Friday, June 29, 2012

Your relationship with money

Different people have different concepts on financial freedom. Some people define being financial free means not having to work or free from debt. Some people deemed being financial free as doing what you enjoy for a living. Whatever the case is, it is important to define what your relationship with money is. Is your relationship with money based on fear, greed or ignorance? I came to realize that if we do not establish our relationship with money early on in our life, then we will forever have unfinished business with money. Allow me to elaborate.

Most people's relationship with money is based on fear. We are socially conditioned to think that having a job provides us a secure income and that having a job is the only means of bringing food to the table to feed the family. However, ironically, very often we fear of being retrenched by the company during economic downturn. We also fear of being sacked by the company when we reached our fifties and could not find another job to support our families. It is this sense of insecurity that most of us hold on to our job. To overcome this fear and insecurity, there is a need to internalize what your passion and aptitude are. Only if you capitalize on what you are good at and what you like to do, then can you excel in your job and create a niche for yourself. If you are good and always in demand, then you need not worry about being sacked by your company. Even if you are being sacked, if you have niche skills, you can always set up your own business.

Another form of negative relationship with money is greed. If you are obsessed with money, it can become detrimental to many aspects of your life. It can impact the way you look at things and affect your relationships with people. Sometimes, it can affect your health too. I have a few friends working as real estate agents. They worked very hard everyday and pumped in long hours of work so as to secure deals. Its a very competitive and stressful industry. Many of them are single, some are married but without kids and a few ended up as divorcee. Sometimes, in order to close deals, they also compromised their principles and made up truth. Many of them had told me that in order to be successful in this line, you need to be ruthless, hardworking and hungry. I don't envy them because looking at them, I can only see greed. Over the long run, I doubt they can sustain their health if they carry on in this trade.

Lastly, if you are ignorant about making money, there is nothing inherent wrong but you need to take note that it means you will be forever trap in the rat race. That means that you do not invest your money, do not create streams of passive incomes and do not have entrepreneurship spirit. You will probably find it extremely difficult to attain financial freedom if you do not subscribe to the idea of making money work hard for you.

Magically yours

Monday, June 25, 2012

Creating Sources of Passive Incomes

Lately, my wife has been asking me what does passive income mean and how to create our own sources of passive incomes. To most working adults, the concept of passive income can be quite alien or new, especially for those who are not financially educated. This is because most of us were brought up with the conventional thinking that we should study hard and then secure a good job that pays well. There is nothing fundamentally wrong with this traditional thinking but following this route will probably not set you on the path to financial success. In today's context, with so many graduates (local and foreign) flooding the market, you need something special in order to be ahead of the peck.

Coming back to the main topic, passive incomes are sources of incomes which do not require you to actively work or labor in exchange for monetary rewards. Effectively, you are making money even when you are sleeping. Of course there are trade-offs to make. When we are working for a pay check, we are exchanging our labor or time in exchange for monthly salaries. Likewise for passive incomes, we are exchanging intangible commodities in return for monetary rewards. For example, in Singapore, one of the easiest way to make passive income is to sublet empty rooms in your HDB flat. In exchange for the rental fee, you sacrifice your personal space. Another example would be dividend investing. In exchange for principle capital spent on the stocks, you collect dividend every year from the companies.

The beauty of passive income is that it allows you to focus your energy to actively work for your main income and at the same time provides you additional sources of incomes. Some of my readers have lamented that "its easier said than done". To a certain extent I do agree with them. After all, making money is never easy, let alone creating additional sources of incomes. But if you look at a few of my fellow bloggers' postings, a number of them had collected quite a fair bit of dividends from their stock investment portfolio. One of them even claimed he made $17,000 from his dividend for one particular month! I believed they had done much homework researching which stocks to invest and then pump in their hard-earned savings to invest in these stocks. Whatever the case, it has been proven that you can create your own sources of passive incomes if you wanted to. And it doesn't take a financial guru to do so, everyone, including you and me, can create our own sources of passive incomes.

Now you may ask why creating passive income is important. If you put things into perspective, if you don't have passive incomes, then effectively, you would have only one single income from your day job but many outgoing flow of money in the form of expense or bills to worry about. Unless you have very high income from your job or business, then there may be times, when your single income source may not be able to settle the many bills coming your way. When that happens, you have cash-flow problem. Its' okay to have cash-flow every now and then, because I think every one went through that at some points of our lives. But it' not okay if cash-flow is an issue for the long run. If you have cash-flow problems over the long run, then you might have problem saving and making plans for your retirements.

