How To Talk To Your Bf/Gf About Money

Money may be a difficult topic to bring up with your significant other. One of my blogger friend, Lionel from cheerfulegg, has written this guest post exclusively for SG Young Investment. Even I learnt a few tips here. He definitely has gone through this stage with his partner. Enjoy the read!

Every Singaporean couple can easily tell whether they’re in a serious relationship: It depends on whether they’ve had The Talk. You know the one I’m talking about: The one when the guy takes the girl out to a fancy restaurant, takes her by the hand, stares deeply into her eyes, and asks: “Sooooo... Do you want to apply for BTO in Punggol or Sengkang?" Okayyyyy. Things are getting serious here. But what if, after having The Talk, you found out that your girlfriend wants a $110,000 wedding? Or what if your boyfriend insists that he wants a $1M condo - something you know that you can’t afford? Would you break up with him or her? Are you letting money come between you and your partner? Are you putting a price on love?

The Truth About Money And Relationships

Many of us don’t like to talk about money - especially with those closest to us. For example, does your boyfriend know how much you earn? Does your girlfriend know how much you give your parents every month? Have you both talked about the right time to buy a car? Going over these topics can make us uncomfortable, because we’ve been taught by Hollywood that love should overcome all obstacles. It’s okay if your boyfriend racks up $10,000 in credit card debt every month, because hey, you love him, right? The truth is, money has the power to bring a couple closer together, or tear a relationship apart. For example, check out this story about a Singapore couple who spent $110K on their wedding. To pay for the costs, they racked up credit card bills and borrowed from licensed moneylenders. Their expenses for a single day wrecked havoc on their relationship for years:

Trying to clear the debts has put a strain on the marriage and their relationship, Mr Lee said. "I think we have had more fights since we got married than in the six years that we were dating."

These fights can escalate into something more serious: 80 percent of divorced couples in their twenties and thirties cited money as the major destructive factor in their marriages. I’m not bringing these stats up to scare you away from marriage - I think it’s awesome that you’re taking your relationship to the next level. But if you really want to make this work, you’ll have to make sure you’re on the same page when it comes to money. Luckily, talking about money doesn’t have to be awkward. If you do this right, it can actually bring a couple closer together. Here’s a step-by-step guide, including the exact words to say, on how to do it:

Step 1: Talk About Your Dreams

Unless you’re a weirdo financial blogger like me, you probably don’t want to start off the conversation with something like: “Okay. Let’s make sure that we channel an additional $20,492 into our savings accounts to take advantage of the additional 0.5% interest rate." If you’ve never had a serious conversation about money with your partner, it’s probably a good idea to take it slow. Talking about your aspirations is a great place to start. You could say something like:

“Hey, so I was chatting with my colleague today who just bought a house in Tiong Bahru. Great neighbourhood, near the MRT, though slightly more expensive than he expected. That made me think about where WE might want to live in the future, if we get married. I was wondering whether you’ve thought about that before?"

The exact words don’t matter as much as the topics you talk about. Focus on the BIG aspirations - the ones that matter the most to the both of you: What type of house would you like to live in? What would your dream wedding be like? What sort of lifestyle do you see yourself having after getting married? When would you like to retire? Dig deep into the details - get your partner’s thoughts on what that house/wedding/life would actually LOOK like. Remember that it’s not an interview - you’re not there to fire question after question, which can be kinda creepy. Instead, give your own opinions while seeking your partner’s. You could say something like:

“Yes, I think this condo has a fantastic modern design too. In fact, I read this article on Qanvast about how even HDB owners are renovating their houses to make them look like condos on the inside. Do you think that’s something we could consider?"

The goal is to simply understand your partner’s aspirations and to let him or her know about yours. The more details you have, the better. They’ll come in useful for the next step.

Step 2: Research The Costs

Now that you’ve understood your partner’s aspirations, pick 2-3 ones that are the MOST important to the both of you. Then, it’s time to do a bit of homework and estimate their approximate costs. Why is this important? Because anyone can fantasize about their hopes and dreams. But when you put actual NUMBERS to your dreams, it changes the conversation from, “Wow it would be so nice to have that someday….” to “Okay, let’s figure out how to get there together." Estimating numbers might sound scary, but it’s actually a lot easier than it sounds. For example, there are thousands of articles and resources online to help you estimate the costs for any big life milestone. Here are some:

• How Much Is Needed To Get Married & Start A Family In Singapore?
• How Much Would It Cost To Travel The World?
• The Cost Of Raising A Child In Singapore
• Qanvast’s Renovation Cost Breakdown
• HDB resale prices
• What Is The True Cost Of Owning A Car In Singapore?
• The True Cost Of A Wedding In Singapore

Don’t worry about being too detailed in your estimates. Instead, the goal is to get a ballpark estimate of how much your 2-3 big aspirations might cost. This should take you no longer than 30 mins - 1 hour to research. Then, take your findings to your boyfriend or girlfriend and say something like:

“Hey, so I was thinking about our conversation the other day and how we said we wanted a restaurant wedding. I did some calculations and found that it would cost us around $40,000. I’m not sure if I estimated it right, so I wanted to get your advice. What do you think?"

The intention is not to intimidate your partner with a whole bunch of scary numbers. Instead, it’s to use the numbers as a starting point to get his/her thoughts on the topic. The goal is to get your partner to agree to have a deeper conversation about money at a later date. After looking at the numbers together, you could say something like:

“I know this is just an estimate, but it looks like a wedding with 400 guests might be more expensive than we thought. I know this is important to us, so maybe we can take some time to figure out how we can get there together?"

Re-emphasize that you’re not doing this to criticise each other, but to help you both figure out how to achieve your aspirations together.

