Sunday, 26 April 2015

From Third World to First

This is a tribute to Mr Lee Kuan Yew from the perspective of a financial blogger. The more formal tribute can be found here

Mr Lee has often been lauded for bring Singapore from Third World to First World in one generation. In the process, he has also received a fair share of criticism for his actions. In a way, many of us in Generation X and older are also trying to do the same, striving to bring our own families from Third World to First World in one generation. I grew up in an era when we do not own our roof. We had to move from places to places every few years, hence, I often had to travel long distances to school. My daily pocket money during primary school days was a mere $0.30! And putting a son through 4 years of university education was a not-insignificant strain on the family finances.

When I graduated, things were better. We could consider ourselves in the Second World by then. We owned our own roof, thus bringing much needed stability. I could, in theory, own a car with my new-found job. But knowing that there were only 40 years to build up a nest-egg before retirement starts, I had to save. I am sure many like-minded financial bloggers would understand when I say it is a fairly single-minded, no-nonsense mission to build up a comfortable cushion for our families during good and bad times. 

We keep track of our daily expenses and cut out any unnecessary expenses. We save and invest for the future. We have a keen eye for details when it comes to extracting maximum value-for-money, including deciding where to eat, what to wear, which credit cards to use, etc. I would imagine for those bloggers with wife and children, they would subconsciously influence them to do the same, occasionally earning an authoritarian label from them ;) Sometimes, our family members would advise us to spend a portion of our reserves and live better now that the finances are better, but old habits simply die hard. We are generally not generous folks that contribute much to social safety nets, at least not when there are still external risks to be managed. As we grow older, we would scan for external risks that could deal a hard blow to our finances, such as rising medical costs if our loved ones were to get sick or high housing prices if we had to buy one. We do not always have a solution to these worries, except to keep on saving for rainy days, knowing that nobody owes us a living. We keep our worries to ourselves, because there are no added benefits in having more people worried about them. Very often, the people around us do not understand what we do, but it does not really bother us, so long as we achieve what we set out to do. And finally, when the job is done and it is time for us to say bye-bye to this world, we would like to leave in the quietest manner possible, because that is the way we have lived our lives.

From Third World to First World in one generation. Whether it is building up a nation or a family, it requires sacrifices and hard decisions. Not everyone will understand at that moment in time, especially when you are at the receiving end of it. But let's hope that one day when we look back, as we enjoy the fruits of many years of labour, we can appreciate and understand the intention behind those actions.

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Sunday, 19 April 2015

Retiring at 40

Most people hope to retire before the age of 40. I just reached my 40th birthday 2 months ago, but no, I did not retire before that day. The idea of retiring before 40 does not sit well with me. Even when I am on vacation leave, I would try to fill up the day with some activities so that I would not feel the day is wasted. Hence, the thought of having to think about what to do everyday for the next 40 years really shudders me. In fact, I am actually thinking of working beyond the retirement age of 65 to keep myself occupied!

If you have been following the Tree of Prosperity blog written by Christopher Ng, you would know that he succeeded in retiring before 40. He is actually my senior in secondary school, junior college, university and post-graduate studies. Compared to him, I knew that I was not ready to retire before 40. He has been growing his dividend income steadily, and has written not 1, but 3 books on that topic! As for me, I am new to dividend investing, preferring to fish for multi-baggers and occasionally ending up with salted fishes. He has settled down with a family while I do not yet know the financial demands of a family with kids. So, really, retirement before 40 is out for me even if I had wanted it.  

By right, the story should have ended here, if not for the fact that it is the 40th birthday. The 40th birthday is a funny milestone. It represents the mid-point of your life. You could also divide 40 by 2 and look back at the time when you were 20, when you were just stepping out into the world, to see if you had made the right decisions then. You could also look forward to see if you wish to continue your life the way it is now. 

As I think deeper on the topic, I realised that retirement is not about leaving the workforce and enjoying life. True, you might relish the luxury of waking up later in the day and spending time doing things that you really want to do but could not find the time to do while you were still working. You might even go on a round-the-world tour with your family. But how many times could you tour the world? Even the best things in life could get boring if they are repeated too many times. So, what do you do after you finish touring the world 5 times over? 

You get back to an "occupation", something that will soak up your time. But there is a difference between the work that you do before 40 and the occupation that you have after 40. Before 40, work is a "chore". Something that you need to do to put meals on the dining table. The work that we do sometimes might not be what we really want to do. It could be because we did not know what we wanted to do when we were 20, or it could be the circumstances that forced us to take the jobs available to us then. After 40, if you have attained financial freedom, occupation is a "choice". Something that you do, not because you need to bring the bacon home, but to fulfil the purpose in your life. It could be something that you are deeply passionate about, such as a hobby or a charitable cause. It is the sort of things that will form your legacy. For example, your legacy could not possibly be "I worked at XXX company, helping to grow sales by 20 times over 20 years!". Instead, your legacy could be "I wrote a blog that helps to promote financial literacy" or something bigger. So, when I heard that Christopher is studying for a law degree, I did not think that he is coming out of retirement because he has "no choice". On the contrary, I think he is pursuing his retirement fully. 

It is interesting to note that Christopher and I could not have been more different in actions. At one end, he has retired before 40 while at the other end, I am thinking of working beyond 65. Yet, both of us reached essentially the same conclusion on what retiring at 40 means.

