Tag Archives: debt

How to approach your student loan repayment (or any other debt)?

I came across a forum post talking about student loan repayment, the writer is asking for people to partner with him and held him accountable for his own student loan repayment schedule. I paid off my student loan last year, below are some of the things I think will help you if you are setting goal to pay off your student loan.

1. Calculate how much money do you need to pay back

This is the first and most obvious thing to get clear with before you start any repayment. Go to your online banking account, pull out your bank statement, call your bank to confirm the outstanding balance of your loan. Don’t try to do any of the steps below before you completed this step.

2. Set your mind on a target date with timeline & plan

Nothing get done until you get serious. Setting a target is not enough to achieve what you want to achieve, and this apply to your journey of student loan repayment too. After getting know how much you need to pay back to the bank, draw up a repayment schedule that is suitable for you. Be a bit more aggressive on the schedule by looking at your disposable income. For example, if you are able to fork  out $500 every month to repay your student loan, set a goal to fork out another $100-$200 every month for the same purpose. This might give you a little pressure but this is also a good opportunity for you to learn how to spend your money effectively and efficiently to support your life.

3. Do it together

Depends on your preference, you can invite your friend who are also have the same desire to pay off their student loan to embark on this journey together with you. Accountability to another person will ensure your chance of success because it give you a reminder every time you want to spend money on unnecessary stuff. You and your buddies also can encourage each other during this challenging period.

4. Take up second job

This is optional I would say. If you have a promising job, I suggest your give your 100% in that job and performs the best you can be at that job. However, after said that, take up a second job does few things that beneficent to your repayment target. Firstly, it will give you some extra income to put into your loan repayment and speed up the process. Secondly, you might be able to learn some new skills in second job that compliment your main job. Third benefit is not related to loan repayment, you might be making new friends on the job and expand your network.

5. Live frugal but comfortable life

Although I think this go without saying but I will mention here anyway. Frugal means different thing to different people, so I won’t be defining how should you live then be considered frugal. Bottom line is you are comfortable with the life style and spending habit you chose and willing to responsible for the outcome without blaming other people when you are unable to achieve your goals.

Other considerations

Well, we can always expect the unexpected to happen in life…

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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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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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Filed under Passive Income, Save, Spend

A Financial Question That Cannot Solve With Financial Solution

If you shop around credit card market frequent enough, you will see many balance transfer offer from the banks. The basic idea of balance transfer is help you “save” on the interest you might need to pay on the balance you have in your credit card. Instead of label bank as evil money sucking machine, let us focus on the problem itself, why is the balance there in the first place.

I have been reading a lot of personal finance blog when I was searching for ways to clear my student loan and have received many ways to manage debts. Some suggested paying off the smallest loan first, some suggested paying off the loan with the highest interest rate. They all are decent advice that either make emotional sense or financial sense after you incurred the debt. What are missing is why are we in those debt in the first place.

Lack of information
I made my first loan commitment decision when I was 21 years old. The loan application form came together with my university admission form. The offer was an good opportunity for me at that time to receive tertiary education and secure a better future. I was able to complete my education with that loan in 3 years and went into job market with a degree scroll in my hand.

What I am missing when I graduated from the school was student loan also a form of debt, it bears interest rate and costing me more than $100 a month when I was paying $200 per month to the bank. I was ignorant and totally ignoring the fact that “$200 per month” is costing me a lot in long run. At the same time I received advice from relative and friend saying student loan is good debt and since its interest rate is so low, there is no rush to pay off that loan. This definitely not a good advice among all the advices I received over the year.

Back to the credit card balance scenario, I believe most of the people have realized what credit card offered was not free money, it bears interest rate and the interest rate is very high, up to 28%. We should view it as a convenient tool to pay for our purchase rather than free money from bank. Making just the minimum payment per month is not acceptable at all because with the finance charge and future purchase you are going to make, it will cost you three arms and four legs to pay off that debt.

So, if you are feeling you are not getting ahead in your debt management, it might be helpful to filter the information you receive and really plan something that working for you and you only. But I think the universal solution to debt is always pay it off as fast as possible and no excuse should be made.

Brainwashed by marketing
We are all influenced by marketing at various level and I believed nobody can escaped from it. The question we need to ask ourselves is whether the product presented to us really helps us in the long term or it just give us a sense of excitement for 3 days before we get bored of it.

I experienced this process with my iPad 2 purchased 10 months ago. It gave me maybe up to a week of excitement for owning it and I rarely use it nowadays because I mostly works my stuff on my laptop. I believed I am not the only one who with this experience because I read so many buyer remorse review on the web and from my friend.