Step 3: Talk About Money And Set Short-Term Goals

The big day is here! Block off two hours on the weekend to do this, so that you’re both relaxed and unhurried. Agree to come prepared with your bank/insurance statements, and any other financial commitments you currently have. First, start off by recapping your aspirations. Then, go through your documents together to find out what your financial situation is as a couple. Is it really necessary to bring all these documents? It might seem like a hassle, but I’ve personally I found that it helps tremendously. First, it eliminates the guesswork. You don’t have to say things like “Yeahhh… I THINK I have around $20,000 in my savings account.” A quick glance at your bank statement will tell you exactly how much you have. More importantly, it sets the right tone for your relationship. When you “bare it all”, you’re showing each other that you want to be open and honest with each other - and that will translate into other parts of your relationship. What’s next? The easiest way to start is to set some short-term savings goals. For example, if you estimate that you’ll need $40,000 for your wedding in 2 years, that means you’ll need to save $1,667 per month, or around $833 each. If that sounds too high, make a commitment to put say, $300 each into a joint savings account every month, with the understanding that you’ll increase it later as your salary rises. (By the way, if you want a quick, easy way of saving more efficiently - I also wrote a mini ebook on how to automatically save more every month, without having to change your lifestyle. You can check it out here). That’s pretty much it! The goal here is to get your partner to take action - no matter how small - towards saving and investing for the future. The simple action of actually DOING something will make you both more mindful about money.

In Short...

Talking about money may seem like a lot of effort - but trust me, it’s worth it. This could be the person you spend the rest of your life with, so why not invest a few days to get it right? The key here is patience. Approach the topic slowly, listen to each other, and focus on your hopes and dreams. This will set the stage for more open conversations in the future. And when you finally pop the question - whether it’s “Will you marry me?” or “Sengkang, or Punggol?” - you’ll both know the answer in advance.

==== Lionel Yeo is a ramen-slurper, bathroom dancer and financial hacker behind cheerfulegg.com, a personal finance blog for young executives. He has been featured on the Sunday Times, Channel News Asia, KISS 92 and more. He also secretly dances in his room. Check out his free guide on How To Start Investing In 3 Days.

This Will Cause Us To Be Poorer Each Day

What makes a person poorer each day? Is it his daily expenditure? His compulsive spending habits? His indulgence on food? You may be surprised that getting poorer is not so easy. Spending money on food, buying clothes etc will not make us that much poorer. To be honest, how much can you spend on food or buying clothes?

In April this year, I wrote an article declaring that I will stop tracking my daily expenses. In the past, I used to track every single spending I had in an APP but it wasn't that useful for me. Yes it made me conscious of my spending and I did save a lot of money but that is not what I want to live my life on. Being too frugal can have an adverse impact on our lives instead.

Now, I only track my expenses on a monthly basis and I found that even after I stop tracking my daily expenses, the effects are not that much of a difference, only a slight increase except for a month where I went overseas.

Expenses has gone up over the years and I'm actually happy that it has happened. The irony is when expenses went up, my income went up as well.

Now, back to what will cause us to be poorer each day. The answer is LOANS. There are many different types of loans or what we call as debts but some of them work differently from each other. Let's look at some common loans and see whether will they actually make us poorer?


Car Loans

Car loans is quite common in Singapore. Due to the high price of cars now, how many people can actually affoed to pay that $100,000+ in cash for that car?

SGCarMart has a good new car loan calculator which i'm using for the below illustration:

New Car Model: Toyota Vios 1.5 Elegance
Car Price: $104,888
Loan Amount: $73,422
Interest Rate: 2.28%
Loan Tenure: 7 Years

From the above example, the monthly instalment will be $1014. Total interest paid at the end of 7 years will add up to $11,718. This is 11.17% of the original car price. This is still 2.28% per year even though we are paying a monthly instalment whic reduces the outstanding loa amount. This is because car loans interest are always calculated base on the initial loan amount instead of the remaining loan amount


Housing Loan

Housing loan is even more common in Singapore. We can choose not to have a car but we need to have a roof over our heads. For this illustration purpose, I'll be using a mortgage calculator from MoneySense.

Price of HDB flat: $340,000
Loan Amount: $306,000
Interest Rate: 2.6%
Loan tenure: 25 years

For the above example, the monthly instalment will be $1388.23. Total interest paid at the end of 25 years will add up to $110,468.61. This is 32.49% of the property price value.

The interest paid is quite scary to be honest. This means if your property price is not more than $416,469 in 25 years and you sell it, you'll be making a loss instead. Nevertheless, if we calculate the average interest paid yearly, it is only about 1.29%. This is because housing loan interest are amortised. This means the interest is calculated based on the remaining loan amount yearly as compared to a car loan which calculates interest base on the initial loan amount.


Credit Card Debt

Credit card is not considered a loan but it is a debt if we missed the payment or did not pay the bills on time. Let's see how credit card interest is calculated and what happens if we did not pay the bills.

Credit Card debt: $1000
Interest rate: 24% p.a (2% per month)
Years of Owing: 3 years

Base on the above example, if we did not pay a single cent on the amount owing, the $1000 debt would grow to $2000 in 3 years. This is double of the initial amount of $2000. The reason why it doubles is because interest is compounded on a monthly basis. To calculate how long it takes for your credit card debt to double, you can use a simple method called the rule of 72. By using 72 divided by the credit card interest rate per annum, you will get the number of years which the credit card debt will double. In the above example, it is 72 divided by 24 which is 3 years.

Another thing to note about credit card is if we were to make partial payment, the payment paid will be used to pay for the interest first before it is used to pay for the outstanding amount. For example if the credit card debt is $10,000 and interest is $240 per month, if we just pay $240, the initial debt of $10,000 will not reduce at all. We are just paying interest every month for as long as it goes without reducing the debt amount.

Conclusion

Loans or debts can cause us to be poorer without us realising it. Our daily expenditure or spending money on food or clothes can be consciously tracked but for loans, it is sometimes hard to visualise exactly how much money we actually pay for the interest.

For the 3 different loans, all 3 of them work differently:

1. For car loans, the interest is base on the initial amount
2. For housing loans, the interest is base on the reducing balance
3. For credit card debts, the interest is base on the outstanding amount compounded monthly

Before committing to a loan, we should know how much interest we are paying. For debts, we should not get into any in the first place as it can be very hard to get out base on the example above.

Make the right financial choice today!

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Frugality And The YOLO Lifestyle

Have you ever envied those people who live a YOLO lifestyle? If you don't know what is YOLO, it means "You Only Life Once". This is a mindset that since we really only live once, why not just enjoy life first? Why think and plan for the future?

