Category Archives: Spend

Articles on spending

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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4 Pillars of Early Retirement

The journey to your early retirement doesn’t have to be complicated, and sometimes it doesn’t require big change to your life. You simply be more aware of the decisions you made and doing more and better the things you have done right so far. Basically there are 4 pillars you need to take care of before and during your retirement:

1. Income Generating Ability

Money plays a very important part in your everyday life nowadays. Gone are the days where human can survive on the land they reside on and the environment around them. Unless you inherited a big pile of money, we all need to start from the same starting line when come to generate income.

If you were like me, you would be working for a company serving their customer. For the most of us, this the primary way for us to generate income. As saving rate is very important when we talk about retire early, the amount of income you are able to generate every month directly affecting your pace.

For example, it will be easier for a person who earning $120K per year to achieve 80% saving rate compare to another person whose annual earning is $24K. Although monthly income plays a very big role in determines the speed you get to your retirement, there are 3 other crucial pillars in life you need to develop.

2. Investment/Money Management Skill

I recall from some book I read before that financial education is very important in today world. Although I don’t agree his condemn on saving money, his words make some sense about getting ourselves financially educated. Currently I am reading few books recommend by people in this forum post, there are a few online free courses on investment and money management too.

3. Life Skill

Time is money. If you have a lot of money (like few millions dollar), you can really buy your way to your retirement. If you are normal person like me, you will need to invest some effort to learn skill that enhance your life without spending money (or maybe little money).

In my view, cooking skill being one of them. Other skills that I deem essential are cycling, various house improvement skill (paint your house, plumbing, flooring, appliance installment, etc…) and planting(grow your own natural food, good idea?).

4. Frugality

This is one of the trickiest pillars that hold your early retirement. With frugality (whatever your definition is for this word) in place, you won’t need as much income to fund your retirement. I am pretty confident I am doing quite well in this pillar. My expense last month is as below:

Rent: 8.51%

Parent: 8.76%

Food: 7.09%

Transportation: 3.55%

Credit card bill (2 more months to go!): 6.17%

Change to RM: 3.55%

Others: 0.5%

Saving (all going to loan repayment): 61.78%

I foresee my expense will go lower after I pay off my credit card bill and personal loan from my sister (thanks sis!). My transportation cost will go down also if I successfully execute my experiment.

So, I estimate my expense structure will be:

Rent: 9.22%

Parent: 8.76%

Food: 7.09%

Transportation: 1.77%

Change to RM: 3.55%

Saving: 69.61%

I am pretty happy with my progress now (retiring in 8.5 years sounds really good.^^). But I want to go further. I hope to achieve 80% saving rate and retire 3 years earlier. My focus now will be on increase my income because I think I have nothing to shave from current expense structure now and the only way to increase my saving rate now will be either increase my income or create another auto pilot income source.

Now is your turn to make decision. Decide which path you want to take to increase your saving rate and have more freedom now.

 

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Why It Is Important To Define Your Enough

We briefly talked about needs and wants in previous post, why I like the idea of early retirement extreme. We know that there are no needs or wants; it is just people value that determines what kind of consumption level they want. Below is the list I used on that post:

1. Dumpster diving.
2. Heavily processed food.
3. Home cooked food from pre-packed ingredient.
4. Home cooked food from fresh ingredient.
5. Food from hawker center.
6. Food from food court.
7. Gourmet meal from restaurant.
8. Fine dining

As you should know now, the amount of money needed to pay for each item on the list are very different, literally from zero dollar to an unknown amount of dollar (I never been to a fine dining session before, so I don’t know what is the cost there). Having said that, you are not limited to choose only the lower end item from that list, in fact you can choose anyone you like. Everyone situation is different and your income generation ability is unique to yourself. Who am I to tell you which restaurant or hawker center or rubbish bin you can go to for your next meal, right?