I am not saying that having passive income streams is the magic bullet to your financial freedom. There are many aspects to achieving financial freedom and that having multiple streams of passive incomes is probably one way you might want to consider. To me, there are a few ways to create your own passive incomes:

1) Sublet your HDB flat to collect rental fee
2) Dividend investing
3) Create ebook
4) Create a blog and collect money from ads

If you have any ideas for passive incomes, please feel free to share.

Magically yours

Friday, June 22, 2012

My views on the job market in Singapore

It's that time of the year again when local fresh graduates enter the job market. I still remember the trepidation and fear I had when I graduated 7 years ago.  On one hand, I was pretty excited about having an income, being financially independent from my parents and having my own purchasing power. On the other hand, I was also worried about securing a job that comes with great prospect and good pay.

Many jobs but one career
First, the good news for fresh graduates: in this day and age, it is okay to job hop. The older generation of workers tend to believe in loyalty to company and would not jump ship for higher pay or job title. In today's context, employee loyalty is longer relevant in view of shorter market cycles. Nowadays, companies are quick to retrench workers during downturns, so if you overstay in your company, you might be the next one on the hit list. So it is alright to switch several jobs during the first few years of your job journey. But make sure you gained enough competencies, skills or niche knowledge from each job taken. For fresh graduates, nothing is more important than gaining work experiences. Don't be trapped in your own comfort zone. Jump if there is a need for career progression or pay rise. Remember, you can have many jobs in your job journey but ideally should have only one career. For example, you can be a teacher, head of department, principle, private tutor, etc, but ultimately, its a career in education.

You plan your own destiny
If you belong to the category of workers who believe that your boss or company plays a pivotal role in your career development, I think its time you wake up to the harsh reality. In this highly competitive dog-eat-dog society, it is every man for himself. Your boss would not care a hoot about your career advancement. You plan your own destiny and chart your own development. It's your own responsibility to make sure that there is progression in your job, not your boss.

The issue of foreign talent
In the 80s, the mention of foreign workers conjured up images of highly educated westerners or low skilled bangladesh workers or filippino maids. Nowadays, they are virtually everywhere. You see them in the airport, restaurants, malls, offices, parks, etc. Sometimes it makes you wonder whether Singaporeans had already become minority race in Singapore. Foreign talents compete with us in our very own land for every jobs. Nowadays even PMET are not spared. One of my acquaintances told me that when he made a job posting looking for a designer, he received hundreds of resumes from foreigners but none from Singaporean! I suppose foreigners are more hungrier than us and willing to come to work in Singapore even for a low pay job. In this respect, I hope fresh graduates realise how competitive it is right now with the influx of foreign talents in Singapore. They should remain hungry and grab any offers that comes along the way.

Thursday, June 14, 2012

Difference between miser and smart spender

I always like to browse through some of my fellow blogger's postings. I find many of their postings informative, useful and at times, engaging. In fact, some of their work help to shape my current philosophy on life, personal developments and investments. I am just so glad to have embarked on this learning journey because it just keep making me become a better person.

One of my favorite blogs is Janny Cole's "How to be Rich, Happy and Free from Scams". One unique aspect of her postings is that she covered both United States and Singapore financial tips and news. In her latest posting, I learned something new again and that is the difference between miser and smart spender. I agreed with her wholeheartedly that time is money and that if your hourly income is more than what you would pay for someone to do the household chores, then hiring domestic helper makes perfect financial sense. Working or doing business in Singapore is already so stressful and at the end of a busy tiring day, the time saved on doing household chores can be invested to relax, build bond with family or brainstorm new investing ideas.

I like that part about outsourcing household chores in order to spend time on planning our finances or investment strategies. Most Singaporeans are so engrossed in their daily lives and work that many fail to take time off to reflect on our present financial situation. I am no exception. I am the sole breadwinner and I spent long hours at office. At the end of a long hard day, I have only time for my family. I consider my wife and my baby daughter the greatest pride of my life and they mean everything to me. Going forward, I plan to spend more time with my family and outsource part of the household chores to a part-time domestic helper.

I also calculated that the amount of time saved on outsourcing household chores can be spent on personal development. I hope to attend seminars to sharpen my investment knowledge. Of course, like what Janny pointed out in her blog, any personal development seminars/courses is a good investment provided if you act on what you learned. Going to many seminars or courses will not make you a better person unless you put the things you learned into practice.

I hope you learned something new from this post. Enjoy the journey.