When I was younger in secondary school, I had a classmate who came from a rich family. The parents gave him $50 a day. At that time, my allowance was only $20 a week which was just sufficient for my meals in school. Each meal cost about $2 then. With $50, this classmate could buy lots of stuff he wants. He was the envy of many other classmates and friends surrounded him to get some benefits from him.  Sadly, later on he got suspended from school and in the end got expelled because of some police case. Later I found out he was caught stealing from a book store in a shopping mall. It was an irony that he has the most money but still steals from a book store.

The YOLO Lifestyle

Money can cause a lot of problems. Just last week, MAS and CAD raided a few trading firms such as DBS vickers, Maybank Kim Eng, Phillip securities and OCBC secutiries. Some remisers were taken away for questioning. The MAS confirmed on Friday that together with the CAD, it is investigating possible contraventions of the Securities and Futures Act. Money can cause people to do things that breaks the law.

I'm sure all of us have friends who live from pay check to pay check. They empty their bank accounts and enjoy life to the fullest. They travel around the world, enjoy the finest food, enjoy luxuries and live for the moment without thinking about the future. This is even better than my classmate who has $50 to spend everyday. It is possible to spend hundreds of dollars per day.

I am not against enjoying life. In fact, I've ditched my budget and spend as much as I can currently. I wrote a post on this previously here.

The Frugal Lifestyle

The frugal lifestyle on the other hand is a life of prudence. This person spends wisely and thinks for the future. He tries to save as much as he can because he thinks he will need the money in the future. There are also extreme frugality cases where a person saves and saves and forgets what enjoying life is all about. Both the YOLO and frugal lifestyle becomes a habit. Both can be bad or good.

There is a fine line between frugality and cheap. Our lifestyle ultimately affects the people around us. A person with a YOLO lifestyle may have spent all his money and can't even pay the bills on time for his family. Or he may have got into too much debt and made the family suffer. On the other hand, a frugal person can also affect the people around him negatively. He may have saved too much and compromises on quality. The family doesn't get much enjoyment in life and live on a tight budget.


How To Balance Frugality and the YOLO Lifestyle?

Saving money for the future and enjoying life needs to have a balance. This is easier said than done. But with a conscious effort, we can balance the frugality and the YOLO lifestyle. First, we have to identify are we more prone to spending or saving. Most of us will lean more to one side. For me, I'm definitely more prone to saving money so I have to make a conscious effort to spend more on the things that are important.

For a person who saves more, it is sometimes hard to spend. $50 for a meal per person seems too expensive and it is very hard for him to indulge in luxuries.  To balance up, a frugal person can indulge in luxuries occasionally. It doesn't hurt to spend a bit more once in awhile especially for the people he loves.

Just last year, I decided to celebrate my girlfriend's birthday in one of the fine dining restaurants in Singapore. This was at a restaurant called Pollen, right inside Gardens by the Bay's flower dome. This is the first time I've ever went to a fine dining restaurant and I must say the experience is worth every single cent. The service is good, every dish is carefully selected and prepared with unique taste in every single bite.

Bread and mini bun with truffle cream served before the meal

Appetizer: Some figs and goat cheese

Mains: “Risotto”, hazelnuts, brie and pears

Mains: I forgot the name of this fish

Desserts

Desserts

As you can see, every plate is an art work. Delicious and full of flavours. Their service is so good that they gave us a holder to put our bags, explain every dish in detailed and even provide a scarf for my girlfriend in case she's cold. They also provide buggy service before you come and after you finish your meal. The buggy sent us all the way to MBS after our meal. And I forgot to mention they actually reply to my emails very promptly. I actually arranged for a surprise birthday cake with candle to be sent in after our meals.

The meal also includes an entry into the flower dome, another plus points if your girlfriend likes flowers. Just a few steps away and you're in the flower dome full of beautiful flowers. This is definitely a place to consider for a date or to celebrate special occasions with your other half.

To me, now it doesn't hurt to spend a bit more just to enjoy. In the past I was probably too tight on money and am slowly changing it. I am now more focus on increasing my income than just saving money alone.

How about the person who lives a completely YOLO lifestyle? To this person, luxuries are too common in his life till it becomes a norm. He has no savings and always complains of not enough money. Yes he's enjoying life fully now but when crisis strikes, he loses his job or one of his family member gets sick, he has no money for all these. The family goes through a period of tough time.

As long as we have plans for the future, spending a bit more doesn't really hurt. Just $100+ on food on that special occasion doesn't hurt if you still have savings. If you borrow money to enjoy, then that is a red flag. If you use your credit cards to enjoy and cannot afford to pay the bills, then it will be disastrous. If we just use a part of our income for enjoyment while still paying ourselves first, then I think this is perfectly ok.

Frugality and YOLO lifestyle, do you think it can be balanced?

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The Day I Stop Tracking My Daily Expenses

I have been tracking my expenses daily for the past few years using an app called expenses manager. But... just recently, I stopped tracking once and for all. After a few years of tracking, it has more or less become a habit and it has enabled me to restrict my expenses and save up well for my future. Now the question comes... if its good, why stop tracking?

There are a few reasons and I will list them all out in this article. It doesn't mean I give up managing my money from now onwards. It just means I have come to another stage where I do not need to track as rigorously as how I used to. I will also share what I will do moving forward.

Reason 1: Tracking expenses daily restricts my spending

Yes, its good to reduce and restrict spending so we can have more for our future but having a tight budget and tracking it so rigorously every day really limits my spending. Readers would have remembered the last I posted my income and expenses update, I mentioned that I have doubled my budget which means double the expenses. However, its still too restrictively in my opinion. I have had problems when I realise I spend a little bit more this month or if I realise towards the end of the money that I have spent too much. I began to cut and restrict myself toward the end of the month. This is not the life I want to live.

Reason 2: Tracking expenses daily doesn't make sense for me anymore

When I say it doesn't make sense for me anymore, I mean that even if I track my expenses daily, it does not allow me to save more. Throughout the years, I've built the habit of saving up and for me myself, I don't really spend a lot. I'm really not prone to overspending but more prone to underspending. In fact, now I want to spend more, more on the people around me and the people I love. Ever since I started dating, I knew I had to spend more so I made an effort to double my expenditure budget. In a way, it has worked well in terms of planned spending but still restrictive for unplanned spendings. When I don't spend just on myself, there are many unplanned spendings which I'm not used to. Focusing on a budget will cause a lot of problems for this.