P.S. Special thanks to Christopher for allowing me to discuss our views on this topic.

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Sunday, 12 April 2015

How Many Months Do You Have to Work This Year?

Beginning this year, I switched to an Android phone and had to use a new app to record my expenses. The beauty of this new app is that it allows me to enter scheduled expenses ahead of time. Thus, by the first day of the year, I was already down by $5,000 (not counting those variable or unknown monthly expenses such as utilities and taxes). This reminded me of an exercise that I carried out once a while -- to figure out how many months do I have to work to cover all my expenses and financial commitments for the year. For this year, I would have to work for 8.6 months, or more precisely, 8 months and 18 days. Hence, I will have to work until 18 Sep to cover all my expenses and financial commitments for the year.

What is the use of this exercise? Well, firstly, I will look forward to 18 Sep, because from 18 Sep onwards, all the salary earned will be for me to keep. It is quite liberating to know that you only work for yourself after this date. Secondly, I will see what I could do to bring forward the date. That means either increasing my income or reducing my expenses, the latter being easier to do than the former. Thus, if I wish to indulge on myself, it will also mean that I will have to work a few more hours or days. It is quite an effective tool to keep me from spending more than I need.

If you too wish to engage in this mental exercise, there are a few things to take note of. Firstly, you might receive bonuses in the course of the year. Ignore these bonuses in this calculation. Bonuses should be, like their name suggests, a bonus to us. Imagine if you need to rely on those bonuses to cover all the expenses, that would be quite frightening, isn't it? What would happen if the bonuses do not materialise? 

Secondly, you might also have other income streams, such as dividends and rental income. It is a personal preference as to whether you should include such income streams in your income. The advantage of including these is that you can see the tangible benefits of investing. As your dividends grow, the no. of months you need to work will correspondingly reduce, keeping all other things constant. The year when your dividends are more than sufficient to cover all your expenses will be the year you can retire. That will provide great motivation to keep on investing. For me, I prefer to exclude dividends. It is a more conservative approach, matching operating income to operating expenses. Like bonuses, dividends are extras, which make them sweeter. Moreover, it is quite difficult to forecast the amount of dividends you will receive in the year. 

Thirdly, you might also have income and expenses outside the cash account, such as CPF contributions and mortage repayment. So long as the contributions are adequate to cover the mortage repayment and no cash payment is required, it is OK to leave them out of the equation. 

So, perhaps the next time somebody asks me whom do I work for, I could tell him I work for the banks ;)

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Monday, 6 April 2015

About Blogging and Investing

This is Post No. 104, which makes it 2 years' worth of blog posts for this weekly blog. I hope readers will forgive me if I blog about other things during this time every year.

Blogging has never been easy for me, despite this being a weekly blog. By Thursday of every week, I would have to think about what to blog for the weekend and after I have found a idea, I would have to think about the content and organise them to form a coherent post. Occasionally, I would also need to carry out some research to check the facts. There have been a few occasions where the facts did not match the hypothesis and I had to discard the idea and find a new one. Even when I start to write the post, the thoughts do not always flow smoothly. I have to review and re-write. It is often a 2 steps forward, 1 step backward process. When I have finally completed the post, I would read and re-read, to check whether the facts are correct and see if the sentences could be written in a clearer way. The process of writing the post easily takes 2 to 3 hours. So, if I am late in my weekly blog posts, that is usually what happens. 

Despite the hard work, blogging in itself is satisfying, knowing that I could share knowledge with other fellow investors in Singapore. If not, I could never have persevered till today. Not only that, I have found a group of like-minded bloggers and readers who appreciate my posts. I would like to take this occasion to thank them for their continuous support during these 2 years. 

Besides the inherent satisfaction of blogging, I also like to keep track of the pageview count on my blog after writing a new post. It is just like a film director who not only wishes that his film is good but also popular. A high pageview count would delight me, while a low pageview count would leave me a little discouraged. Every week, I would write a post, hoping that the pageview count would increase. Sometimes, I would think that a particular blog post was well-written and could attract many views, but it turned out to be disappointing. Sometimes, I see the pageview count of other bloggers numbering into the million and wonder when could I ever come close to it. Sometimes, I see new bloggers coming onto the scene and their pageview counts quickly exceed mine in a short space of time.

In a way, the pageview count is like the wealth we are trying to accumulate. Every week and every month, we would invest our savings to increase our wealth. Sometimes, we would think that we have made a good investment and deserve large returns, only to see it fall short of expectations. Sometimes, we see millionaires living in private condominiums and driving large cars and wonder when would it be our turn. Sometimes, we see people younger than us making more money than us. 

That is Life. As a "young" blogger, I can understand your frustrations. You often hear that you can get rich by working hard, spending wisely and investing your income, but you hardly see any results despite 2-3 years of living frugally. You saw everything that I mentioned above and wondered if it is still worth the efforts and whether you are on the right path. As an "old" investor, I can assure you that you are on your way to achieving your goals. Every step you take today might not seem significant today, but every step is one step closer to your goals. When you have reached your goals and you look back, I believe you would not want to have it in any other ways. If it was too easy, you would have lost interest and not appreciate what you have achieved. So, take heart and march on. Just like if this blog post is not popular, write the next one!

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