of saving money and suffer?”, “Money earned are meant to be spent”, “Enjoy life while you can”, or “Money is always dropping in value, might as well spend it now rather than later”.

The keyword in the statement “what is the point of saving money and suffer?” is suffer, I am totally agree that we should not suffer on the journey to early retirement, but I cannot see the link between saving money and suffering.

The keyword in the statement “Money earned are meant to be spent” is spent. I also agree eventually we will spend our earned money one way or another, but I believe it is very important how to spend our money.

The keyword in the statement “Enjoy life while you can” is enjoy. I believe most of us like to enjoy life more than we like to suffer, but I also believe we should not link enjoyment to big spending. Time spent with friend and family, time spent with church mate in gathering, time spent in church or time spent in free public event sometimes bring more enjoyment than concert, beach party. At least it is applicable to me. 🙂

Last but not least, the statement “Money is always dropping in value, might as well spend it now rather than later” is really making 50% sense. The first part of the statement is definitely true for the past few decades, money is always dropping in money due to inflation, change in fiscal policy(every heard of QE4?). For the second part of the statement, I think instead of spend off our money, we should direct them to earn more money for us. Make them our strong soldiers in market and produce more soldier to defense our personal finance castle.

In my opinion, there are three ways to finance our spending.

1. Pay on credit

This is the easiest way to finance a spending and also the fastest way to build up your debt. The 24% p.a. interest on credit card and all the late payment will quickly build up to a huge amount of debt without your knowing if you are not careful.

2. Save and pay

You know what you want to buy, and you get the price of the item. You start save up your money every month. At the end of few months or few years, you buy your target item with your saving. You wiped out your saving but you don’t incur any debt too.

3. Invest and pay

You saved up your money, you invest in a investment vehicle, and you get paid with interest(indirectly from people using method 1). You finance your spending with your investment income. By using this method, you don’t incur debt, built up your capital and own your target stuff.

So, which method do you prefer?

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Why I stopped saving money into piggy bank.

Recently I have stopped saving my small charges into my piggy bank, I started to find it time consuming and meaningless after my previous experience from my last saving.

I used to put my coins into a medium size bottle to save up those small money instead of spend them. Due to my habit of record down my income and expense, it become a double time consuming habit for me. I need to record down that saving as expense to make sure my cash flow record is correct at the end of the month, and I cannot deposit those coins into my saving account because I didn’t know there is charge to deposit coins in bank. So I have to slowly spend those coins at daily life and it become quite a hassle to me because I either need to record those coins as income in my cash flow record or minus them off from my spending.

After that experience, I realized putting coins into a piggy bank is quite a meaningless action because that action actually didn’t increase my saving and it actually increase my burden. Of course this is because I have the habit of record down every of my expense. So if you are not as extreme as me when come to record down your income/expense, you can try cultivate a habit of putting your small charges into piggy bank. It does give you some sense of achievement when you are seeing your coins are building up.

In my opinion, instead of saving coins into piggy bank, become more sensitive to your spending is more helpful when come to accumulate your saving.

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3 Things I Learnt When I Was Researching Medical Insurance

Over the past week, I was busy researching medical insurance for my family. It was a tedious project because there are so many companies offering so many different policies. Contacting the insurance company and study the information provided pose a big challenge to me since I am not in the financial industry. There is something I learnt during the process that I like to share with you all here.

1. Deductible

Deductible is a fixed amount of money you must pay out of your own pocket before you can claim from the medical insurance. That means you take up some risks onto yourself and not pass it all to the insurance company. The incentive for you to do this is lower premium for the medical insurance (sometimes much lower).

2. Co-insurance

Similar to deductible, co-insurance is a percentage of medical bill you need to bear when claiming from insurance company, it could be 10%, 20% depend on the plan you choose. As expected, higher percentage of co-insurance offer lower premium for the insurance policy

3. Cashless VS non cashless

In Malaysia, there are 2 type of medical claim, namely cashless and non-cashless. In the cashless option, you are given a medical card and you probably have no need to pay cash out of pocket if any medical condition/emergency come up. In the non-cashless option, you will have to fork out the money first to pay the bill and then claim them from the insurance company.

Cashless option is not only an option of convenience because it actually helps you to manage your personal finance in a more flexible manner because you do not have to keep a certain amount of money (after co-insurance and deductible) to handle medical condition or emergency. This convenience and flexibility also costs you money, with cashless option came higher premium.

Summary

Although you can enjoy lower premium by taking up the risks and lock up certain amount of money (to handle deductible, co-insurance and non cashless option), but you need to consider how much risk can you take. Things you need to consider here:

– Your current saving

– Your parent health condition

– The long-term cost of the insurance policy

– The long term expected return if you invest your saved premium

Everyone situation is different, and you have to decide for yourself which factor affect you more.

For example, if your parent is healthy and you have a pile of saving, maybe you can consider a higher deductible, co-insurance percentage or even non-cashless option. Another person who just starting to build his saving might need to consider other option instead of the suggestion above.

All being said, the first thing to do before taking up insurance policy would be does some research. There are so many insurance companies around and they all offered different policy. A simple Google search return me with more than 10 companies offering medical insurance and they are all different in price and benefits. I think it will never be a perfect policy but a most suitable policy for your current situation. There is nothing wrong to compare price and benefits offered by various insurance companies in the market now because this is your money and health we are talking about here.

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How to Save and Spend Money

It is pretty difficult to not spend any money at all to survive in the world we are in right now. And it is important for us to strike a balance between spending and saving money because most of us does not have unlimited amount of money (who does?).

There is always one more bill that waiting for you to clear every month and you never seem to get ahead of them, instead you seems to getting more and more far behind them. You start to feel frustrate about current situation and lose hope in the future, and you cannot imagine you retirement life (if there is any).

Sometimes, it is very difficult to strike a balance between spend and save money because they always seems conflict with each other. Do a little exercise below and see if helps:

1. Take out 2 pieces of paper, one titled Spend, one titled Save.

2. On the Spend paper, write down the first answer come to mind when you ask yourself “why did I spend money?”.

3. Then continue to question the answer pop up until you run out of answer. E.g. if the answer to “why did I spend money?” is to entertain myself, ask yourself “why I need to entertain myself?”

4. Do the step 2 and 3 for the Save paper.

5. Most of the time, the final answer should be quite close meaning to each other (healthy vs lively or happy vs enjoy).

6. While looking at this 2 papers side by side, checking that feeling written on it, observe how your feeling changed when you are reading them.

7. Tell yourself that spending and saving are both aiming for the same end result, after this session both of them will combine together so well, working together so well to help you achieve better financial habit, help you gain more focus on achieve your purpose and erase those internal conflict in you when you are making a purchase decision.

This little technique has helped me to increase my saving rate and clear my debt. And I hope it can help you achieve better (or suitable) balance with your spending and saving too. Let me know if it helps.

Thanks for reading

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