Reason 3: I have gone past the stage of budgeting

I've written a few times on why increasing income is important than just focusing on savings alone. Since last year, I made a goal to increase my income. Not just in my main job income but income from other places as well. I set up a system where it will force me to think of creative ways to increase my income and get me out of my comfort zone. This has worked well so far and moving forward, I will continue to do this which I will elaborate more below.

What I will do moving forward?

So now with the daily tracking of expenses gone, this is what I'm going to do. In fact, I've been doing this but will do it more aggressively now. Previously, I set up auto fund transfer to another bank account so I will not touch the money at all. This was about 75% of my salary being transferred out every month. For the past 1 year, the bank account which had 75% of my salary transferred out did not become empty. In fact, it grew healthily and continue to grow even more. How is this even possible? Does it mean I only spend 25% of my salary every month?

The only explanation that the bank account can still continue to have money inside is this act of fund transfer changed my mindset to increase my income. It is impossible to survive on 25% of my salary only. According to my tracking, I spend close to 50% or more of my salary each month. Income from other sources goes to this bank account as well so any extras which I get, I can actually not worry and be able to spend it all as I already have a fixed amount transferred out for savings every month.

Moving forward, I will be transferring out slightly more than 100% of my salary to the other savings account. This means I would totally not rely on my main job salary for expenses. Let's see how this goes and whether the bank account survives this later on. The transfer will start this month.

Even though I don't track my expenses daily now, I will keep a track of it on a monthly basis instead. Through the transactions on my bank accounts which I can see easily using internet banking online, I can add up all the expenses and get a rough gauge of how much I spend each month. Tracking the expenses monthly will not restrict me to spend lesser towards the end of the month. I can just spend as much as I want as long the expenditure bank account does not become empty. If income manages to increase and I realise I can save more, I will transfer more out and adjust accordingly.

This has been a tough decision to make to give up tracking of my expenses daily which has already become a habit for me. But, after considering all the factors, I decided this is the best way moving forward.

The Silent Killer Of Successful Investments

When I first started investing, I thought about how good it would turn out, how investing can be the answer to a better life. I went for seminars where the speakers promised good returns if you learn it correctly. With much hope and expectations of a good outcome, I started investing.

10%, 20% returns were easy at first. Maybe it was beginner's luck, I made over $1K in a short period of 3 months with just only $5K. That was 20% return on investment. If you ask me what was the factor behind the success that time, I would have told you it was because I expected it. However, I was totally wrong. The reason why many people fail in their investments is not just because of a lack of knowledge or luck, it is having the wrong expectations.


Expectations

Fast forward to one year later, I lost everything and more. In fact, I lost half of my savings which I painstakingly saved through my allowances during my school days, the many part time jobs I worked while still studying and the little NS allowance I got. The savings were built up a dollar at a time and I saved so hard by working part time. All the savings for 5 years were wiped out in just a few months. I had many sleepless nights due to insomnia, I didn't know what to do and was totally lost that time.

All these taught me to have a more realistic expectation for investments. In fact, not only just investments but it taught and humbled me on the expectations of life. Sometimes, we have so much expectations that it makes us unhappy when those expectations go unmet, it strains relationships too. For investing, it caused me to lose the hard earned money I saved up. This was a lesson that will not be forgotten.


There is no easy money

If you're thinking investing will be your easy way out in life to give you more money, you may have the wrong expectations. There are people who believe that they can double or triple their money easily through the stock market or think that trading is an easy way to make money so you don't have to work. All these are easy money thinking. Be careful of this as it may land you into trouble with the stock market.

Wanting to make more money from the stock market will indirectly cause you to take on more risk. In the pursuit for more money, people get into speculation to pick the next hot stock. "This stock may be the next big thing and will go up 10 times!!" If this is what you heard, its speculation. Yes it may go up 10 times but what if it went down and worse still collapse instead? We may lose a lot of our money or even everything.


Reality isn't all that bad

Even though there are no easy money, reality isn't all that bad either. Growing our wealth through investing is still important. As we all know, the purpose of investing is not only to preserve wealth but to build up our wealth for retirement. If we do not invest, our wealth will deplete over the years due to inflation.

I have not been good at Maths since primary school. I was careless with numbers and always make silly mistakes during my mathematics exams and tests. To grow our wealth, we need to have plans and see it happen in the future. Fortunately, even for people like me who are not good with numbers, there is an easy way to see how our money will grow in the future.

The rule of 72 is the easiest way to see how much our money would grow. At 7.2% investment return annually, our money would double every 10 years. How you get this number is take 72 divided by 7.2 and you get 10 years. If we have 10% annual investment return, our money would double every 7.2 years. You can just take 72 divided by the annual investment return and you will know how long your money will take to double.

With the rule of 72, I can plan for my future easier. If I want to double my money 3 times in 30 years, I would have to achieve 7.2% ROI every year. $200,000 would become $800,000 30 years from now using this calculation. This is assuming we have $200,000 and stop saving money now and just grow our money through investments.

One lesson from this is the more we save earlier, the faster it is to reach our financial targets later.

This was an example I read before on 2 person, Ben and Arthur.  At age 19, Ben decided to invest $2,000 every year for eight years. He picked investment funds that averaged a 12% interest rate. Then, at age 26, Ben stopped putting money into his investments. So he put a total of $16,000 into his investment funds.

Now Arthur didn't start investing until age 27. Just like Ben, he put $2,000 into his investment funds every year until he turned 65. He got the same 12% interest rate as Ben, but he invested 23 more years than Ben did. So Arthur invested a total of $78,000 over 39 years.

When both Ben and Arthur turned 65, they decided to compare their investment accounts. Who do you think had more? Ben, with his total of $16,000 invested over eight years, or Arthur, who invested $78,000 over 39 years?

