Tag Archives: spending

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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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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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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How Much Does Your Life Worth?

“Your Money Or Your Life” is one of the personal finance books I read during my undergraduate time. The ideas outlined in the book were new and interesting to me during that time, particularly the ideas of “real” hourly pay and life energy.

If you haven’t read that book, you might be asking what the hell is “real” hourly pay? Is there a “fake” hourly pay? Well, let read on and see whether the answer will surprise you.

The idea of “real” hourly pay is simple; it basically means you need to consider your extra expense and time you incur when you are holding a job when you are calculating your hourly pay.

For example, if you are getting $1,600 a month, working 20 days per month, 8 hours per day, you might come to the conclusion that:

Hourly Pay = $1,600 / (20 X 8 hours)

= $10 per hour

1.) Traveling: 2 hours per day, 40 hours a month

When calculating your “real” hourly rate, you will need to consider the time and money spent due to you holding a job. For example:

Unless you are the minority who are working from home, you will spend some time every workday travel from your house to your work place. Assuming you spend 2 hours per day traveling to and fro your workplace.

2.) Business attire: $100 per month

Obviously you won’t be wearing your T-shirt and short pant to impress your boss and client when you are climbing the corporate ladder. So, let’s assume that you buy a decent business attire every 2 months, and that cost you $200.

3.) Business lunch: $4 a day, $80 a month

Let’s face it, packed lunch at workplace are more expensive than your home cook meal. And we are not even considering the health issue involved if you can only get junk food for lunch around your workplace. Let’s assume that you spend $4 more a day if you buy your lunch from workplace, and in a month, it is $80.

4.) Relaxation: 1 hour and $5 a day

So, you finally finish your work, you sit through the peak hour traffic jam, and step into your house. Are you coming home more energized that the morning and all ready to spend quality time with the family or you are insanely busy at workplace today and you need a beer/popcorn/cake/TV to relax yourself first?

I am guessing here, let just say you spend one hour and five dollars a day to relax yourself after work, which is 20hours and 100 dollars in a month.

5.) Work related sickness: $100, 10 hours per month

Do you have any work-related sickness either physically or emotionally that require long-term treatment? Let’s assume you spend $100 and 10 hours a month to treat or prevent work-related sickness.

6.) Others: $100, 20 hours per month

Any other expense that you think is work-related in your situation? Childcare? Laundry? Housekeeping? Car maintenance? Time spent on fighting with your partner due to stress at work? Everyone’s situation is different and you will have to find out yourself what other expense (either time or money) that occurs because of you holding a job. For the ease of calculation here, I will pick an arbitrary number of $100 and 20 hours per month.

So, now let’s calculate your “real” hourly pay:

Monthly pay: $1,600

Working hours: 160 hours

Traveling: 40 hours per month

Attire: $100 per month

Lunch: $80 per month

Relaxation: $100, 20 hours per month

Sickness: $100, 10 hours per month

Others: $100, 20 hours per month

The “real” working hours = 160 + 40 + 20 + 10 + 20

= 250 hours

The “real” monthly pay = $ 1,600 – $100 – $80 – $100 – $100 – $100

= $1120

The “real” hourly pay = $1120 / 250

= $4.48 per hour

So, here you are, your “real” hourly pay you are getting now. Is it less than what you expected or more than what you expected? The idea you need to keep in mind here is remember every time you spend $4.48, one hour of your life energy investment is gone forever. I bet you will think twice next time when you see that fancy smartphone that cost you 40 hours of your life!

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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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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 Reduce Your Spending and Increase Your Happiness?

Track Your Expense

So, you have been tracking your expense for maybe few months now, and you got your own answer to the question “ Where are all my money gone to?” You know you have feed that little cute vending machine near your office way too much money for whatever value it provided you.

Looking at your “real” hourly pay you are getting now, I bet it should not require any effort to convince yourself that which expense is essential to your long term happiness, worth the life energy you pay for it and which expense is nothing but impulse purchase that provides only short burst of satisfaction to you.

Ask Question

Ask yourself the right question to determine your spending plan. What is the more efficient way to use my money and my time? Buying expensive junk food as lunch at work place and gobble down the food without knowing its taste or cook your own less expensive healthy lunch and enjoy every mouthful of your food? Spent your time in your car stuck in morning peak hour traffic jam or cycle to work with a decent bike and get some exercise at the same time?

The word necessity means different meaning to different people at different phase of their life. The principle to retire earlier is simple; there are only 2 variables involved, your passive income and your expense. You can work toward increase your passive income or learn how to reduce your expense. I recommend you direct the money you saved from reduced spending toward paying off your debt if you are holding any or invest for passive income to achieve your early retirement goal, at least this is what I am doing right now for the time being.

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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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