Magically yours

Tuesday, June 12, 2012

What does it mean to achieve financial freedom

In my previous post, one of my readers, CreateWealth8888, commented that my ex-colleague might have achieved financial freedom and therefore resigned from my company without a job. Well, I am not going to dwell on the issue of his resignation reason but I think CreateWealth8888 brought up an interesting topic and that is being financially free in Singapore.

Everyone has his own definition of financial freedom. For me, being financially free in Singapore means you need not work but can still live comfortably without having to worry about the bills. And I think this is an important fact. Most Singaporeans derive their incomes from their jobs or businesses. It is crucial that after we retired, retrenched or resigned from our jobs or businesses, there are financial mechanisms or means in placed to ensure that our quality of lives do not suffer as a result of the lack of mainstream income.

There are a few who became rich overnight after striking lotteries or inheriting assets, but normally this sort of wealth do not last. So essentially, being financially free does not mean you have to be rich. But what you need is to equip yourself with the know-how on how to kick-start your life journey to financial freedom. The reason why I used "journey" is because achieving financial freedom is a continuous learning process that requires you to learn and earn. It is hard-work and requires you to remain curious on different aspects of life. In return, you gain a life-skill that can potentially bring you much intellectual and financial fulfillment.

So what are the key aspects of financial freedom? Well I am still learning the process but perhaps would like to share my thoughts with the readers. The first key element of financial freedom should be having safety nets in place to protect our earning abilities should anything untoward happened to us. That should be the first and foremost thoughts for every Singaporeans. We should have a comprehensive hospitalization plan and term life insurances to cover our health-care needs and to ensure that our loved ones do not suffer as a result of our earning disabilities. The key thing is to be comprehensive for hospitalization plans. In Singapore, the medical bills are very high and so don't be stingy on the premiums. Make sure your hospitalization covers you for both public AND private hospitals. Also, do buy riders to cover the co-insurance and deductible portions. They don't cost much.

2nd aspect of financial freedom is to build your passive income streams. Remember, when you are jobless, income will stop flowing into your pocket but expenses will never stop! You still need to eat and pay your bills. So we need to have passive income streams. That means having money flowing into your pocket without you actively working or laboring hard for the money. You can sleep comfortably over the night and money will still flow in to offset your expenses. So how can we achieve that? There are many simple ways to achieve this, such as subletting your flat to earn rental income or earning royalties through publishing a book.

Lastly, keep building assets such as properties, gold, endowment plans and stocks. Your career is an important asset too. So make sure you invest adequately in courses and keep upgrading your skills and knowledge. This will enhance your earning power and set you well on course to achieving financial freedom.

Magically yours

Monday, June 11, 2012

The peril of quitting without a job

Recently one of my colleagues tendered his resignation letter. I do not know his actual reason for resigning but apparently he was unhappy that he was overlooked for promotion, so I supposed he quit to register his unhappiness. As he resigned in an abrupt manner, I can only postulate that he has not found a new job. He is 40 this year, a bachelor and held only executive positions throughout his career. He does not have management experience nor post-graduate qualifications.

Career suicide
I am no HR expert, but I think my ex-colleague just committed a career suicide. Quitting at the age of 40 is a bad, bad career move. Even though he is single, with no family commitments, given his age, he may not be able to find jobs that pay him similar salary. This is because firstly, his bargaining power during salary negotiation for his new job will be greatly reduced as his prospective employer will know that he has no income. Secondly, quitting without a job will surely not go down well with his prospective employer who may wonder if he has character issues. In this day and age, organizations look for employees who are team player and can fit into their organizational culture. In this respect, I think my ex-colleague will have a hard time justifying his move to his prospective employer during interview. Thirdly, even though unemployment rate is still low in Singapore, finding a job that fits his experience, expected salaries and qualification may not be easy. This is especially so in Singapore where there are just too many foreigners and PRs fighting for similar position. Most of them have similar qualifications and experiences but command lower salaries.

Quit for the right reason
People quit for various reasons. Some quit because of their bosses, some quit because they were unable to fit into the organization, some quit because of the pay. Whatever the reason is, it is important to secure a job first before quitting. Unless of course if you are planning to be an entrepreneur. You do yourself a huge disservice if you resigned without a job. There would surely be a lot of questions asked, not only by prospective employers, but also by family and friends. Most of the time would be spent answering questions by the others rather than focusing on the job search. Morale will be hurt and I suspect my ex-colleague will have problem finding his next job without suffering huge pay cut. I should know because I had similar encounter but albeit, at a much younger age. I resigned from my first job when I was in my mid-twenties. I had worked for the company for one year and just could not take the job stress any more. So I quit without a job. Back then, I was lucky to be able to find another job in two months because I was still young, had a degree and the economy was doing well then. Given my colleague's situation, I don't think he will be so lucky.