The result above shows the stark difference and the power of compounding. Ben just saves earlier at age 19 and stops saving at age 26 but in the end he has more money than Arthur who saves and invest from age 27 to 65. Just that 7 years difference makes a very big difference because of the power of compounding.

Expectations kills successful investments but the reality isn't that bad either. The road to wealth building is easy: save early, invest early and let the power of compounding take effect. There is no shortcut to wealth building. Expecting that investing will make you rich in a short time is a dream but getting back to reality that the effects of compounding has on the long term will create successful investments for us.

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Earn As Much As You Can But Never Sacrifice Your Soul To Do It

Money..... The most important aspect of our lives? Or is it not? From the day we graduate from school and enter the corporate world, we devote so much of our time for work that it seems like we do not have enough time for anything else. Replying to emails in the middle of the night, answering calls even during weekends becomes part of our lives.

Busy is the word that constantly comes out from our mouths. The bills to pay, the house to pay, the car loan to service and the children to feed keeps us moving higher up the corporate ladder to earn more. Before we know it, we are sucked into this corporate world for God knows how long a period of time.

The rat race is what most people call it. The rat keeps running on the wheel but never reaches a destination. Going round and round and round for so long without a purpose. Is that the life we want for ourselves? Or is there a greater purpose to life than just making money? 

Credit: http://en.wikipedia.org/wiki/Atlantic_slave_trade

Earn as much as you can but never sacrifice your soul to do it is the message. We all know our limits when our soul is sacrificed. When we start to neglect our health to earn money, when we start to neglect our family to earn money is not a good choice to make. Money lost can be earned back but time lost can never be recovered.

I had a colleague who choose to focus on his children and family instead of just aimlessly making money. In the past, he was working full time in the day and worked as a property agent by night. The money was good but his time with his children in the evenings and weekends were sacrificed. One day, while he was alone in a client's apartment thinking about his life, he asked himself is it worth it to spend less time with his family just to earn this extra money? His answer was No and never regretted ever since.


How We Get Ourselves in The Rat Race? 

A conscious decision early in our lives can make a difference on the path we will take in life. Let me illustrate this with a story:

There was a man who lived with his newly wed wife and they own a simple house at the outskirts of the city. The couple were excited for the new family they are going to have and had many plans for their future. They wanted to renovate their house to make it nicer, buy a car, build a beautiful pond, have children and also build a barn to raise animals. However, after calculating their budget, the couple realised they could only do one thing only.

The wife suggested that they renovate their house. The husband asked: "why should we renovate the house?". The wife replied: "If we renovate the house, our house value will go up so it is a good choice." The husband however said: "We should build a barn to raise animals." Both of them could not come to an agreement and quarrelled aggressively over this issue. The wife was so angry that she questioned her husband: "Are the animals more important than me?"

Who do you think won the argument in the end? The wife or the husband? In the end, the husband eventually won the argument. The husband said: "If we build the barn to raise animals, the income from the animals will pay for the renovation. More than that, it will also pay for the car we want to buy, the pond we want to build and the children we want to have."

Most of us sacrifice our soul to earn more money because we "renovate the house" first. When we entered the workforce, we start to spend more thinking that we are increasing our standards of living. We buy a car, we renovate the house, we go on expensive holiday trips. When our income doubles, we double our expenditure too. In the end, we have no money to build the barn and still have to work doubly hard to sustain our so called higher standards of living,

Remember, we can still have the pond, the car, the renovation without working doubly hard and getting into the rat race. Build the barn first and let it pay for the others. Gradually, let money work for you while you're still working for money. It takes time and some sacrifice not to renovate the house first in the beginning to build the barn but it'll be all worth it. A conscious decision can change your life forever.

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You Can Never Retire If You Only Save 10% Of Your Income

Saving 10% of income is better than not saving any money at all? That's what a lot of people say. But, is it wise to save only 10% of our income? Saving 10% only means spending 90% of our income. If you earn $1000 and can only save $100, it is still acceptable as you may not have much money to spend. But if you earn $5000 and only save $500, it is a whole different story.

Saving 10% of our income takes us 51 years before we can retire. Even if you start saving since the day you start working, you still can't retire in your 70s. Many people may say they want to double their income so they can have a better lifestyle and don't have to sacrifice too much to save money.

The scary part about increasing your income to increase expenses is that it has a negative doubling effect on your life. It is the simple reason why people who earn higher salary can get into an even worse financial problem than another person who earns lesser income.

Credit: http://pixabay.com/en/percent-percentage-percent-sign-76213/

Percentage of Savings makes a difference

Previously, I wrote that there was a report on Asiaone which showed how people in their 30s got into financial problems. Below shows 2 of the cases:

Case 3  

The third person is a 33 year old who earns $4000 monthly. Has credit card debt totalling $15,000 which was accumulated since 2007. 

The lifestyle:

• Go to the spa every week for massages, mani-pedis and hair treatments

• Take cabs everywhere

• Eat at expensive restaurants twice a week

• Always treating friends to drinks when outside

There were several instances where she was flat broke and has to walk one and a half hour from her office back home because she doesn't even have money to take a bus or MRT home.  

Case 4
The fourth case is a couple of age 34 and 36. Both are lawyers and have a combined income of $17,000. This amount of salary is an envy for many but they still can get into trouble. Currently has debts amounting to a couple of hundred thousands dollars.Their lifestyle:

• Spent $100,000 on wedding

• Pay six figure sum for a condo in a prime district

• Spent even more money on renovating and expensive furnitures for the house

They said the debts will probably take them 3 years to clear. 

In case 4, the couple had a combined monthly income of $17,000 but has debts amounting to a couple of hundred thousands dollars. This is more than the $15,000 debt which the person in case 3 who earns only $4000 monthly.

The most important thing to note is that cutting your spending rate is much more powerful than increasing your income. The reason is that every permanent drop in your spending has a DOUBLE effect:

1. it increases the amount of money you have left over to save each month
2. and it permanently decreases the amount you’ll need every month for the rest of your life

If you ask a person who spends $5000/month how much he needs for retirement, he'll probably say about $5000. If you ask a person who spends only $2000/ month how much he needs for retirement, he'll probably say about $2000. It is very very hard to change your "upgraded" lifestyle once you're up there. Some people may say that they can downgrade their lifestyles when they are older but how many have actually done it? 