It is very difficult to avoid marketing or advertisement in today world. They are everywhere wherever you go. One of the method I like to use now is delay my purchase decision. Put the items you intend to buy into a wish list and wait for 3 days (or whatever numbers of days that works for you). If your desire and justification is still strong after 3 days, and you have fully understand the benefit from that product, it should worth your money and effort.

Lack of planning
Things happens. If we view our life as a long period of time, things happens. It might be an accident, illness, job loss or opportunity. Whatever it is, it require fund, sometimes a lot of fund. Insurance in this case is a must for all of us (unless you are so poor that you don’t ever know where your next meal is). The idea of insurance is to insure us against financial disaster we are unable to take it. For example major illness or serious accident that take away our ability to work and costing us a huge amount of money.

Other than insurance, an emergency fund should be save up to handle any less intense incident happens in life. For example job loss or some other unexpected family expense. The size of the emergency fund vary among each individual due to different lifestyle but a fund with size equals to 6 months of your salary should be enough yo tide you over those unexpected incident.

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How To Simplify Your Life

I was walking home from bus stop just now, and because of the time, there are not many people walking on the street. So I start brainstorming what can I put onto my blog tonight. But I didn’t manage to come up with any brilliant idea during the journey home. So, I just keep walking while enjoy the mild breeze along the street. Then an idea struck me, why don’t I just write about simplifying our life. I realized one of the things we need to do regularly on our journey to early retirement is simplify our life. Our time and energy are limited, it will be unsustainable for us to pursue too many thing in life and the best thing in life normally just a few and won’t cost you much money to get them. So how do we organize our life?

 

Identify Core Activities

First of all, we need to identify that few core activities that contribute to most of our happiness. This should be easy because we tend to spend most of our time doing this few activities. For me it will be reading, badminton, basketball, and meet up with friend/colleague for meal.

Try not to list your TV watching habit as one of the activity, because this activity really does not bring much benefit to you in my view. When you sit down in front of the TV, your body shut down, your mind slow down, and you start to engage yourself into the TV drama that showing some fake life of those actor/actress. In between the drama you get to “enjoy” those free commercial by various company that try to sell you things you don’t need. With all the 0% installment plan shown on the TV and those free credit that lying around your house, you will stack up your debt bill till 2 buildings high in no time.

Also, based on a research done on the Australia population, compare to a person who don’t watch TV, a person who watch 6 hours of TV a day can expect to have 5 years cut off from their life. It literally meant you will live 5 years less and we are not ever counting the time and money you spent while watching TV.

 

Choose A Few

Make your choice from the list above; choose a few activities that match your expected return (happiness, cost, time). In this phase, you might want to cut down a few that cost you too much but without much return. For example, I seldom attend gathering that involved drinking unless it is a company event. To me, drinking is not an activity that brings me a lot of enjoyment; it is always the attending crowd that interests me. Interesting people are more important than expensive wine. But by all means choose that one that cost you the most if it brings you the most value because you are supposed to enjoy life in your journey to early retirement and not suffer along the way.

 

Review

If you cannot let go any of the activities you listed, then don’t do it. You just need to cut down on those with lower return to you. For example, maybe you enjoy playing squash but playing it 3-4 days week is too much of a commitment either to your body or to your time. So, maybe you want to consider cut it down to once or twice a week. Also, you can review the list in term of money needed for each activity. Although happiness is the number one consideration during your review, you can still consider making some adjustment to each activity on the list to cut down on your spending.

Consider add in one exercise into your daily routine, it will not need to be an intense workout, just a slow walk with you dog (if you have one) will do. And the time needed is just 20 minutes to half an hour. I think a daily half hour investment into your health should be a reasonable and wise choice for you.

Lastly, check out this video below, it contain some interesting information you might be interested to know:

 

How many hours have you walked today?

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Filed under Health, Personal Development

How To Earn Money From Credit Card

From the past 2 years, banks have started offering their credit card to consumer with some cash credit thrown in. Consumers need to fulfill certain condition to enjoy that cash credit, normally that involves consumer to complete a successful transaction within the first month of the card got approved.

What is cash credit? In simplest term, they are free money that banks deposit into your credit card account after you met certain condition they set. The amount of cash credited into your account depends on which bank offer you took on, it could be $40, $50, $80 or even $160.

Some of you might ask, why are the banks giving out free money? It doesn’t make business sense and is there any gimmick or marketing plot behind this offer? I don’t have the numbers to back me up, but I believed the banks has run their number before this promotion and they knew what kind of revenue/profit each credit card holder would generate for them.