Your number
The key point is define your ending point, this activity will in turn define your “number”, the number you needs to retire, earlier or later. Questions you can ask yourself when you are going through various needs or wants in your life can be:

1. Do I really need things from this area?
2. What kind of quality can I accept in this area of life?
3. Where can I get them at the cheapest price (or free) at the quality I want?
4. Can I learn the skill to build/grow/fix/ them myself?

Why it is so important to define your enough? Because it cost you 45 years of your life. Let me illustrate through the below table:

Saving Rate Working Years
10 51
15 43
20 37
25 32
30 28
35 25
40 22
45 19
50 17
55 14.5
60 12.5
65 10.5
70 8.5
75 7
80 5.5
85 4
90 Under 3
95 Under 2
100 Zero

Assuming you can earn 5% investment return after inflation when you are saving, you will withdraw 4% from your fund every year, you will volume down your expense during year with lower return and you want your fund last you forever. The table is showing the years you need to work with various saving rate.

How long do you want to work?
The basic idea is the more percentage of your income you saved every month, the faster you are to achieve a retirement. Say you only save 10 percent of your income every month; it will take you 51 years before you can retire. Compare to a saving rate of 80 percent, it will only take you 5.5 years to retire, this is why I am saying it is costing you 45 years of you life (actually more than 45 years).

Why the huge difference with just a few more percent of saving each month? This is because what I call twin financial effect. By saving more of your income, you are at the same time reduce the money you need to survive thus it give you the double effect.

Money does not motive you?
If the money part does not motivate you to boost your saving rate, remember that all the stuff you acquire in your life require your attention, which means your time and energy. My weakest link is my obsession with books; I used to buy up to 10 books per month, it happened whether I saw some recommendation from some blog, TV advertisement or ever conversation with friend. After I set my target to retire early, I start to look at my option. What are the other solutions I can adopt to fix my obsession to buy book? I found library. Library is really an amazing place where you can find almost all the old book you want to read and the latest book came as early as 1 month after release. With increase my library card usage, I almost wiped out the expense category called book in my spending tracking sheet.

So, what motives you to cut down your expense and boost up your saving rate? Is it your children? Is it your partner? Is it your parent? Find your enough; spend your time with them.

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How To Enjoy A Delayed Gratification

We are living in a society of abundance now, with plenty of products to chose from the market place. Although we all know that the optimal strategic is delayed gratification because the price of the product eventually go down after the initial marketing boost is over. But knowing in theory and apply it in reality is different, I guess it is in our gene to enjoy instant gratification because we human has been living in a world of scarcity for so long before the industrialization came along and boost our productivity.

So, in order to curb our desire to own everything the second we saw them, what can we do?

This is a small tip my psychotherapist friend teach me to overcome my obsession of books. Before I used this technique, I am buying about 4-5 books per month and I see no end to my obsession and I am running out of space to store all those books.

After using the technique, I am more in control of my buying desire. I am able to pause for a while before I make the purchase decision. And I am now have more patient to wait for that book to be available in the library for loaning, which does helps a lot to reduce my book budget. In some month, I ever managed to completely wipe out my expense on book purchase.

This is how it goes:

1. You saw something (be it guitar, book or iPad) you think you want to have it.
2. You look at yourself as an external party, something like another person who know what are you thinking.
3. And you tell yourself something like “ok, this me is seduced by latest product again, he is falling to the marketing plot again. When is he going to wake up?”
4. By looking at yourself as external party and asking all those question, maybe it helps to delay your purchase decision because you are not so engaged right now with the product and you can have a better judgment whether is this newer product going to add value to you or not.

Hope this helps.

 

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A Very Simple Early Retirement Plan

Although I am still in the debt-paying phase of my early retirement journey, I am constantly searching for profitable investment opportunity that is simple enough for me to take advantage when I am done with current phase and moving into investment phase. Some ideas were given to me through word of mouth, newspaper and blog:

Property

Property market in Singapore is really booming for the past few years where we see a price increase up to 2-3 times of the original selling price. And this is happening all over the island and no one know when will the party ends. Increasing property price create an investment opportunity but the high property price also means a higher barrier for normal people to invest.