Creating income for retirement is better than saving for retirement. If you spend $5000/month, you have less money saved per month and it takes a longer time to create a $5000/month income for your retirement. You need $1.5 Million dollars to create a $5000/month income base on a withdrawal rate of 4%. If you earn $10K per month and spend $5K, it takes about 17 years to do it. That is a 50% savings rate invested at 5% yearly compounded returns to achieve $1.5 Million dollars in 17 years. 

If now you earn only $6K and still spend $5K, it'll take you 41 years to create an income of $5K as compared to 17 years in the above example. In this case, this person only saves 16% of his salary. It really is just simple maths, saving 16% will mean spending 84%. 

How Much Should We Save?

10% savings takes 51 years before we can create an income that surpasses our expenses for retirement. If we do that, we will never be able to retire at all unless you have other alternatives. This is the hard truth of life and the reason why many people cannot retire today. 

If 10% savings is a no no, how much should we save then? I've done the calculations and here's the verdict:

Savings Rate (Percent)	Working Years Until Retirement
5	66
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	3
95	2
100	Zero

Look at the savings rate and the working years until retirement. If we want early retirement in our 40s, probably a 50% savings rate is good. If we want to retire before 60, we should save at least 25% of our income starting from our 20s.

It is really not that hard to retire if we can see the road ahead and plan accordingly.

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Income and Expenditure From January to April

Its the time of the year again to review my income and expenses for this new year 2015. Reviewing my financial situation once every 4 months is certainly not too much work to do. The bulk of the work will be the recording of my income and expenses everyday in order to track it. This is what I've been doing for the past 4 years.

Here's the familiar chart which shows my financial journey from January 2013 till now:

The year 2015 has been a good year for me so far. I've all along set out to create passive income apart from the income I have from my job. Passive/other income has been rather consistent for the past few months. In April last month, passive/other income increased substantially which was a surprise. This came from dividends of the many st

As the saying goes, when our income increases, our expense increases as well. Last month, even though passive/other income increased, expenses increased as well due to my phone dying out on me and I had to replace with a new one. One thing to confess is I succumbed to the temptation of buying the latest Samsung S6. However, I could still save more than 100% of my salary just because I created passive/other income. This is what I wrote in a previous post: Spending on Luxuries The FIRE Way

Moving Forward

Creating multiple streams of income is what I've been trying to do since 3 years ago. After entering the workforce, I realised nobody is immune to the fact that we could lose our jobs anytime. I've seen a few instances of restructuring that caused hundreds of people to lose their jobs. It could be worse when a financial crisis hits. Having multiple streams of income will cushion this impact of stress in the event we lose our income.

Another reason for creating multiple streams of income is for financial independence or freedom. Not only will I not be afraid if I lose my job, I also have the freedom to choose whether to work or not to work. This is the freedom of choice. For my life, I realised that after I have more passive/other income, I no longer worry about money matters. It gives me more freedom to spend knowing that my financial state will still be in good state even after spending on luxuries.

Moving forward, the way to create more passive income is to save up and invest more. Right now, I've only invested about 40% of my investment capital in the stock market. If I bump it up, passive income can be doubled. With a savings rate of >100% or close to 100%, my money grows faster every month and year. The next move is to reinvest the passive income so it gets compounded. However, to invest heavily when the market is at a high will not be a wise move. I will invest more when some opportunity presents itself.

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Spending on Luxuries The FIRE Way

Leave the boring retirement topic behind for now. Life is meant to be enjoyed and we should live it to the fullest. Why save so much in our early days and live a miserable life only to find that we still do not have enough money for retirement?

Yes, it is happening even in Singapore. People who scrim and saved in the past still do not have enough for retirement. This somehow prompted young people to spend all their money since they see that even if they save money, they would still not have much money anyway.

You see, the problem above can be explained mathematically. If you earn $2000/month and save $1000, will you have a lot of money? You may be saving 50% of your salary which is a very good thing but if we take the $1000/month savings and fast forward it to 30 years later, it is only $360K. Does it seem like a lot of money to you? It sure doesn't seem like a lot to me 30 years from today.

Therefore, even if we save 50% of our income but have a low income, its not going to make a lot of difference. However, this can be solved by a simple solution. Before we go into the solution, let's understand a new term which I came across recently called FIRE.

Credit: http://hummingbird88-stock.deviantart.com/art/BBQ-Fire-Stock-12-104756855

What is FIRE?

FIRE in its full form is know as "Financial Independence, Retire Early (FIRE)". It is a concept which has been discussed and expanded on by some financial bloggers in the west.

Gaining financial independence and retiring early cannot be done through savings alone if our income is too low. We can enjoy some luxuries and still gain financial independence and retire early. How do we do it?


You can spend on Luxuries the FIRE way

How do we reach FIRE status and still enjoy luxuries? This can be explained using a simple mathematical illustration. Let's go back to the example of saving $1000 with a $2000 salary. In this case, we only have $1000 to spend per month and still end up with only $360K savings 30 years later.

If we increase our income to $4000/month and save the same 50%, we would be able to save $2000 and end up with $720K 30 years later. It doesn't end here, the good news is we can spend $2000/month now instead of the $1000/month previously and still have more money 30 years later.

If you did not manage to understand how the above mathematical illustration works, read it again. I'm going to expand on a deeper concept below but you must first understand the concept above. Once you're ready, let's continue.


Spending on Luxuries and still save 100% of income

The road to financial independence or freedom is not about living a poor man's life now so you can be a rich man later. Yes, saving money is important but the truth is we can't save much from scrimping on the little things. What we need to do is to focus on increasing our income but at the same time make sure we do not overspend above and beyond our means.

Many years back while I was still a student, I came across a concept which said "if you want to enjoy luxuries, create the income for it". This income should not come from our main employment but from secondary sources (aka passive income). For example if we want a car and the monthly cost we have to pay for it is $1000/month for a certain number of years, we should create a secondary source of income to fund it. That's not all. Once the secondary source of income is created, it can be permanent and even after fully paying for the car, we still have that source income coming in every month. Now we got the car AND the extra income.