What I am more concerned is how can I benefit from all these offers? It turns out pretty simple, I took up the offers from MayBank, Standard Chartered Bank, ANZ Bank and HSBC Bank, they have offered $50,$40,$160 and $80 worth of cash credit to me after I fulfill the conditions:

  1. Completed at least one transaction of certain amount ($1 to $40 depends on the offer) within the first month of the card got approved.
  2. Hold the card for a certain period of time (9 months to 1 years, depends on the offer) before you phone in your card cancellation request.

Different bank has different offer, I recommend you go check out their offer on their website and see if you see something you like. It is by far the easiest way I found to earn some extra money.

Note: However, if you knew that you cannot control your spending once you get on hold of a new credit card and mostly likely end up accumulate credit card debt, then the recommendation above does not apply to you yet. The first thing you should learn is how to reduce your spending while increase your happiness.

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How To Clear Your Debt Quickly?

//An old post of mine, a lot of things can happen in 3 years. ^^

Debt, the word that I believed most of us doesn’t like its existence in our life (unless you are the fan of “Good Debt, Bad Debt” and you are obviously holding a lot of good debt).

What I am going to talk about in this post is bad debt/consumer debt. This category of debt includes credit card debt (swipe your card, buy that 48 inches LCD TV now, the discount only last 3 more seconds!!!), car loan (buy the biggest car you can afford that impress your friend and get stuck in traffic jam every morning during peak hour….), student loan (this loan category is a tricky one, it can be a good or bad investment, and I will put my thought on it later).

Face Your Debt

Obviously, the first step in clearing your debt would be know and acknowledge your debt situation. Consolidate the amount you owed on each debt category from the highest interest rate to the lowest. Remember not to put any emotion when you are doing this activity, there is no point to put the blame on yourself on the past mistake you made, what you should be focus now is make the decision to correct that mistake.

Pay The Highest Interest Loan First

There are many suggestions floating around the Internet on how to prioritize your debt repayment. Some suggests you pay off the debt with the smallest amount to build up the momentum, and there is others suggest you to pay off the debt with highest interest rate. To me, the second suggestion made much more sense and that forms my debt repayment plan.

I am focusing on paying off my highest interest debt (student loan with an annual interest rate of 4.75%). I am holding a minor credit card bill right now but I am not so concern with it because it is a 0% installment plan. I just have to make sure I make the payment every month and I am safe.

Prevent The Leak

Fortunately, my spending habit was already quite frugal, I don’t pay interest on my credit card bill (there are not many product that target single guy), I don’t own a car (you don’t really need to own a car in Singapore and here is why), I cook my own lunch, cycle to work, sleep earlier (this not only helps your body to have adequate rest but also make your wallet thicker since you have less time doing shopping).

The initial amount of my loan is about SGD$15,000 each (Yes, I took up two loan to finance my study). I paid off a grand total of SGD$8,000 in the first 7 years after my graduation (July 2005 to July 2012) and that left me with a balance of SGD$22,000 in July 2012. And I decided to get serious to pay off that loan, I monitor my spending closely, increase my income when opportunity arises, cut down on unnecessary spending, grows my saving.

5 months later, I reached my first milestone in paying off my student loan, I paid off one of the two student loan on me and I am now officially down with just one student loan with the amount of SGD$11,000 (annual interested = 4.75%).

Get Serious

From that little story of mine, I would like to bring up my point in clearing debt quickly, which is get serious. If you are in a debt situation, no matter is it a credit card debt, a car loan, a student loan or even a housing mortgage, it is a debt that bank charge you interest every single day, it should be the first item on your priority list. You should not be in dilemma when choosing between your new fancy smartphone and your debt repayment; there is no point on deciding where to put your furniture when you house is on fire!!! Put out that fire of debt that is burning your early retirement house first before you decide what investment furniture you want to put in the house.

While you are on the way to clear your debt, help yourself by not taking up even more debt, especially credit card debt (this is by far the easiest way for an individual to acquire a consumer debt, just swipe your card and you are $2,000 in debt immediately…).

Also, don’t let those balance transfer deal confuse you. It didn’t make you debt go away, it merely change the ownership of your debt. You still need to know your debt amount, get serious in pay off the debt as quickly as possible. Balance transfer is just a short term solution to help you avoid incurs high interest (up to 28%)on your credit card. If you are currently paying 24-28% plus other charges on your credit card debt, then it might make sense for you to jump around the balance transfer deal while you are working to raise the fund needed to pay off those debts.

So here are the few things I think we need to know to clear debt quickly. The things outlined in this post might be proved too simplified or too complex for your situation, please leave your comment in the comment section if you came across with some great idea on clearing the debt.

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