Stock

Stock is the second thing come to mind when people are talking about income generating asset. If you want to buy stock in Singapore, you will need a CDP account and a broker account. I have both of them but somehow I does not feel comfortable to link my money with the fate of one single company.

Exchange-Traded Fund (ETF)

I read it first on Mr Money Mustache, after that on Tan Kin Lian blog and then Jim’s blog. You don’t link your money with the fate of one single company but the top 30 in the Singapore. No doubt there is always chance that all 30 companies fails, but admittedly they should have lower chance to fail together. One of the good things about ETF is the lower expense ratio (basically means your cost of investment) compare to the regular fund, usually less than 1% per annum.

For Singapore, I found 2 available ETF, which are SPDR Straits Times Index ETF and Nikko AM Singapore Straits Times Index ETF.  They both are having an expense ratio of about 0.3% per annum. Based on what I understood from their website, this two ETF will replicate as closely as possible the performance of Straits Times Index and can be traded like any share on Singapore Exchange. Everything seems ok with this investment except I can’t find any information about their dividend payout.

 

Ok, I think my very simple early retirement plan is getting really complex by now. With so many investment choices lying around Singapore, it seems early retirement was not so far ahead and beyond the reach of normal people like us.

So, here is what my current early retirement plan look like:

  1. Control Spending (I think I have done pretty good in this area)
  2. Clear Debt (Still working on this, 4 more months to go!!!)
  3. Invest in one of the STI ETF mentioned above (or maybe both).
  4. Keep searching for ways to builds income stream that does not require my attention (at least not full attention) after initial setup.

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How I Lived With One Dollar A Day For A Year In Singapore?

I think there are only 2 groups of people that will be interested in this post:

  1. People who like to know how did I make it.
  2. People who like to know how did I fail that.

I would like to apologize to the people from group one; actually I didn’t succeed in this challenge. I planned, I tried, and I failed. But the process to challenge myself to live this lifestyle taught me a few things about frugal living and I thought I could share it here.

In case you don’t know, I got this idea from a book written by an ordinary English teacher called Kath Kelly. The book’s title is “How I Lived A Year On Just A Pound A Day”.

The ideas I get from the book is that, it is not about limiting your choice when you embracing a new, more frugal lifestyle (from whatever life style you are having now), it is about exploring more choice you can make to your life style that enhance your enjoyment. If you are into frugal living, you might be able to relate yourself to the people in the story.

Ok, let talk about what did I learnt from the book:

Choose a cheap or free hobby

Now, this is a tricky choice and I don’t suggest you go and drop all your hobby and start spend all your time reading book in library or go walk at the park (although this two are quite a good candidate for the discussion here). The most important consideration I like to put out here is “ Are you getting the equal benefit from the money you spent on your hobby?

For example, you love badminton and you are currently joining a badminton group that played twice a week in the sport hall nearby your house. Is the money you paid for the right to play in the group worthwhile for you? Are you felling satisfied with the return you are getting? If the answer is fantastic, don’t change anything. We do want to retire early but not retire miserably.

What I am suggesting here is if you are having some hobby that costs you quite a lot of money (again, only you know how much is this) but it didn’t give you the enjoyment you are expecting, drop that hobby, choose another one. If that is a group hobby, it might be trickier. You can try convincing your group member to switch together with you but this might not works every single time.

Cycle (it means exercise) more frequently

Ok, if you are already a training freak that workout twice a day, every single day, you need to slow down. I am talking to the people who took 2 hours to think whether should they go out and run for half an hour. If you fall into this group of people, you might want to stop thinking and start running. Cycling and walking are pretty good choices if you are not exercise regularly.

But, remember that you just need adequate amount of exercise to maintain your fitness level, and over train actually do more harm to you than help. I am currently exercise every other day, my session includes 2-3km of running plus some push up and squat (with just body weight).