I am sharing the above because I do not want my readers to go through similar experience. In life, there are always ups and downs. This is especially so in our careers. We must be able to recover from career setbacks and stand up on our own from the point where we fell. Changing jobs is not a bad thing, in fact if you do it for the right reasons, such as career progression and better pay, it can be beneficial to your career. Remember, we can have many jobs in our life but only one career. But always make sure you move for the right reason. Quitting without a job is just pure flawed career move.

Magically yours

Sunday, June 10, 2012

Investment Insight: Fixed Income Securities

As mentioned in my previous posting, I am sharing my views on fixed income securities, which refers to financial products that offer investors a return in the form of fixed periodic payments (coupon) and the eventual return of principal at maturity. Example of fixed income securities include government bonds and preference shares issued by companies.

Benefits of Investing in Fixed Income
Historically, the returns of stocks and bonds moved in opposite directions at the same time. Investors can reduce their portfolio risk through diversifying their investments on fixed income securities, which offer investors a predictable income stream during times of market volatile. Fixed income securities are very transparent in the sense that investors would know how much interest they can expect to receive, how often they will receive it and when they can get back their principal investment monies. Investors can also check the prices in real-time and the volume information from SGX website and their broker's trading platforms. Fixed income securities also operated like shares and investors can buy and sell them through broker anytime during trading hours.

How does it works?
Issuer borrow principal amount from investors and repay the money at maturity. In exchange, investors receive coupons (interest payments), usually paid in twice-yearly installments. For example, a $1000 bond paying $45 a year as a $45 coupon, or a coupon rate of 4.5%. Investors can also choose to dispose the security for capital appreciation. 

What are the risks?
Like all other investments, fixed income investments is not risk-free. The bond's value will fluctuate with market conditions. For example when interest rate rise, bond prices fall. However, you need to be concerned with market risk only if you decides to sell the bond before maturity date. There is also a possibility that issuer may not be able to meet its obligations in terms of coupon payments or worse still, may not be able to pay the principal amount back to the investor at maturity. This situation is known as default risk and this is what is happening in Europe. Investors also need to consider foreign exchange risk, which may increase or erode investment returns on fixed income security.

Please note that I am not a professional financial consultant and that the above article is not meant to promote fixed income securities as a form of investment. I am just sharing some of my thoughts and research on how we can diversify our investments. Fixed income securities can be consider as part of wealth preservation strategy. I won't say investing in fixed income will make us rich, but it definitely offers a protective shield against the corrosion effects of inflation.

Magically yours

Saturday, June 9, 2012

The correct way to invest your money

In life, besides working hard for money, you have to also ensure money work hard for you. This is especially so in this era of low saving interest rates. Currently the inflation rate is about 4 to 5% in Singapore and the bank saving rates are below 1%. So effectively, your purchasing power is eroded. So how do you go about beating the inflation and make sure that money is not slipping away from the pocket? The key is to invest your money correctly.

When I meant investing, I do not mean that we should immediately  take out all our money from the bank and start investing in various financial instruments. Rather, we should do our homework first before making any moves. Always remember the mantra "Don't be in a hurry to lose away your money". I always believe that there is a systematic approach to investing and that laying a strong foundation is crucial for every investors. We should educate ourselves the way of financial wisdom, preferably at young ages, so as to give ourselves a strong head-start. Remember, the journey of investment is a long one and there are always many new things to learn, no matter how established you are. So, it's essential that we pick up new knowledge along the way.

Friends around me always lamented that investing is equivalent to gambling. I bet to differ. Investing involves taking calculated risk and making tactical move. You can manage the outcome of your investments through analysis and doing homework. For gambling, most of the times, the outcome is beyond your control. For investment, you can reduce risks through diversification across different asset allocations, such as stocks, bonds, gold, ETF, REITs and property investments.

My personal view on beating inflation is to invest a portion of our savings on fixed income assets like preference shares and government bonds. But I also believe in putting aside some money as "Emergency Fund" to cater for unexpected events. I shall share my insights on fixed income investments in the next few postings.

Magically yours

Tuesday, June 5, 2012

Dangerous Investment Advice

One of my readers, Createweath8888, commented in my previous post that in this era of low saving rate, it is wiser to "invest well with most of our saving" instead of putting our money in the bank. Whilst I respect his view, I consider that a reckless financial advice. Simply because investment is never risk free. There is always a risk that you could lose a portion or all of your monies.