That was such a powerful concept that it stuck with me to this day. Now the question is, how do we create the secondary source of income?

There are a few ways to do it:

1. Create secondary income through properties

Investing in properties and renting out is one of the most common ways to create a secondary source of income. Many people in the world do that. The best thing about investing in properties and renting out is your tenants pay for the property and at the end, the property belongs to you. Not only do you get rental cash flow every month, you own the asset too.

However, the problem with investing in properties in Singapore is the high cost involved. Buying a private property cost more than $600K to $1 Million dollars. With a 20% down payment rule, this would set us up to more than $100K in upfront capital. This would not be easy for young people who just started out in their careers but is definitely a consideration when we have more money.

2. Create secondary income through stocks

Investing in stocks will give us a secondary income stream through dividends. REITS can be one popular way to get passive income. A REIT, also known as a real estate investment trust, has a portfolio of properties which they rent out to collect income. Buying a share of the REIT makes you a shareholder of the many properties that it has. For example, if you buy the shares of Capitamall (renamed capitalandmall) or Suntec, then you actually become a shareholder and own part of the shopping malls you see at City Hall, Tampines, Jurong, Woodlands and many other parts of Singapore. Some of these Reits have properties in other parts of the world too.

The rental collected is distributed to all the many other shareholders and each will receive a portion of the income according to the number of shares they own. Reits listed in Singapore typically pay a range of 5-8% in dividends. If dividend remains constant, the lower the price you buy a share of the Reit for, the higher the expected dividend yield will be. The best thing is you don't have to manage the property to get the rental. The Reit manages it for you.

Besides REITS, we can also consider stocks of other companies to invest. You can read the below 2 articles on stocks investing:

How to pick stocks (Part 1) - Economic Moats
Buying the company on the streets (Part 1) - Discovery stage

3. Create secondary income through your talents

Finally, we can create secondary income source through our talents. I always believe that everything we do, even if its just a hobby, can be turned into a potential income source. Do you like craft making? Maybe you can make some of your own products to sell. There are just so many other possibilities which we can explore on. Think about what you are good at and think about how you can create value for someone out there through it.

One thing to note is don't focus on making money first. Focus on adding value or providing good service in whatever you want to do. As a result of adding value, the money will come later.


The End Result

Let's go back to the example of the $4000/month income. After saving $2000, this leaves us with $2000 to spend. If we manage to create an additional secondary income source of $4000, we now have $6000 to spend and still have $720K at the end of 30 years. In the end, we may not even spend all the passive income which would mean we can possibly retire with more than a million dollars without having to forgo all luxuries.

Its time to take action if we want a better future.


Epilogue - Do you really love luxuries?

Last year September, I wrote a post specifically on luxuries. I shared my experience of luxuries and also said the following:

"You see, luxuries can be a drug. It is addictive and there will be problems when over consumed. Remember the first time when you took a sip of good coffee? What was the feeling like? You do feel a boost and feel more awake as what coffee will make out of us. But those who drink too much coffee will always say that coffee doesn't have an effect on them any more. They are numbed to the effect of it. Similarly, if luxuries are consumed on a daily basis, it loses its effect which is suppose to make us feel good.

When luxuries loses its effect, you'll never be satisfied or happy no matter how much you have. It then becomes an addiction to seek even more luxuries where people are willing to borrow money to indulge in it. Over borrowing for a car or a condominium more than what you can afford are signs of over dependence on luxuries to make you feel happy. Some even borrow to travel luxuriously, borrow to buy branded goods. The list goes on." 

You can read the full post here and find out what luxury I experienced: Your Perspective of Luxury and an Experience. Now, do you really love luxuries?

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Your Marriage or Your Investment?

This post was inspired by a chat with a friend recently. I was told that there were some young people who are investing the money which was meant for their marriage or wedding in the next few years time. With investment products easily available now, young people can just start their investments from as low as $100 per month.

An example is the POSB invest saver which invests into the STI ETF. Yes, the STI ETF is a good investment tool but the problem with the investments some young people are doing is they plan to invest a sum of money every month and take it out for their wedding in the next 2 years or so. Is this a wise move?


Is it wise to invest the money you need for your marriage?

The answer to the above question is probably a NO. There are a few reasons why we should not invest the money we need for our marriage. I'll elaborate on the reasons below.

1. Investment returns are never guaranteed

I'll focus on the investments of non guaranteed assets such as stocks, index ETF and even bonds. We can never be sure if we will make a profit or loss in investments. Moreover, if our investment time frame is only 1-2 years, its even worse.

When we invest the money we need for our marriage in the next few years, we may have to sell at a loss when the portfolio isn't doing well. Some of us may be thinking what if I make a profit? Then I can have more money for my wedding. We should immediately identify that this is a very dangerous thought to begin with.

2. Investment should be for the long term

1-2 years time frame for investment is definitely too short. 3-4 years is also short. We should probably look at more than 5-10 years time frame for any investments that we make. In fact, we should invest all the way to retirement. It is part of our retirement portfolio.

I know young people want to start investing as early as possible once we know the magic of compounding. Yes, the earlier we start, the greater the compounding effect but always remember that financial planning is not just about investments. It is planning our finances as a whole.


Getting Married and still achieve financial freedom

All of us want to achieve financial freedom and get out of the rat race. We want to grow our money through investments. But now, with marriage in mind, there seems to be a road block. How do we plan our finances such that we can get married and still achieve financial freedom?

In the next few paragraphs, I would share with you my personal plans for the past few years which is still ongoing. But first, there are two likely scenarios for most of us. One likely scenario is we are single and no plans for marriage. The second likely scenario is we are attached and planning for marriage in the next few years. Let's see what we can do for the two different scenarios.


Single and no plans for marriage yet

Being single now means you certainly have more time to plan your finances. Since you don't need a large sum of savings for marriage as of now, you can invest some savings which you have and grow it for the long term. This is the time to work hard, increase your income and save up aggressively.

Being single now doesn't mean you won't get married in the future. What happens when you get attached somewhere in the future? The key idea is this. Most of us will date and plan for marriage in about 3-4 years time when we get attached. Since your previous savings are already invested, you shouldn't rely on that for your marriage any more.