Maintain friendship

Human evolves over time, so does their spending. We used to be contended with just prata on our plate, ice milo on our side and we can chat away the night without feeling cheap. But somehow all this changed when we start working; we now need at least a restaurant for meet up because “it’s been long time since we last met”.

There are a lot of interesting ideas in the book; I think Kath and her friend did a picnic at the beach after she came back from France (Yes, she travelled to France when she is on a pound a day budget). They also tried things like museum opening, school fun trip and sometime they gather at library (I guess there is a noise allowed section in UK library?)

Be creative, think about what activity you can do with your friend that does not costs you a lot of money. I tried chatting with friend at coffee shop for 2 hours, that was a good night. I tried gathered with friend at beach and playing card the whole afternoon, which was a good time spent.

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How To Monitor Your Journey To Early Retirement?

Ok, you track your spending closely, avoid accidental expense, clear your debt, reduce spending using the “real” hourly pay tactic. Now, you want more, you want more indication that you are on the correct path to early retirement.

It turns out there is such tool, and you have probably seen it before. That’s right, it a chart. What I am going to introduce in this post is a simple chart I used to chart my financial progress.

Being a technical person, I used Excel sheet to do this task for me and this is how my chart look like after 6 years of feeding her my number:

My Chart for 6 years

My Chart for 6 years

There are only 3 numbers you need to fill in every month in this chart:

Your Total Income:
My method is a bit different from the “Your Money Or Your Life” book; total income in my definition includes your saving from previous month plus your total income this month.

Your Total Expense:
You can copy this number from expense tab of your expense-tracking sheet (if you don’t know what is that, read this post).

Your Investment Gain:
This is the part where you fill in your monthly investment gain. If you are getting paid yearly from your investment, divide it by 12 and enter the number here.

So, what are the benefits having such a tool? Why would anyone want to monitor another chart when they already done a good job previously?

To me, there are 2 benefits:

Clarity
By using a chart like this, it gives me an overall view of how is I doing financially. I am not having any guesswork when I want to check my progress, I just open up my chart and everything that I need to know is there.

Joy
To me, looking at all those lines on the chart is already a joy, especially when there is a upward trend in my saving line while my expense line remains low and flat.

So, I hope I have convinced you the importance of having a chart to monitor your progress and also the benefit it can brings you. You can download it here or look for it in my resources page.

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Caution! How to avoid accidental expense in your spending plan?

One thing you might encounter during the process of tracking expense is there are always unexpected expense pop up and disrupt your spending plan (insurance premium, car maintenance, income tax, property tax, etc.…).

However, if you look into those spending closely, it might not be a unexpected expense. Did it appear before during the last 3 months? Last 6 months? Or during the same time period last year?

Yearly payabl bills are the most neglected bill category when we are consolidating our spending because it don’t happen frequently in our daily live and it easily slip out of our mind. This can cause frustration when you are trying to calculate your monthly spending if you didn’t pay attention to it.

There are few ways to accommodate this type of expense into your calculation of your monthly spending:

  1. Divide that yearly payable bill into 12 equals amount and add it into your monthly spending plan. Prepare in advance every month for this expense.
  2. Keep a payment schedule of all the yearly payable bills to avoid unexpected spending situation from happening.
  3. Reduce the numbers of yearly payable bills to simplify your spending plan, the simpler the better.

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How To Keep Track Of Spending?

In order to cut down our spending, the first thing we need to do is keeping track of our spending. I have been using the tracking style recommended in the book “Your Money Or Your Life”, which is keeping track of every cent that flows in and flows out of your life. You will have to design your own unique category because everyone has his or her own spending habit and financial situation.

“Your Money Or Your Life” is one of the earliest personal finance book I read during my undergraduate time, but I didn’t followed its advice on tracking expense until 2 years after my graduation.

I used my own designed Excel sheet to track my daily expense, income, total of each category and my “real” hourly pay.

If you want to use my designed Excel sheet to track your expense, you can download it from the resource page. There are instructions on that Excel sheet that outlined how to use it to track spending.

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