All of us must have a certain level of saving, then can we think or talk about investing. Depending on your comfort level, the amount of savings you accumulated can provide crucial safety net in times of crisis. Nowadays, with shorter financial cycles, you never know when retrenchment will strike. If that occurs, how prepared are you? Bear in mind that when you have no job, money will stop flowing into your pocket, but expenses will never stop. In such situation, I bet you would have appreciated that "Cash is King".

It's not that I disencourage investing. In fact, I agreed that we must all learn to invest in order to beat the high inflation rate. But before we jump the gun and pour our hard-earned savings into investment products, we must first build our fundamentals and learn to walk before we try to run. I consider savings as an important building block of our financial asset. Without it, you will not have holding power to ride out the highs and lows of the market.

Magically yours

The magic of compounded savings

Two years ago, when I was wooing my wife, I gave her a plastic piggy bank as an anniversary gift. I noted back then that she had difficulty saving regularly because she needed to repay her student loan and supported her family. So I gave her a piggy bank hoping that she developed the good habit of saving. She was pleasantly surprised to receive the gift and made a commitment to deposit only one dollar coins in it. Subsequently, I also bought one for myself and after we got married, we challenged ourselves who can save more.

Recently, both of us decided to count the number of one dollar coins in our piggy banks as my wife's piggy bank was filled to the brink. Before counting, it was obvious that I had lost as mine was only about one-sixth filled. Nevertheless, we were very excited to know how much she had saved over the last two years. In the end, we counted 2000 one-dollar coins for my wife and for me, its less than $200. Both of us marveled how much she had saved considering that she is now a full-time housewife with no income. When she was working, she don't even manage to save this amount.

I suppose the amount of money that my wife had saved is nothing to shout or brag about. But the moral of the story is that it doesn't matter how much income you earned or how much money you spent that determined the amount of saving you have. Of course it is always a good thing to have high income, but at the end of the day, if you don't make the conscious effort to save, you will not have much savings. Many people thought that having high income and spending frugally can increase savings. But in my opinion, I believe only regular saving can lead to substantial savings. Monthly saving account, which transferred part of your income to a saving account, and piggy banks are good means to start saving.

Magically yours

Saturday, June 2, 2012

Attaining personal financial success in Singapore

Some time ago, I wrote an article, "Three Ways to Become Rich in Singapore". Recently, a reader commented that I made it sound so easy to become rich in Singapore. I think he misunderstood me. Striking it rich is never easy, especially in Singapore's context. After all, if most Singaporeans are willing to toll 16 long years to obtain a tertiary qualification in the hope of securing a good job, what make you think that financial success can be achieved in a couple of years? The hard truth is that the route to wealth is never easy and the ideas which I mentioned in my post, "Three Ways to Become Rich in Singapore", merely explore how we can become rich. It was never my intention to spread the belief that attaining financial success is easy. After all, I am not a self-made millionaire (yet) and making money really requires lots of hard work. In this respect, I think its worthwhile to share a little bit more about my thoughts.

No short-cuts
I belong to Gen-X and believes in hard work and sacrifices to attain success. Nowadays, the new generation of youth think otherwise and many of them believe in quick success with less effort. They were fascinated by success stories of Apple, Google, Facebook etc. But the reality is that the founders of these companies went through much hardship and made lots of sacrifices to reach the present position they are now in. In life, unless you are born with a silver spoon, there are no short cuts to attaining financial success. We must have niche skill and knowledge to exchange for incomes. How much you earn, depends on how competent you are in your area of expertise. That is why in order to earn good income, we must constantly upgrade ourselves, hone our skills and take up courses.

Self awareness
Many people under-estimate the importance of self awareness. Knowing your strength and weakness can be critical in your career or entrepreneurship. If you are able to play to your strength and choose a job or business that suits your character and aptitude, then you will enjoy what you are doing. If you have the passion in what you are doing, over time, money will come and look for you, But if you choose a job which you absolutely hated and had no interest in, then you would not go far.  For example if you are an introvert, being a real estate agent would probably not be suitable for you. Sure, the money is good but if you don't enjoy presentation and meeting clients, then success will definitely allude you.

Lastly, if you have a clear direction on what you want to be, persevere and work hard. Don't be too focus on the money. Instead, focus on your competency, skill and knowledge. Money will automatically come to you once you have the results.

Magically yours