Tag Archives: spend

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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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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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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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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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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