From the time you get attached, start saving up a portion for your marriage and never ever invest that portion into any non guaranteed investments. It is good to put that money in some guaranteed higher interest accounts which will allow you to take it out by the time you need it for your wedding.

I wrote an article on How much money is needed to get married and start a family in Singapore?. You can use it as a guide for your marriage cost or get some information from your friends or family members who have already been through that stage. You'll know roughly how much you need to save every year to get married in 3-4 years time. If you plan $60,000 for your marriage, just save $20,000 a year and you'll be on track to get married in 3 years time.


Attached and plans to get married

If you already have a partner, planning for marriage is inevitable if you feel he or she is the right one for you. If you've yet to save up for a wedding, start now and plan it out with your partner. Know the amount you need and set the targeted time frame to save up that amount.

Rushing into marriage without any planning is not advisable. You'll end up with a lot of financial problems later on. If you're really serious about this relationship, there is no point rushing into marriage without any planning. Of course, some unforeseen circumstances may happen and you may need to rush into it but I shall not go into that here.

Some couples take the short-cut and think they don't need to plan ahead because there are zero interest credit instalment plans available for their wedding in Singapore. But, always remember that you need to pay back the amount you borrowed later on in your married life and don't forget you probably need to pay for other things too such as housing loans, your own bills and all that. It is always easier to save up before marriage when you don't have much commitments yet.


My plans for marriage and financial freedom

Long time readers of my blog will probably know that I'm at the single and no plans for marriage stage now. This gives me a lot of space to plan my finances. My personal plan is to achieve a $100K investment capital base and start saving for marriage when I find a partner. I probably can save up for marriage in less than 3 years and still have $100K to invest by that time.

Do note that the savings amount for marriage and the $100K are two separate accounts. After catering to my marriage needs, I still have money which I can invest and grow for the long term. Never put your marriage needs and investment into one account. It becomes confusing in the end.

On the issue of financial freedom, passive income have to be created. I've written about passive income in quite a few of my previous articles. You can read all my articles on passive income from the link here. A fellow blogger, ASSI AK has also recently written a good post on How to get $50K in passive income by investing in stocks? If we can get $50K in passive income a year, we could quite possibly achieve financial freedom and choose not to work by then.

Ultimately, all of us have different lifestyle and needs. Plan accordingly to your lifestyle and you'll know whether its achievable. If you want a $100K wedding vs a $50K wedding, the planning will be completely different.

Your marriage or your investment? I hope you know the answer now.

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The Thought Process Behind Spending Money

Its so hard to save money but easy to spend money. Do you agree?

Most of us would agree to the above statement. We have always been told that we need discipline to save money. The word discipline sounds harsh. It reminds me of the discipline master in school who punish students that misbehave. It reminds me of the regimentation in army which controls our freedom. Is it really that hard to save money?

Since saving money has been a boring and a sad topic to talk about, let's try a different way and talk about spending money instead. What exactly are our minds thinking when we spend money? Perhaps this will shed some light on how saving money can be easier for all of us.

A World Without Money

Imagine a world without money. Will we still be happy if we have no money to spend? In the olden days where Fiat money was not yet introduced, people practice barter trading with each other where they exchanged goods and services without the use of money. In those days, if you want to eat chicken, maybe you can exchange it with the duck you have and if you get tired of having chickens, you can exchange for some other stuffs. As long as both parties agree, the trade can be carried out.

Barter trading may not be equivalent to spending money as you need to exchange your goods for someone's else goods. It really depends on whether you think your goods are worth to be exchanged with another person's goods? Exchanging a cow with a chicken doesn't seem like a fair trade in this case. If we put it to today's context, will we exchange an iPhone with a cow? Which is more valuable in this case?

Image Credit: commons.wikimedia.org

In today's world, we don't have to exchange goods for goods any more. Money was created as a medium of exchange to buy goods and services. The more money we have, the more things we can buy. It is not like in the olden days where the stuffs you own will always be limited since you will always have to exchange something for another. This resulted in most of us buying more stuffs than we actually need.

In economics class, I learnt that the Earth has limited resources but humans have unlimited wants. This is the concept of scarcity. As such, when more people want a particular item, the prices are raised up so less people can buy it. Our high housing prices are a result of scarcity. More people want to buy houses but there is not enough of it. It drives prices up.


The Thought Process Behind Spending Money

Money has no value?

Most people spend money and few are savers. The main reason is a lot of us see money as only some paper or plastic we have in our wallets. Worse still when money is in the bank, we only see it as numbers. When we start spending, money seems to have a value now base on the things we spend it on. We receive something we can see in exchange of papers, plastics and numbers. We receive services which makes us feel good. We thought that we got rid of an unreal creature called money which has no value for us.

Does money really have no value? To say the truth, all of us are right when we think that money has no value. It is really just a medium of exchange and is only legalised for use just because our government says so. During war times, money has no value and really becomes just paper then. But should we spend all our money just because it has no value?

Wiring our brain to spend money in a different way

If you realised, till now I'm still talking about spending money and nothing about saving money. The way to wire our brain to spend money differently is to buy the correct things with our money. When we buy the wrong stuffs such as spending too much on luxuries, the money is gone forever. But if we buy assets such as stocks, properties that can put money into our pockets, then the money grows continuously.

That being said, we can still buy luxuries. But I will use the money generated from the assets I bought to pay for these luxuries. In this case, my money continues to grow while I enjoy the luxuries instead of running into financial problems if I just spend on luxuries without buying assets. I get to enjoy and at the same time I have more money. The rich get richer this way.

Less for More

Philip Ng, the CEO of Far East Organisation in Singapore once said:

“The ironic thing about possession is that you don’t possess the possessions, the possessions possess you.” 

When we chase after material possessions, we end up being possessed by the possessions. This is so true as we often see people who own a lot of possessions are still not satisfied with what they have while those who live simple lives are contented and happy. If we can change our mindset to be grateful for the little things in life, it would be so much better. We may just end up happier each day.

If you find it hard to control your spending and have nothing left at the end of every month, try to take note of your thought process and it could all change for the better.

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